The Panic of 1907, 2nd Edition

Chapter 5Copper King

There is little doubt that this week’s episode in United Copper shares on the New York curb will go into Stock Exchange history as one of the most absurd pieces of speculative jugglery ever attempted.

—Wall Street Journal, October 19, 1907

Capital market conditions in the fall of 1907 presaged a financial storm. Volatile and falling asset prices, battered financial markets, interest rate gyrations, illiquidity, investigations, litigation, and the regulations and pronouncements of an activist U.S. president were certainly enough to strain investor confidence and vex the fortitude of owners and managers. Yet even though there had been a “silent crash” of the stock market in March, the onset of a recession in May, a credit crunch that prompted distressed financings of New York City, the bankruptcy of the New York street railways, and financial panics in Egypt, Japan, and Italy, the U.S. markets and institutions had so far in 1907 proved stable in the face of bad news.

But at the confluence of a system of thousands of small banks, weak and decentralized bank regulations, financial manipulations by bank managers and directors, and pyramid‐like interdependence among banks, there appeared an individual whose actions would inadvertently expose the weaknesses of the financial system. A Brooklyn‐born copper mining magnate with the audacity to challenge the most powerful financial interests in the world would provide the spark for a panic. This man’s “speculative ...