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Quote of the Day

“Saturday morning I went to New York to attend matters of the house. The scene at the corner of wall and Nassau streets I shall never forget. For squares in every direction streets were a solid mass of black cats, and surging back and forth, while men gesticulated, shouted and rushed to and fro. The doors of Fisk and Hatch, E. D. Randolph and Company and Jay Cooke and Company, “all in a row” on Nassau Street, were closed, and curious crowds were coming and going and gazing at the doors and windows. A run was in progress on the fourth national Bank, across the way from Fisk and Hatch, and this redoubled the excitement. Long rows of anxious men, with checks in their hands, waited impatiently for their turns to come, and scores of panicky depositors constantly swelled the column. At noon all confidence in everything seemed gone, and six banks in 18 firms had gone up, and the clearinghouse and stock exchange finally shut up shop for the day and advised everybody to go home till Monday.”

– Letter from Alvred Nettleton, a manager at the office of bond powerhouse Jay Cooke and Company. Dated September 18th, 1873. Source: Eyewitness to Wall Street

What Nettleton was describing would become the Panic of 1873, the worst financial panic in the country’s history at the time. For more on the panic, see below:

September 18th – This Day in Stock Market History

September 18th, 1873Jay Cooke & Company (The financial institution that helped finance the union in the civil war) would announce its bankruptcy.

The announcement would lead to bank runs and a major sell off in railroad equities. The resulting panic would eventually close the New York Stock Market on September 20th, 1873 and would last for 10 days.

As the crisis continued to unfold, newspapers would begin to refer to this day as “Black Thursday”.

It would take the economy more than 6 years to recover from the panic, a period that would become known at the time as the “Great Depression” (after 1930, it would become known as the “Long Depression”).

Jay Cooke & Co. became over extended lending to North Pacific Railway to build a second transcontinental rail line. Several other banks were facing trouble during this time, but Jay Cooke & Co was the largest. When the bank failed, investors feared that anyone could be next.

The resulting panic would cause runs at hundreds of banks and many brokerage houses as well. In total, the panic would cause more than 100 banks to close.

Source: Panic on Wall Street: A History of America’s Financial Disasters

panic_of_1873_bank_run

The financial crisis that kicked off in September 1873 would become one of the worst the U.S. had experienced up until that time. Much of the nation’s economy did not recover for nearly 6 years. Over the course of the panic, nearly 4,000 banks would fail, 115+ railroads would go bankrupt and over 18,000 businesses would shut down before the economy improved. For this reason the period would be referred to as the “Great Depression” until the early 1930’s.

The panic would see Philadelphia’s dominance in finance end, ceding much of its future business to Wall Street in New York.  The panic would also ruin many of America’s prominent bankers of the day, helping to clear the way for new bankers like J.P Morgan to rise to power.

September 18th, 2008 – As financial crisis worsens (Lehman Brothers had declared bankruptcy September 15th) Ben Bernanke is quoted saying “We may not have an economy on Monday”

Although the stock market would continue to drop for several months, this period during the Panic of 2008 was arguably the scariest for many investors.

Source:  Adaptive Markets: Financial Evolution at the Speed of Thought

Also on this day in 2008, SEC initiates a short selling ban in an attempt to halt the decline in the stock market.

short_selling_ban_9-18

Source: SEC

The Dow Jones Industrial Average would rise 1,000 points from the low on September 18th to high on September 19th. However, the gain would be very short lived.

Over the next 6 months the U.S. stock market would fall nearly 40%:

sp500_2008_decline_after_lehman_bankruptcy

Best September 18th in Dow Jones Industrial Average History

2008 – Up 3.86%, 410.03 points.

Worst September 18th in Dow Jones Industrial Average History

1931 – Down 5.49%, 6.68 points.

Read of the Day

Want to become a better investor? Charlie Munger once said:

“Business Schools fail by teaching what is easy to teach but less useful. Going back to teaching business history as Harvard used to would be good; there’s a lot to be learned from the rise and fall of GM, or the rise and fall of railroads.”

1873 was one of those periods of railroad failures. In fact, Jay Cooke and Company failed because of the problems with constructing the Northern Pacific Railroad. The story is detailed in a wonderful historical novel, Jay Cooke’s Gamble: The Northern Pacific Railroad, the Sioux, and the Panic of 1873

<– Go To Previous Day: September 17th, 2001 – Stocks trade again for the first time since the 9/11 terrorist attacks.

Go to Next Day: September 19th, 1720 – A run begins on Sword Blade Bank, official banker of the South Sea Company, as the South Sea Bubble finally pops. –>