Top 10 Worst Financial Crisis in U.S. History
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10. The Oil Crisis of 1973
Gas lines. Really long gas lines. In October 1973, the members of the Organization of Arab Petroleum Exporting Countries, or OAPEC (consisting of the Arab members of OPEC plus Egypt and Syria) proclaimed an oil embargo “in response to the U.S. decision to re-supply the Israeli military during the Yom Kippur war.” Essentially, OAPEC declared it would no longer ship oil to the United States if they supported Israel in the conflict. Independently, the OPEC members agreed to use their leverage over the world price-setting mechanism for oil in order to stabilize their real incomes by raising world oil prices. This action followed several years of steep income declines after the end of the Bretton Woods (which took the U.S dollar off of the gold standard, ending up devaluing the dollar worldwide), as well as the failure of negotiations with the “Seven Sisters” (the seven biggest oil companies) earlier in the month. Without question, the “oil shock” of 1973 showed the potential power of Third World energy suppliers in dealing with the “developed world,” and made the Middle East an area of primary world focus that remains to this day.
9. Panic of 1837
This is the first “Panic” on the list, but certainly not the last. These “Panics” are named after the first year each started; for this one, it began in 1837 when every bank stopped payment in gold and silver coinage (after a run on the banks due to the closure of the Second Bank of the United States). What made this one so frustrating was just two years earlier, the government was able to pay off the national debt (the Treasury’s coffers were stuffed from government sales of land in the West). The Panic of 1837 was followed by a five-year depression, and included a large number of bank failures, the bursting of a real estate bubble (sound familiar?), and record-high unemployment levels.
8. Kennedy Slide (1962)
When President John Kennedy took office in January 1961, the stock market had been on a steady rise that began in the late 1940s. In fact, many spoke of the “soaring Sixties,” believing that the bull market would last. It didn’t. The bear market that began in December 1961 caused a 22.5% drop in the S&P 500 by June 1962. The name “Kennedy Slide” comes from the fact that many blame this bear market on Kennedy’s domestic difficulties in getting legislation through Congress, as well as his foreign policy difficulties (read: Bay of Pigs).
7. 2001-2002 Recession
In 1999, the growing use of high-speed internet by individuals and businesses meant that if you had “dot com” at the end of your business name, you didn’t need no stinkin’ business plan. Get a catchy name and the venture capital would follow, and you’d make a ton of money on the IPO. That was, of course, until potential investors started demanding silly things like actual business models. Beginning in March 2000, the stock market began wising up, and the “dot com bubble” fully burst in 2001. Ultimately, this wiped out a whopping $5 trillion in market value of technology companies from March 2000 to October 2002. What made this recession go deeper were the massive layoffs and “jobless recovery” in the time after the attacks of September 11, 2001. What stopped it? The dropping interest rates and freely available credit that fueled the housing bubble of the 2000s – see number 2 on this list.
6. Panic of 1819
Our second “Panic” of the list, this was the first major financial crisis faced by the United States (although the previously-mentioned Panic of 1837 was the first actual financial depression, technically speaking), and marked the end of the economic expansion that had followed the War of 1812. There are different schools of thought as to what caused this Panic. Some say it was simply the first “boom and bust” cycle experienced by a young country, and was inevitable. Others refuse that explanation, taking the position that it was a combination of inflation and public debt (from the War of 1812 and the Louisiana Purchase). No matter which school is right, one thing was for sure – whatever caused it made a gigantic mess. Banks throughout the United States failed; scores of home mortgages were foreclosed and property values dropped. In addition, the falling commodity prices severely hurt agriculture and manufacturing, which had the effect of triggering widespread unemployment, which rose as high as 75% in some parts of the East Coast (to put this one statistic in perspective, the Great Depression’s peak unemployment rate was about 25%). The country did not recover from this one until 1824.
5. Panic of 1873
Sometimes called the “Crisis of the Gilded Age,” this Panic had much of its start in Europe, where cheap mortgages spurred a residential real estate bubble (what is it with these recurrent real estate bubbles??) that, as with all bubble bursts, did not end well. When the bubble did burst, bankers in London tightened their credit terms, which triggered a financial crisis in the United States. The European credit tightening meant trouble for U.S. banks, which were already overextended because of the many speculative loans that had been made to railroads and railroad-related real estate. As a result, more than 10,000 businesses failed, and the U.S. endured a three-year financial depression.
4. The Bankers’ Panic of 1907
The Bankers’ Panic of 1907 (also known as the “Knickerbocker Trust Panic”) began with the lack of regulation that culminated a severe Wall Street crash. A loss of confidence among bank depositers , combined with the retraction of market liquidity by a number of New York City banks, ended up resulting in a 50 percent drop in the stock market from where it had been in 1906. To put the effect of this one in perspective, just remember that this Panic was the reason that the Federal Reserve and the modern system of financial regulations were created. Some would argue that, 100 years later, we did not learn from the lack of regulation of financial markets and “creative” financing vehicles.
3. Panic of 1893
This Panic was the worst economic crisis in American history to that point (and you’ve seen all the previous Panics listed already, so this is really saying something). Some argue that this was just a continuation of the Panic of 1873 (with the era being known as the “Long Depression”). However you look at it, there is no question that the 1880s had been a period of significant economic expansion, but it was driven heavily by speculative investment in railroads. In a nutshell, an ever-growing credit shortage created panic, which resulted in a depression. The result? 15,000 businesses, 600 banks, and 74 railroads failed. In addition, there were incredibly high levels of unemployment.
2. Mortgage Crisis of 2007
I think we’re all pretty familiar with this one, so let’s not over-discuss it just yet. It would be nice if this current crisis were not so high on the list. Let’s just hope it stays at number 2, eh?
1. Crash of 1929/Great Depression
This is the granddaddy of them all – the one that sent the entire world into financial crisis. The stock market crash of 1929 had several causes: an unbalanced world economy, European nations that were staggering under tremendous burdens of debts and taxes, and a speculation boom in the late 1920s that moved the prices of corporate stocks to levels ridiculously far above the real values. At the height of the Great Depression in 1933, 24.9% of the U.S. workforce (a total of 11,385,000 people), were unemployed. Moreover, even though farmers were not technically “unemployed,” the extreme drops in farm commodity prices resulted in farmers losing their farms and homes to foreclosure. Despite the efforts of the federal government through the New Deal, it wasn’t until World War II that the U.S. finally pulled out of this one. Many are comparing the current crisis to the Great Depression, but others say that we are nowhere near the troublesome Depression levels (such as unemployment). However, it can be noted that the 1929 Crash was preceded by the bursting of real estate bubbles in Florida and Southern California. You can draw your own conclusions.
I teach economics at Houston Community College. Today I just saw a lecture by Brian Domitrovic, a Harvard-trained historian & economist who teaches at Sam Houston University in Huntsville, TX. Domitrovic says that the worst crises in US history all came after the creation of the Fed, and were caused by 1. poor money supply control & 2. high taxes. He rates them 1. Depression; 2. 1973 crisis; 3. 1916-1919 panic; 4. Great Recession of 2008-9. He elaborates on this in his book Econoclasts, just out. I don't agree with him, but then I'm not an expert in economc crises — do you have a refutation of this theory? On what technical criteria do you base the above list?
I wouldn't rank crises by the size of their immediate impact but on the severity their medium term consequences. When looking at a century of performances of the stock market, 3 patterns appear – difficult to say in which order, all of them are big:
- 1929 followed by WW2
- Oil shock in the 70s
- 2000 to now
I purposedly put the krach of the Nasdaq in March 2000 in the same package as the recent 2007-08 mortgage & credit crisis. After the "fantastic 90s" (despite 97-98 asian-russian crisis), investors got the big wake-up shock in March 2000 (9/11 was a geopolitical crisis, not an economic one). From then on, they've been blowing bubbles one after the other, first by uilding LBOs, then over-rated subprime structured products, ending into the credit crunch we know.
I'm not historian either and cannot compare those with crises before that of 29. The beginning of the 20th century wasn't very calm either…
Interestingly enough was the fact that, in all cases, over-regulation prevented from getting out of the crisis. The path out always came by some type of deregulation. Credit easing in the 40s, abandon of gold/dollar parity in the 70s, quantitative easing in 2008 and the practical give up of Maastricht constraints in Europe.
According to the National Bureau of Economic Research, which is the institution that dates rececessions, recessions prior to the New Deal were on average signficantly longer than in the post war period. Prior to 1919, they were twice as long generally.
http://www.nber.org/cycles/cyclesmain.html
The longest recession ever started in 1873.
And no, recessions shouldn't be rated just on their immediate impact but also their length and how much pain they caused over that period. They also shouldn't be rated solely on their impact on the stock market.
[...] Perhaps coupled with other fiancial crises maybe. Top 10 worst financial crises in U.S. History Top 10 Worst Financial Crisis in U.S. History Gas lines. Really long gas lines. In October 1973, the members of the Organization of Arab [...]
Hello. I believe the word Crisis in the titles should be in the plural: Crises, since you’re talking about ten of them. Thanks.
My two Billion dollar’s worth (two cent’s worth at 2011 prices). I lived through the OPEC embargo of 1973 when gas went from $0.15 a gallon to almost $1.00 over night and that wasn’t a ‘Panic’. I remember my parents taking us over the bay bridge and my dad saying ‘This ain’t no oil shortage; the oil companies are in cahoots with the Arabs. I PERSONALLY counted 200 tankers sitting 2 miles out of the bay—it looked like the Normandy Invasion!!! There was no sence of Panic, more like rage!!!
I also lived through the dot.com crash of Y2K and the average Joe didn’t feel it either. For me, The Panic of 2008 dwarfs that of the depression—you didnt have the car companies going under or virtually everyone underwater in their morgage payments (Stockton, CA anyone?) in 1929-39. My grandmother lived through the Panic of 1907 and she described it as armegeddon—even TR felt helpless. She described that as the closest the US went under and she lived through the 30′s.
My Grandparents lived through the 1907, 1929, and 1937 Depressions. My Father was Ten in 1907, and my Mother was born in 1907, and they both survived 1929, 1937, and 1962. I was born in 1948, and survived 1962, 1973, 2001-2002 and 2007-Present. My point is that this cycle seems to be part of the American business cycle, and we will never be free of Crises. The problem this time is that we are so busy pointing fingers that it will be a very long time before we get down to fixing this one.
Just wanted to express my gratitude to everyone for your very valuable input.
I bumped into this page while searching for some info on how the 1962 crisis was portrayed in the media.
It seems that almost every major crises is portrayed as doomsday and newspapers just love to refer to 1929.
It so happened in 2007/08 ( “Bernanke pale, we could face another 1929″),
and I am too young to remember what media said in 1987 or in 1973.
Personally, I don’t think any of these crises can compare to 1929 at all.
For example,J.P. Getty writes in one of his books that U.S. industry was operating at well below 50% of the maximum levels, wages paid out in 1932 were 60% less than in 1929.
Dividends paid by companies still able to pay were 57% less.
In other words,don’t trust the media.
An investor or an entrepreneur must be in a position to make his own sound judgment about the magnitude of a depression.
Greetings from Hong Kong and
Thanks for reading!
I really believe this article is very much detailed .
[...] Akorra.com lists the Top 10 Worst Financial Crisis in U.S. History starting with the Crash of 1929/Great Depression; our current and continuing Mortgage Crisis of 2007; the Panic of 1893; The Banker’s Panic of 1907; the Panic of 1873; the Panic of 1819; the 2001-2002 Recession (known as the dotcom bubble that wiped out $5 trillion in market value of technology companies); the Kennedy Slide in 1962 which caused a 22.5% drop in the S&P 500; the Panic of 1837, and The Oil Crises of 1973. [...]
[...] Source 2 [...]
[…] which they occur. For example, the economic crisis’s that the U.S. encounters are not new and occur throughout our history. There are timelines for how a nation, religion, culture or even medicine have […]
[…] Argh! The Stock Market has crashed yet again! Would some one please fix it so it will stop doing that? I mean really — how am I supposed to get that 45% annual return that I need to actual retire when I’m at retirement age if the global financial market keeps pulling these kinds of shenanigans? And it’s not like its the first time, either. No, there are plenty of other examples of this kind of thing going on. […]