Top 10 Worst Financial Crisis in U.S. History

Suggested by SMS

recession

Your 401(k) is in the crapper, and you are on the window ledge. Well, you can try comfort yourself (if only a little) by remembering that the United States has been through tough times before (often with familiar themes) and has survived…although this current crisis has the potential to dwarf nearly all of them.

10. The Oil Crisis of 1973


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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


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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)


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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


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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


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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


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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


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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


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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


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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


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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.

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