![]() The Dow Jones Industrial Average dropped 25% in those days in an event known as Black Tuesday. Stock prices dropped first on the 24th, briefly rallied - and then went into free fall on October 28-29. Finally, catching on to the overheated situation, seasoned investors began cashing out. Overproduction in factories and a Roaring 20s giddiness led consumers to take on too much debt and believe financial instruments would climb perpetually higher. What happened: For nearly a decade, the stock market had kept rising in a speculative spiral. Realizing how economically significant the stock market had become, however, the US government created the Federal Reserve System to formulate monetary policy and provide emergency funds in crises. Morgan put together a rescue package that finally restored order on the exchanges. What resulted: "We learned that when more than one financial institution is in trouble,someone must inject liquidity" into the system, says Carola Frydman, a finance professor at Kellogg School of Management at Northwestern University. Businesses couldn't get bank loans, causing them to fail. The damage: Some banks and stock brokerages failed, and many top executives at surviving financial institutions either resigned or were fired. ![]() Public confidence in banks fell and depositors rushed to withdraw their money, causing ruinous runs. UCC went bust under the weight of speculation, and then other firms followed: Stocks lost 15% to 20% of their value. What happened: A group of investors borrowed money from banks to finance an effort to corner shares of United Copper Company. The economic damage caused by the 1907 Panic led to the founding of the Federal Reserve, and more government oversight of the financial markets. ![]()
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