Rocky Start

We turn now to some unusual events, which are laid on top of the general economic backdrop. The first is the disastrous San Francisco Earthquake of 1906. The loss of property and lives is twice that of the Great Chicago Fire.

The cost of rebuilding adds to existing financial stress, sending the economy into a two-year recession. There are many contributing factors, including a big Wall Street deal gone bad, and financial complications in London.

The Stock Market drops in 1907, triggering a panic that takes down many banks. Congress responds by creating the National Reserve banking system in 1913, to act as a kind of national bank, and help fend off future panics.


	Economic Body Blow The Great San Francisco Earthquake is the worst financial and humanitarian catastrophe since the Civil War. Three-quarters of San Francisco residents are suddenly homeless. Like Chicago, however, San Francisco bounces right back. Just a year later, New York manages to stave off panic with the help of America's leading industrial financier, J.P. Morgan.



	Catastrophic Destruction These views give some idea of the extent of destruction during the San Francisco earthquake.


	Dodging a Bullet The Panic of 1907 is similar to previous panics (in 1893, 1873, 1857 and 1837) in that large numbers of banks and businesses fail. It's different in that New York now has a financial elite with enough resources to halt the breakdown. As a result, the panic is much shorter than previous episodes. Still, it shows that fluctuating business conditions can unexpectedly erupt into crisis at any time. Beyond that, it highlights the need for a national bank big enough to provide financial relief, should smaller regional banks falter.