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Here We Go Again: 4 of the Worst U.S. Financial Crises

Some economic observers claim that financial downturns in the U.S. happen in cycles — about every seven years. If that’s true, we’re past due for the next one. Whether that’s the case or not, there have been several downturns in our history. The following are four of the most significant economic slides in U.S. history.

Financial Panic of 1873

The Panic of 1873 was brought on primarily by high-risk investments into the railroad-building business. U.S. banking giant Jay Cooke & Company had invested heavily in the railroads, and when they started having problems, Jay Cooke went bankrupt. Customers panicked when they saw such a large bank fail, causing many to withdraw their money. The panic spread across the country and more than 100 banks went through bankruptcy. The crisis was so severe that Wall Street closed down for 10 days.

The resulting financial depression lasted until 1877. Interestingly, the crisis was dubbed the “Great Depression” — a name that stuck only until 1929, when the stock market crashed, and the subsequent depression earned the title of the Great Depression.

The Great Depression

October 29, 1929. Today we know it as Black Tuesday. This is the day the stock market crashed and started the Great Depression of the 1930s, and record unemployment — as high as 25% in some areas.

While President Herbert Hoover is often blamed for the Great Depression, Franklin Roosevelt is usually credited with bringing it to an end. Roosevelt’s New Deal was a group of public works projects, financial reforms, and other programs that forever changed the relationship between Americans and the U.S. government. Legislation now requires the federal government to involve itself in caring for the needy and regulating the nation’s economy.

The 1999–2000 dot-com bubble

The dot-com bubble or “internet bubble” began developing in 1991 when mania over the World Wide Web led to massive over-investment in dot-com companies and IT infrastructure. It was primarily the result of uncertainty regarding how to value new companies built around the new technology.

Start-up dot-coms were focused on growth and were spending huge amounts of money on marketing without seeing any profits. Record amounts of capital began flowing into the stock market in 1997, and by 1999, 39% percent of all venture capital investments were going to dot-com companies.

This exuberance caused the NASDAQ index to rise fivefold between 1995 and 2000, and then tumble by 76% in 2002. It took 15 years for NASDAQ to regain its dot-com peak in 2017.

The 2008 Great Recession

The Great Recession is considered the largest and longest period of economic downturn since the Great Depression of the 1930s. The housing boom of the early 2000s caused mortgage lenders to be more lenient in the types of loans they approved. Eventually, the market collapsed, causing an increase in home foreclosures and resulted in millions of people losing their homes, their jobs, and their life savings.

In response to the Great Recession, federal authorities put in place unprecedented fiscal and regulatory policies that led to subsequent recovery. One of the most significant was the Dodd-Frank Act, enacted in 2010 by President Barack Obama. The Dodd-Frank Act gave the federal government control of failing financial institutions and the ability to establish consumer protections against predatory lending.

Financial crises have been common since our nation’s birth. They have wreaked havoc on economies in the U.S. and around the globe. Unfortunately, we have undoubtedly not seen the last of them, but hopefully, we’ve learned some lessons in how to deal with them to lessen their length and severity.

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