Ohio Life went bankrupt because of fraudulent activities by the company's management, which threatened to precipitate the failure of other Ohio banks or, even worse, to create a run on the banks. The company, an Ohio-based bank with a second main office in New York City, had large mortgage holdings and was the liaison to other Ohio investment banks. On the morning of August 24, 1857, the president of Ohio Life Insurance and Trust Company announced that its New York branch had suspended payments. Failure of Ohio Life Insurance and Trust Company Wolfe and Company, the oldest flour and grain company in New York City, failed, shaking investor confidence and beginning a slow selling-off in the market that continued into late August. In July 1857, railroad stock values peaked. In the meantime, the Dred Scott decision lent uncertainty to railroads in general. Prices of railroad stocks as a whole began to experience a stock bubble, and railroad stocks saw increasingly-speculative entries into the fray, worsening the bubble. Many of the companies never made it past the stage of a paper railroad and never owned the physical assets necessary to run a real one. The large influx of people made the railroads a profitable industry, and the banks began to provide railroad companies with large loans. īefore 1857, the railroad industry had been booming due to large migrations of people to the west, especially to Kansas. The western territories north of the Missouri Compromise line were now opened to the expansion of slavery, which would obviously have drastic financial and political effects: "Kansas land warrants and western railroad securities' prices declined slightly just after the Dred Scott decision in early March." This fluctuation in railroad securities proved "that political news about future territories called the tune in the land and railroad securities markets".
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Soon after the decision, "the political struggle between ' free soil' and slavery in the territories" began. The decision would clearly have a significant impact on the development of the western territories. Taney also called the Missouri Compromise unconstitutional and said that the federal government could not prohibit slavery in US territories. After the slave Dred Scott sued for his freedom, Chief Justice Roger Taney ruled that Scott was not a citizen because he was Black, and so did not have the right to sue in court. The US Supreme Court decided Dred Scott v. Eastern banks became cautious with their loans in the eastern US, and some even refused to accept paper currencies issued by western banks. By the mid-1850s, the amount of gold mined began to decline, causing western bankers and investors to become wary. The early 1850s saw great economic prosperity in the United States, stimulated by the large amount of gold mined in the California Gold Rush that greatly expanded the money supply.
American banks did not recover until after the Civil War. The sinking of SS Central America contributed to the panic of 1857, as New York banks were awaiting a much-needed shipment of gold. īeginning in September 1857, the financial downturn did not last long, but a proper recovery was not seen until the onset of the American Civil War in 1861. Surfacing news of this circumvention set off the Panic in Britain. In Britain, the Palmerston government circumvented the requirements of the Bank Charter Act 1844, which required gold and silver reserves to back up the amount of money in circulation. The world economy was also more interconnected by the 1850s, which also made the Panic of 1857 the first worldwide economic crisis.
Morse in 1844, the Panic of 1857 was the first financial crisis to spread rapidly throughout the United States. Because of the invention of the telegraph by Samuel F. The Panic of 1857 was a financial panic in the United States caused by the declining international economy and over-expansion of the domestic economy.