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The Panic of 1857 abruptly ended the boom times that followed the Mexican War.
The immediate event that touched off the panic was the failure on August 24th of the New York branch of the Ohio Life Insurance and Trust Co., a major financial force that collapsed following massive embezzlement. Hard on the heels of this event arrived other setbacks that shook the public's confidence:
- The decision of British investors to remove funds from American banks raised questions about overall soundness
- The fall of grain prices spread economic misery into rural areas.
- Russia undersold U.S. cotton on the open market;
- Manufactured goods began to pile up in warehouses, leading to massive layoffs
- Widespread railroad failures occurred, an indication of how badly over-built the American system had become
- Land speculation programs dependent on new rail routes collapsed, ruining thousands of investors
Confidence was further shaken in mid-September when 30,000 pounds of gold were lost at sea in a shipment from the San Francisco Mint to eastern banks. More than 400 lives were lost as well as public confidence in the government's ability to back its paper currency with specie.
At the suggestion of Howell Cobb, Secretary of Treasury, President James Buchanan proposed to Congress that the Treasury be authorized to sell revenue bonds for the first time since the Mexican American War.
In October, a bank holiday was declared in New England and New York in a vain effort to avert runs on those institutions. Eventually the panic and depression spread to Europe, South America and the Far East. No recovery was evident in the United States for a year and a half and the full impact did not dissipate until the Civil War.
As an unfortunate sidelight, the South was hurt less than the other regions of the country and many there concluded that the superiority of their economic system had been vindicated.
The Tariff Act of 1857 that followed reduced the average rate to about 20 percent -- another reduction that was warmly greeted in the South and roundly derided in the North. The tariff was one of a number of major issues that was dangerously increasing the tension between the two regions.
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