On today’s date in 1873, widespread panic erupted after the failure of the brokerage firm Jay Cooke & Co., resulting in a five-year depression across much of North America.
Known as the Panic of 1873, the furor that spread across both Canada and the U.S. was a result of the bank overextending itself in completing the Northern Pacific Railway (NPR).
Jay Cooke, the bank’s founder, was attempting to compete with the Canadian Pacific Railway by having his railway enter Canadian territory, meddling with Canadian politics, which was apprehensive to encroaching U.S. business interests at this time.
After an exhausting Civil War, the U.S. began looking for opportunities to expand. Eventually, Cooke focused his attention on resurrecting the NPR. He was able to successfully lobby U.S. Congress to facilitate his grand plan to finance the railway’s construction, and the first tracks of America’s second trans-continental railroad were laid.
But as construction continued, it became clear that more money would be needed to cover rising costs. Cooke’s optimism for the costly project exceeded his firm’s ability to pay for it, leading to its failure.