The Panic of 1792 was a financial credit crisis that occurred during March and April of 1792 due to the speculation of William Duer and Alexander Macomb against stock held by the Bank of New York

Bank of New York

The Bank of New York was a global financial services company established in 1784 by the American Founding Father Alexander Hamilton. It existed until its merger with the Mellon Financial Corporation on July 2, 2007...

. While Duer attempted to drive the price of stocks up, the Livingston family

Livingston family

The Livingston family of was a prominent family which migrated from Scotland to the Dutch Republic to the Province of New York in the 17th century. Descended from William, 4th Lord Livingston, its members included signers of the United States Declaration of Independence and the United States...

 attempted to drive the price of stocks down and in so doing caused a bank run

Bank run

A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...

. Macomb and Duer were ruined while the Secretary of the Treasury, Alexander Hamilton

Alexander Hamilton

Alexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...

 prevented a national crisis by providing hundreds of thousands of dollars in securities for the troubled banks. During the panic, securities lost 25% of their value in two weeks. However, soon after Hamilton intervened, the financial situation returned to normal.

Analysis

The national bank’s mission was to facilitate commerce and strengthen the federal government by lending money. Heavy borrowers like Duer cornered the market in U.S. debt securities as well as the stocks of the national bank and the Bank of New York. Prices of securities reached their peak in January 1792. However, these prices began to decline in February, and fell of sharply in March, prompting the Panic. The national bank’s record sheets were found in 1930 in the papers of Hamilton’s successor. According to Stanford University economic historian David J. Cowen, these papers made it clear that the national bank was responsible for the March crash. Hamilton attempted to use his influence to make the nation’s banks gradually restrict credit. However, instead of gradually restricting credit, the banks completely restricted credit, prompting the subsequent financial crisis. Despite this, some see Hamilton as the savior of the U.S. financial system at this time. During his time as Secretary of the Treasury (1789-1795) the U.S. underwent a successful financial revolution. Had the panic of 1792 not been handled in this manner the progress of this financial revolution may not have survived.

The panic led to more effective securities trading and clearing systems as well as the founding of the future New York Stock Exchange. After the panic was contained, the U.S. financial system developed rapidly. Political turmoil developed as a result of the panic. The panic strengthened the Democratic-Republican opposition to the Federalists.