What led to the Panic of 1873?

Question

Responses

The banks froze the assets of the construction companies.
The banks froze the assets of the construction companies. - no response given

The increase of crime along the construction sites of the transcontinental railroad.
The increase of crime along the construction sites of the transcontinental railroad. - no response given

The president stopped funding the banks leaving them without a way to pay people
The president stopped funding the banks leaving them without a way to pay people - no response given

Banks invested too much in the construction of the railroads and their cash reserves ran low.

Answer 1

The Panic of 1873 was primarily caused by a combination of factors, but a significant contributing factor was that banks invested heavily in the construction of railroads, leading to overexpansion and unsound financial practices. As these investments did not yield the expected returns, many banks faced significant losses, which resulted in a liquidity crisis where they could not meet the withdrawal demands of their depositors. Additionally, the failure of major banks, such as Jay Cooke & Company, which had heavily financed railroad construction, further intensified the crisis, leading to widespread panic and economic downturn.

Thus, the following statement accurately reflects a key cause of the Panic of 1873: "Banks invested too much in the construction of the railroads and their cash reserves ran low."