The panic of 1857 was a rather rough introduction for the United States to the intricate dealings of the global economy. Like many major economic crashes (including the current one) it was caused superficially by a series of highly visible incidents, and the underlying cause was an innate structural fragility in the economy.
The immediate causes of the panic of 1857 were the embezzlement in the home office of the Ohio Life Insurance and Trust Company, and the wreck of the Central America at about the same time. The Central America was a merchant marine ship loaded with gold bullion.
The ship sunk first, triggering a panic in the stock market. Then Cincinnati’s Ohio Life Insurance and Trust Company went under because of the embezzlement. News of both disasters spread very quickly, partially because the telegraph was becoming widespread. People began to withdraw their money from Wall Street in droves. Bank failures increased, mostly in the industrialized northeastern United States. The west and south were still more agriculture-dependent and thus weren’t hit as hard by the crash as the northeast.
The underlying causes of the Panic included the Crimean War, which had dragged on for three years and involved European and western Asian countries It increased foreign dependence on American agriculture. An abundance of crops in 1857, however, led to a drop in prices for American farmers.
Land speculation had also gotten out of control in the US, leading to an unsustainable expansion of the railroads. When investment money dried up, the land speculation collapsed, and this wrecked many of the railroads.
The federal government tried to remedy the situation, partly by declaring a bank holiday in October, 1857. Secretary of the Treasury Howell Cobb recommended the government should sell revenue bonds and decrease the tariff. In 1859, the country was slowly pulling out of the downturn, but was feeling the effects until the start o the Civil War.