The Panic of 1907 was one of many panics resulting from the form-seasonal elasticity problem, and a particularly severe one that provided impetus for the process that resulted in the Federal Reserve. During the panic, President Theodore Roosevelt worked with banker J. P. Morgan to secure lines of credit from foreign banks and organize national banks to make loans to other solvent, but illiquid banks. Roosevelt sent Treasury Secretary George Cortelyou to Wall Street to supply liquidity, depositing $68 million in national banks in New York City and issuing $50 million of Panama bonds and $100 million of Treasuries to provide additional collateral for national bank notes. In essence, Roosevelt asked Morgan to perform the lender-of-last-resort function of a central bank on an ad hoc basis.
Glossary Term