Question

The Panic of 1907 was caused by:

excessive investment in collateralized debt obligations.

national banks issuing too much currency.

trusts' losses due to their unsuccessful stock market speculation.

trusts' memberships in the New York Clearinghouse.

Answer 1

The Panic of 1907 was caused by trusts' losses due to their unsuccessful stock market speculation.(Option 3)

Option 1:

This is incorrect as investments were made in speculative activities to corner stock markets and not collateral debt obligations.

Option 2 :

This is factually incorrect. When national banks issue too much currency there is excess liquidity in the market.But in The Panic of 1907 there was a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors.

Option 4 :

This is incorrect.

The New York stock exchange suspended trading privileges of many brokerage firms due to confidence issues.In order to restore confidence the New York Clearinghouse issued $100 million in loan certificates to be traded between banks to settle balances, allowing them to retain cash reserves for depositors and to ensure a free flow of funds.