Global capital inflows primarily from England and the Continent, intertwined banking and capital markets, subprime loans, and irrational exuberance spurred a Rail Road bubble that bears striking similarity to the 2010 crisis. The gold boom drew in foreign capital, while Railroad farm mortgages (RRFM) and the RRFM-backed securities backed the over-investment in rail used to ship food.
Softening demand for long-haul transport of foodstuffs and other products, along with overcapacity due to railroad construction occurring ahead of demand, caused a sharp decline in railroad share prices during the mid-1850s. This drove up the cost of equity capital for the railroads. Finally, the failure of the prominent financial institution that triggered the defaults of RRFMs and their securities.
However, the government didn’t bail out banks and let them operate as normal, letting them either lose or curtail their business.
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