Baring crisis facts for kids

The effects of the Recession of 1890 were particularly severe in Argentina. Without Bread or Work by Ernesto de la Cárcova.

The Baring crisis or the Panic of 1890 was a serious recession, which means a time when the economy slows down a lot. Even though it wasn't the worst economic problem of its time, it's famous for being a major sovereign debt crisis. This means a country had trouble paying back its loans. It also caused one of the biggest drops in the U.S. stock market ever.

What Caused the Crisis?

The crisis started because a very important bank in London, called Barings Bank, was almost completely out of money. This happened in November 1890.

Barings Bank's Problems

Barings Bank was led by Edward Baring, 1st Baron Revelstoke. The bank took too many risks by investing in bad projects in Argentina. These risky choices led them close to bankruptcy.

Argentina's Struggles

Argentina itself was hit very hard by the economic slowdown of 1890. Its economy shrank by 11 percent between 1890 and 1891. This meant many people lost their jobs and faced hardship, as shown in the painting "Without Bread or Work."

Saving the Bank

To stop an even bigger economic disaster, a group of powerful banks came together. This group was put together by William Lidderdale, who was the head of the Bank of England.

• The group included the famous Rothschilds and many other major banks in London.
• They created a special fund to promise that Barings Bank's debts would be paid.
• This action saved Barings Bank from going bankrupt.

Nathan Rothschild said that if they hadn't done this, the entire private banking system in London might have collapsed. That would have caused a huge economic catastrophe around the world.

Wider Impact

The problems caused by the Baring crisis spread quickly. People around the world lost trust in the financial system.

• This lack of trust caused an "economic bubble" to burst in Brazil. An economic bubble is when prices for things get too high and then suddenly crash.
• Brazil faced its own financial crisis.
• The problems in Argentina, Brazil, and Uruguay meant that money sent home by immigrants in Latin America to their families in Europe dropped sharply.
• This affected many countries and people throughout the 1890s.