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The firm failed because New Orleans merchants, caught short by a drop in the price of cotton, had defaulted on vast sums they owed their Manhattan creditor. Soon hundreds of other New York City brokers, commission houses, and dry-goods jobbers also found their bills to southerners coming back unpaid. Many of these companies were far weaker than the defunct Josephs, who had been agents of the mighty Rothschilds. One after another, dragged down by the foundering cotton economy, they sank into default.

Mayor Lawrence’s firm—Hicks, Lawrence, and Company—suspended payment on its debts and closed its Wall Street office. Brown and Hone defaulted too. It was “a dark and melancholy day,” former mayor Philip Hone informed his diary. “My eldest son has lost the capital I gave him, and I am implicated as endorser for them to a fearful amount.”

Failure after failure jolted Wall and Pearl streets. By April 8, the Journal of Commerce reported, ninety-three firms had gone under. Three days later the total reached 128. “The merchants are going to the devil en masse,” wrote George Templeton Strong, a student at Columbia College who had begun keeping a diary as meticulous and opinionated as Hone’s.

Demands from overseas creditors escalated the pressure. “The accounts from England are very alarming,” Hone noted; “the panic prevails there as bad as here.” At April’s end a businessmen’s committee informed newly inaugurated President Van Buren that there had been “more than 250 failures of houses engaged in extensive business” and that the merchandise in New York’s warehouses had lost a third of its value. As their fortunes melted away, some desperate merchants set fire to their own stores, seeking insurance payouts worth double and treble the value of their stock.

The disaster rolled on. On May 1 Arthur Tappan went belly up. The Liverpool packet had brought heavy demands from British creditors, demands his once flourishing silk firm could not meet. Weakened by the great fire, the boycott by irate southern antiabolitionists, and now the default of country and city retailers, Tappan’s debts had mounted past the million-dollar mark, a sum few merchants grossed in a year. The devout merchant’s evangelical brethren were bewildered to find God scourging saints as well as sinners. Local antiabolitionist enemies were gleeful. “Arthur Tappan has failed!” gloated George Templeton Strong. “Help him all ye niggers!” But most men on Wall Street shuddered, for if Arthur Tappan could break, a complete collapse of wholesale merchants seemed inevitable.

Other sectors of the city economy reeled and staggered. The overheated real estate boom of the 1830s abruptly iced over. The price of lots plunged. Landowners near Bloomingdale Village had been getting $480 an acre in September 1836; by April 1837, Hone noted, they were lucky to clear fifty dollars. Stunned merchants calculated that the value of their real estate had “depreciated more than $40,000,000” in a scant six months. Hundreds of Manhattan landowners and builders defaulted on mortgages and lost their property through foreclosure.

Grand development schemes—like Samuel Ruggles’s Gramercy Park and Union Square—were put on hold. Brooklyn suspended construction of its City Hall, leaving an unfinished basement in a weed patch. Greater Williamsburg winked out. So did John Pitkin’s would-be metropolis of East New York. On Staten Island, New Brighton’s developers crumpled; their hotel and houses went to the block.

Far more damaging for the city’s future was the virtual cessation of wholesale speculative building. New York’s supply of housing fell behind the growth of population. Crowding in working-class districts worsened rapidly, setting the stage for future social disaster.

The stock market fell apart too. The value of locally held shares declined twenty million dollars. The average number of shares traded daily dropped from 7,393 in January to 1,534 in June. Hot new rail stocks nosedived as their companies collapsed. On April 5 work was