In the beginning

There was many crises prior to 1825, including the South Sea Bubble, Mississippi bubble, paper money which allowed countries to simply print their way out of debt with greater ease than debasing the currency, or there was the route of default, like Edward III in the 14th century causing chaos in Italy's financial markets. None of these things affected the economy globally. However in 1825 the aftermath was felt globally.

In 1825 United States was not the financial epicentre of the world like it is today, in fact it was an emerging economy at the time. The role of epicentre in the 19th Century fell to England. In this time the Bank of England wasn't a central bank like it is today, but a commercial one with loyalties to its shareholders, the government and commercial bankers.

In his paper 'The Financial Crisis of 1825 and the Restructuring of the British Financial System' Larry Neal looks at three different reasons that may have contributed to the crash and the events that lead up to it.

In the years prior to the 1825 crisis we had the Napoleonic wars. In England country banks sprung up like daisies and  profited through the ability to issue their own bank notes, after convertibility was suspended and restrictions on issuing bank notes was lifted in 1797. This was due to the gold reserves being used to pay for the war with France.

Private banks expanded due to the Napoleonic wars as traders had brought their affairs to London to avoid the extortions of Napoleons troops. The Bank of England made a lot of money during the war as well. Post war the Bank resumed convertibility in 1819. The Government were a bit short of money post war, partially due to the loss of income after eliminating income tax.  However in the year prior to the crash, due to successful management of a debt service problem and getting the budget back to balance (even gaining some moneys) there was low interest rates. The country banks also made a lot of money after the Napoleonic wars due to the growth in foreign trade and expansion in manufacturing. 

Due to the increase in government debt issued during the war the city boys found their business prospects healthier too. However after the war they had to dream up different assets to protect the customer base and incomes they had enjoyed during the war. These came in the form of securities offered by the peacetime governments i.e. France, Spain etc. They also came from the shiny and sparkly newly independent Latin American states too after the Spanish American colonies revolted successfully. These shiny and sparkly states also offered something else. The mining industry. Along with that came the even more shiny silver. Many people invested in these mines and money was poured in. The fraudulent state of Poyais was also included due to Mr MacGregor.  

During this period of time both Carlos Marichal and Frank Griffth Dawson state that at least £20,000,000 was invested in these emerging economies through bonds.

In the run up there was also domestic securities.  Quoting a letter to The Times "bubble schemes came out in shoals like herring from the Polar seas". Early success in floating companies lead to more. Most of the bills brought before Parliament were for joint stock companies, by April 1924 there was 250 of the these bills.  In the delirium induced by the fever, projects were floated daily, on the basis that a company may receive a charter. The price of commodities also rose in the years before the crisis which encouraged speculation. According to Dawson, wool imports increased for 20lb to 38,000,000lb over 1822-24.

All the fun ended when the bubble burst in April 1825. According to Bagehot the country then entered,

A period of frantic and almost inconceivable violence; scarcely anyone knew whom to trust; credit was almost suspended; [and] the country was...within twenty-four hours of [entering] a state of barter