Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
The Great Depression (8 page)
I talked to a very prominent real estate man today who developed one of the best residential plots in Youngstown but went broke with the coming of the depression because everything he had was heavily mortgaged and people stopped paying on the property they had bought. He tells me his wife is working in a millinery store and he is in Detroit selling Whiffle Boards (a 5¢ marble gambling game sold to drug stores, beer parlors, etc.). He owns many fine pieces of real estate, mostly vacant lots but cannot give them away. He says he waited too long—hoping the depression would be short—in the meanwhile spending all his liquid cash on taxes, etc.—and now it is too late to unload. Many investors would have been better to unload their real estate and stock investments during the first year of the depression rather than to have waited. They would at least have salvaged something rather than to have lost everything.
8/31/36An interesting side light of the depression was that unemployed people became interested in small gambling games and the inventors of these games made considerable money. Some of the more popular games were the Whiffle board—a marble game charging 1¢ or 5¢; the “Bug” racket in which people bet from 1 cent up on what numbers would represent stock sales or bank clearings for the day—this is still going strong and is a million dollar racket; the dime chain letter game which offered a return of $200 or $300 for a dime plus a chain letter sent to 10 friends—the crossword puzzle game—Monopoly—finance—politics, etc.People lost all confidence in the old virtues of saving. They were willing to bet small amounts in the hope of getting large returns. They wanted something to occupy their minds and they wanted some gamble to buoy their hopes.
A great deal of bad news came out in the past week. England, Denmark and Norway go off the gold standard and their currency values drop. The pound goes to $3.50. On top of this, Japan starts a war in China and hopes to grab off some land—knowing the other nations are too much involved in their own troubles to interfere.
There is no fall pickup in business and conditions are worse. During the past week 10 banks in Pittsburgh closed—and one in Alliance.
Following England’s abandonment of the gold standard the U.S. market had a bad break and for the first time since 1929 the blue chip stocks are sliding down. AT&T is now 136—G.E. 30 and Consol Gas 70. The second-rate stocks are certainly low enough—Sheet & Tube 25 1/2; Republic 7; Truscon 8. I wish I had some money to invest but law business is bad and we are all operating on a day to day basis. Stock exchanges in England and Germany are closed.
The Niles Savings & Trust Co. closed its doors yesterday. The effect was immediately felt in Youngstown by a steady stream of withdrawals at all banks. It is all being done so quietly that I cannot believe anything can happen here and yet I know that this cannot go on much longer. I also marvel at the quiet way in which people take bad news of bank closings. A quiet crowd of white-faced people gather in front of the banks for a day or two—read the notice of closing signed by the Ohio State Bank examiner and then quietly slip away. In France I can imagine a similar crowd breaking windows and stirring up revolution.
I am really afraid for at least two of our big banks here. It would be a calamity. My emotions tell me it just can’t happen and yet—my logic says it
must
happen unless some drastic solution is found at once. Last night’s paper listed further bank failures in Philadelphia, Detroit and Pittsburgh. This means additional failures in the small surrounding towns. In a great many instances fraud is shown on the part of bank officials who used bank funds to play the stock market. The whole banking fraternity is in public disfavor and many of them face prison.
must
happen unless some drastic solution is found at once. Last night’s paper listed further bank failures in Philadelphia, Detroit and Pittsburgh. This means additional failures in the small surrounding towns. In a great many instances fraud is shown on the part of bank officials who used bank funds to play the stock market. The whole banking fraternity is in public disfavor and many of them face prison.
I am a little puzzled by the complications of international finance but I am learning fast and a good deal of what I was taught in college as theory is now being put to the test of actual practice. What is meant by a country going off the gold standard? As far as I can see it is like a bank refusing to pay out deposits because of lack of funds. I can see I will have to read up on the subject and I shall get started at once. Politics, economics, and international finance—the depression has been a postgraduate college course for me and from that standpoint at least has been a worth-while experience.
Things get gloomier and the stock market continues on its downward path. Sheet & Tube sells at 22 1/2. Small banks close their doors all over the country as newspapers try to minimize it as much as possible so that the panic will not spread. Yesterday the largest and oldest bank in Steubenville (1854) closed its doors. The Canadian dollar is worth 70¢ in U.S. because England went off gold standard. In the U.S. the silver mining states are urging a return to bi-metalism in order to bring prosperity back to their states.
The big new zeppelin made in Akron just flew over Youngstown in a trial flight. It is the biggest thing I ever saw. It makes one wonder what will be the future of travel by air.
Stocks have been going down, down, down for over a month now. The latest explanation is that
English
investors are selling their U.S. investments in order to get U.S. dollars which are worth about 25% more in depreciated English currency.
English
investors are selling their U.S. investments in order to get U.S. dollars which are worth about 25% more in depreciated English currency.
U.S. Steel 62; Sheet & Tube 20; Truscon 7; Republic Steel 5 1/2.
Only public utilities are still high such as AT&T, Consol Gas, etc.
One financial writer says stocks are not too low—in fact too high—because future profits of industry will be lower on account of lower prices etc.—and that profits in the last 10 years of prosperity are not a good gauge.
A large bank in Philadelphia and 5 smaller ones closed up yesterday. The bank closing movement started in the mid-west and now seems to be penetrating the east.
Everybody is excited about Pres. Hoover’s plan to end the depression and stocks go up as high as 10 and 15 points. Under this plan a huge national banking corporation is to be formed backed by government money which will discount frozen mortgages and other illiquid assets of the banks in order to give them cash to pay depositors. It will be something like the Federal Reserve Bank except that it can discount mortgages and other paper not now eligible. The plan also contemplates making the Federal Reserve more flexible so that in time of depression it can widen its discount basis.
9/1/36This organization was formed and known as the RFC (Reconstruction Finance Corp.). It came too late to prevent a bank collapse but in 1933-36 under Pres. Roosevelt it loaned huge amounts to banks and corporations and did a great deal of good.
Ruth Bryan Owen makes claim that the prophecies of her father William Jennings Bryan who urged free silver 30 years ago are now coming true. I am faithfully reading books on economics so I can fully understand all this talk of free silver and bi-metalism. It is a complicated subject and I have almost come to the conclusion that nobody knows very much about it. Many of these theories sound fine but do not work out so well in actual practice.
When I visited my safety box in the vault of the Dollar Bank today, Mr. Owen told me that “the last two days—since President Hoover announced his plan to help the banks—has been the quietest we have had for several months. Before that we had a number of new applicants for safety boxes every day but since then we have had none.” He felt that Hoover’s announcement had strengthened faith in the banks and had put a stop to hoarding.
Again and again I am forced to the conclusion that in prosperous times a man must be cautious and preserve his capital and be careful not to over-expand his business or to go too deeply in debt relying on a continuation of good business to pay the debt. In time of depression a man can be brave and if the depression is nearing an end he can invest his money or expand his business or open a new business with confidence that he is facing 5 or 10 years of prosperity. He can feel sure that the road ahead will be up—not down. Many great prosperous businesses were founded on the ruins of depression. This may be why so many Federal St. merchants are now beginning to put in a new store front, etc.
A great many losses and failures in business and in investment are due to the reversal of this policy. At the height of prosperity they rush in to buy stocks or real estate or businesses at boom prices and assume enormous indebtedness which can be liquidated only if the boom spiral mounts higher and higher. Then comes an abrupt end to prosperity—a crash—and down go these businesses and investments purchased at top prices. If the purchase was made mostly with borrowed capital as so often happens—then you can write finis to the chapter.
3/8/33The difficulty of course is to know when the depression is over. People who bought “bargains” in stocks in 1931 now find they were too quick and these same stocks are now selling at 1/3 of 1931 prices. If they can hold on long enough they will come out alright but it is a soul-trying period of waiting. It might be best to wait until the upturn actually begins. It may come suddenly and the opportunity may be lost.8/31/36The bottom was reached in summer 1932 and the upturn gradually started. There had been so many false starts however that it was not until 1934-5 that people really realized that the turn had been passed. Then a glance at a business or stock market chart showed what had happened. The upward advance was irregular—it went up and down just like a half dozen earlier false starts but finally in March 1935 it started up and has continued up until the present day. All of these charts followed the pattern of 1873 and 1893 closely and it will probably happen again.
Bank failures continue in spite of President Hoover’s plan. Yesterday saw the closing of the National Bank of Uniontown—one of the largest in western Pennsylvania.
The Strouss-Hirshberg Company employees some time ago received a 25% cut in wages. Yesterday the employees on the second floor were informed they could work only on alternate days. At the Truscon Steel employees also received a 25% cut some time ago and now they can work only 5 days a week. The stock market has been going up for several days now since the Hoover announcement.
The good effect of President Hoover’s plan is wearing off rapidly. Last night’s paper publishes the quarterly reports of the local banks. All were in pretty frozen shape (about 20% liquid) except the Commercial Bank which is about 65% liquid. Long lines of people can be seen this morning quietly withdrawing deposits and bank officials seem more worried than ever. More people are renting safety deposit boxes or taking their money to the post office to open a U.S. Postal savings account.
In the meanwhile, the Japanese-Chino war grows more imminent.
Last night’s paper reports the closing of eight banks in West Virginia and Philadelphia. Also that the 14 banks in Atlantic City have been combined into 4 banks. Also that the government bank aid plan is not going so good because the stronger banks do not want to guarantee the weaker. The proposed capital has been cut from $500 million to $100 million.
Stocks are on the way down again.
Great excitement in Youngstown. It finally happened here. The Dollar Savings & Trust Co., The City Trust and the 1st National Banks all fail to open for business this morning. This leaves only the Mahoning Bank and The Commercial open for business. Both of them are besieged by depositors seeking to withdraw their deposits. I do not see how it can last. The town is panic-stricken and the streets are crowded with people excitedly discussing the situation. I was aroused this morning at 4 A.M. by newsboys shouting Xtras. It still seems like a bad dream. [Later undated entry: “This was before the days of television and radio.”]
Banks in the small towns around Youngstown are either closing their doors or refusing to permit withdrawals except for emergency use.
Other books
26 Kisses by Anna Michels
Division Zero: Thrall by Matthew S. Cox
Musician's Monsoon by Brieanna Robertson
Two More Pints by Roddy Doyle
About the Dark by helenrena
The Reluctant Queen by Freda Lightfoot
The Ladies by Doris Grumbach
Rules of Engagement by Bruce, Ann
Mister Monday by Garth Nix
Theft by BK Loren