Monday, October 19, 2009

Banks suspend payments

‘The town is stunned by the news that The Home Savings and Loan Co. has suspended payments and would demand 60 days notice of withdrawals. This is followed quickly by similar announcements from The Federal Savings and Loan Co. and The Metropolitan Savings and Loan Co. All of these loan companies paid 5 ½% on savings deposits and earned their money by lending on real estate.’ It’s a familiar tale, but one written down by an American lawyer - Benjamin Roth - in his diary over 75 years ago during the Great Depression. Much taken with ‘the haunting parallels to our own time’, Public Affairs, a New York-based publisher, has now brought out a hard back edition of Roth’s diary complete with black and white photographs of the era.

Public Affairs provides a brief biography of Benjamin Roth on its website. He was born in New York City in 1894 but was brought up in Youngstown, Ohio. After gaining a law degree, and serving in the army during the First World War, he returned to Youngstown to work as a business lawyer. Two years after the stock market crash of 1929, he began to keep a diary, recording his impressions of what had happened to American economic life. He died in 1978.

Joe Nocera, writing in The New York Times, provides a cute anecdote about how the diary came to be noticed in the present day. When Benjamin Roth’s son, Daniel, first went to work in his father’s law practice, in Youngstown, in the mid-1950s, he was told to read the diary in order to have some understanding of the trauma most of his clients had been through. Daniel Roth, Nocera says, was ‘startled’ by the diary, ‘its literary power, and also by the amount of sheer effort his father had put in trying simply to understand the events he was living through’. More than half a century later, in 2008, during the worst of the current crisis, Daniel’s son, Bill, apparently brought the diary to the attention of Jim Ledbetter, editor of the The Big Money website.

Daniel Roth and Ledbetter have now edited the diary, and Public Affairs has published it as The Great Depression - a Diary, calling it a ‘chilling chronicle of hard times’. The book, which includes black and white photographs from the time, contains Roth’s diary entries for a decade, starting in June 1931 and finishing in December 1941.

Nocera in The New York Times says the journal has no narrative, but is ‘compelling reading nonetheless’. What particularly struck him, he says, ‘was watching Mr. Roth . . . grope from day to day, and year to year, searching for an answer that wouldn’t be clear until long afterward’. He adds: ‘He’s like the proverbial blind man who feels an elephant’s trunk and thinks elephants look like a rope. Not unlike the way we are today, as we grope our way through our own financial crisis.’

The Washington Post describes Roth as ‘a fiend for macroeconomics’ and ‘more likely to list stock prices in his private journal than discuss his wife or children’. Like many other ‘stiff-upper-lipped professionals of his generation’, it adds, Roth is ‘anti-interventionist, anti-whiner and anti-Roosevelt’. It concludes that the book is ‘a valuable document’, but ‘offers underwhelming lessons about man’s powerlessness before market forces’.

A few pages of the new book can be read on Amazon’s website, but a selection of choice extracts are also available on The Big Money website which first brought Roth’s diary to public attention last year. Here are a few of them.

30 July 1931
‘Magazines and newspapers are full of articles telling people to buy stocks, real estate etc. at present bargain prices. They say that times are sure to get better and that many big fortunes have been built this way. The trouble is that nobody has any money. On account of numerous bank failures, the few people who have money are afraid to spend it and are buying government securities. From the extreme of speculation in 1929, people have now turned to the extreme of caution. In my own case I find it a problem to take in enough to pay expenses and there is nothing left for investment.’

5 August 1931
‘The town is stunned by the news that The Home Savings and Loan Co. has suspended payments and would demand 60 days notice of withdrawals. This is followed quickly by similar announcements from The Federal Savings and Loan Co. and The Metropolitan Savings and Loan Co. All of these loan companies paid 5 ½% on savings deposits and earned their money by lending on real estate. With the coming of the depression people stopped payments on their mortgages; mortgages became frozen and the banks had no ways to get cash. Mortgages are a safe investment but cannot be liquidated quickly and are not a good investment for a bank which has agreed to pay out its deposits on demand. For the past three days these institutions have been besieged by hysterical depositors demanding their money.’

‘I went to the fruit market house this evening. It was almost deserted. The farmers cannot sell their produce because men are not working and it has become fashionable for each family to have its own vegetable garden.’

7 August 1931
‘Business is at an absolute standstill and the big stores are deserted even tho’ they are all running sales and almost giving the merchandise away. Since the local savings and loan companies stopped paying out, nobody has any money and everybody seems scared and blue. We seem to have touched bottom in Youngstown and it hardly seems possible that things could get worse.’

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