DEPRESSION DIARY

DEPRESSION DIARY

Excerpts

Benjamin Roth moved to Youngstown in 1919 and opened a law practice before the United States was plunged into the Great Depression. Roth started to chronicle his thoughts and observations on the trying times the nation faced after the stock market crashed Oct. 29, 1929:

June 5, 1931: Immediately after the 1929 crash the speculators rushed in to buy “bargains” but were badly mistaken because the market kept going down and down even tho’ industrial leaders kept on assuring the people that everything was fine and the worst was over. At the present time the newspapers are urging people to buy these “bargains” but opinion is much divided as to whether or not the bottom has been reached.

Investments in real estate and mortgages fared almost as badly as stocks. Since 1929 foreclosure by the banks has been the order of the day. Day after day real estate can be bought for the price of the first mortgage and there are no bidders except the bank which holds the first mortgage. In this way the banks are becoming the holders of huge quantities of real estate.

The worst feature about real estate in a depression is that it is illiquid and cannot be sold at any price. If it is free of mortgage the owner may hold on until normal times. But in most cases it is subject to mortgage; he cannot collect his rent from the tenants, cannot pay on his mortgage or taxes and eventually loses his equity by the foreclosure route.

July 30, 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.

August 5, 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 Ω [percent] 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.

August 6, 1931: At a public sale by the sheriff today on foreclosure by the bank [a home on] Elm Street was offered for the third time but no buyer found. It could be bought for $4,400, and is really worth conservatively $7,500. In 1929 the owner thought it was worth $11,000.

August 7, 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.

August 10, 1931: I note in today’s Legal News that [a] home on Coronado Ave. is being foreclosed by the bank on a 7,500 mortgage. It can be bought for the price of the mortgage and is worth 16,000. This and many other bargains are being offered today. The Legal News carries advertisements today of 78 sheriff sales to be held within the next 30 days. In almost every case the properties will be bought back by the bank for first mortgage plus taxes and court costs. There are no bona fide bidders.

[Subsequent annotation dated Aug. 26, 1936. The ... property was bought eventually ... for about 7,500 but instead of using cash they used [local bank] passbooks which were selling at 50 cents on the dollar. This family has bought much real estate this way and in the next few years will reap a harvest.]

August 17, 1931: Today’s [Youngstown Vindicator] carries the news that four of the largest commercial banks in Toledo, Ohio closed their doors (total deposits over 100 million). Also that 11 savings & loan cos. in Toledo stopped paying out money. The conclusion seems clear that savings and loan companies are not good places to deposit money even tho they pay a high rate of interest.

I had lunch and a talk with [an employee] of the Home Savings & Loan Co. He is not very optimistic about the near future. Says that the city of Toledo is completely tied up for lack of money. Money is either in hoarding or tied up in closed banks and business is crippled. He does not think bank money will be released for a long time. He also fears that people who owe money on mortgages will withhold their payments and thus make the situation worse. Foreclosure does not help because there is no re-sale market. The bank simply becomes the owner of the real estate. Moratoriums of one year are being considered on mortgage payments in many states.