The Great Depression Read online

  People who have savings accounts in the Home Savings & Loan Co. are willing to sell them at a discount. They are also being accepted as payments on real estate, autos, and merchandise but the buyer always suffers a loss. If necessary I will accept them in fees and apply them on my mortgage.

  Now that fall is coming I feel a little more cheerful for the coming winter although there is no sign of betterment. The steel mills are operating at 30% capacity, the lowest of any depression and farm products are still selling at record lows. I still do not understand why the prices of “blue chip” stocks do not come down. Amer. Tel. & T. is still selling at $170 and should come down at least to $100. General Electric is at 40 instead of about 18. Railroad stocks are way down but people are afraid of them because motor competition has made the future doubtful. [Later undated entry: “In the summer of 1932 AT&T went to 70. Blue chips could be held all thru.”]

  8/26/36

  Before long the pass books on Home Savings; Federal; Dollar and City Banks sold as low as 40¢ on the dollar. Prices were quoted every day in the papers and the sales were made mostly through regular brokerage houses. Speculators bought the books and used them for various purposes. Many bought real estate at foreclosure and from the banks—paid for it in passbooks they had purchased at a discount. In this way they bought valuable real estate at about 1/2 the amount of the first mortgage balance. Likewise when the Central Bank was liquidated speculators exchanged passbooks purchased at a big discount for 1st mortgages at face value. Money was king.

  SEPTEMBER 1, 1931

  Another big mob today waiting in line before the office of the Allied Council. They blocked the stairway and extended down through the Dollar Bank lobby.

  Most people think another boom will start as soon as this depression ends. I cannot agree with them. I think the next five years will be a period of gradual recovery and that bargains in stocks and real estate will be available through the entire recovery period. The boom may then come in about 10 years after this period of recovery. Hard work, low wages and a period of accumulation are ahead of us.

  Signs of the times: Prices are falling rapidly. The 1929 dollar buys $1.40 in merchandise. Men are beginning to “roll-their-own” cigarettes and pipe smoking has been increased because it is cheaper than cigars. A good cigar can again be bought for a nickel and the 3 for 10 and 2 for 5 stogies are back in popular favor. Office men and women take their lunch to work or go home during the noon hour instead of eating in town. It has become popular to wear old clothes—to brag about poverty and how much you lost in the 1929 crash. It is almost bad taste to give a big party or to drive a new car.

  A good plan for the next 5 years would be to save and invest cautiously and plan to have funds in liquid form when the next crash comes.

  Our wash-woman said yesterday was the first day’s work she has had in 3 months—her price is $2 instead of $3 and she is willing to work for almost anything she can get.

  8/26/36

  Looking back now this was a fair guess. Recovery has been moving gradually forward since the bottom was reached in summer of 1932. A spurt came in March 1935 and has continued to date. Bargains are still available in stocks altho they do not compare with what could have been done in 1932. The real estate taken back by the banks during past 5 years is still being liquidated at bargain prices but the choice is now limited. Rents are going up and it is probable that in another year the banks will have liquidated all their foreclosed real estate and then a more normal market will be established. As to the future—it is hard to say if we are heading for a boom or for a few years of normal business. The possibility of inflation makes a guess difficult.

  SEPTEMBER 2, 1931

  As nearly as I can make out from a study of past panics, the cycle of business is always moving down toward a panic or up toward a boom. It rarely for long travels in a straight line. At the present time we are clearly moving down and the turn has not yet come. In the making of investments it would also seem wise to wait for some sign of the upturn before jumping in. It is impossible to hit the exact turn but as long as things are still definitely on the downgrade there would seem to be no hurry. When the final upturn does come it seems to me it will continue up for 8 or 10 years and culminate in a boom and a crash. The wise investor will disregard the day-by-day fluctuations of the stock market or real estate market and base his buying and selling on these long periods of rise and fall. Above all, and I repeat it again and again—he must have liquid capital in time of depression to buy the bargains and then he must sell before the next crash. It is difficult if not impossible to do this but the conservative longtime investor who follows the general rule of buying stocks when they are selling far below their intrinsic value and nobody wants them, and of selling his stocks when people are bidding frantically for them at prices far above their intrinsic value—such an investor will pretty nearly hit the bull’s-eye. Among such investors are the Morgans, the Mellons and the Bakers. Their secret to a large extent lies in having liquid capital available and the courage to invest when things look the blackest. They say of Mr. Baker that he always bought good stocks when they sold below their intrinsic value—and then held on until the cows came home. It seems to me he took very little risk.

  8/26/36

  This advice was pretty sound. The turn in the depression came in the summer of 1932 and since then it has worked up—with numerous breaks—but always up. Here is what would have happened to a buyer of stocks in summer of 1932 as contrasted today:

  Amer T &T 70 to 170; Yo Sheet & Tube 6 to 80; Warner Bros. 1/2 to 14; Western Union 17 to 80; U.S. Steel 20 to 68; Gen. Motors 8 to 100; Gen. Elec. 8 to 46.

  SEPTEMBER 4, 1931

  The Allied Council broke all records the other day by handling 1150 calls for relief in one day. There is no accurate record of how many people are on relief in Youngstown today but it is estimated at about 30,000—almost 20% of the population. Several efforts are being made to care for the needy this winter which is expected to be severe:1. The Community Chest will have an extra drive for funds.

  2. The city will issue bonds.

  3. All churches are acting as collectors of food, clothing, etc.

  Farm prices are steadily going down. Peaches, apples and plums are selling at 50¢ a bushel.

  Banks are absolutely terrible in their insistence on payments on notes and mortgages. It is the old story of lending you an umbrella when the sun is shining and then demanding it back when it rains. If a depositor asks for his money he is regarded with suspicion—sometimes he is sent to one of the officials who wants to know why he wants the money—if they think he is hoarding it they try to shame him out of a withdrawal and only if he becomes unpleasant and insistent does he get his money. It is a good time not to owe money to a bank and many businesses are being ruined because the banks insist on liquidating their loans. Some businesses owe the banks so much money that the banks are afraid to press them too far for fear they will go into bankruptcy and thus avoid the whole loan.

  SEPTEMBER 8, 1931

  The 2nd National Bank of Youngstown is today absorbed by the Mahoning Bank. Popular gossip says this was done to avoid another bank failure.

  Reform and dissatisfaction are in the air everywhere. People who are ordinarily moderate predict freely that if things do not get better very soon we will have a revolution in the U.S.A. and some form of Communism or dictatorship. Judge David Jenkins predicted this definitely last week in a talk before the Kiwanis Club.

  The N.Y. Times reported yesterday that numerous small real estate bond companies have been formed in the past year to buy up defaulted real estate bonds. There is no open or active bond market and the owner has no way of knowing what they are worth. An unscrupulous buyer can get them at 20 or 30¢ on the dollar even tho they may be worth par. Most of the large real estate bond houses which sold these bonds have gone broke. Lawyers in large cities like New York and Chicago are reaping a harvest in foreclosures and receivership involving large office buildings and
apartments which were erected in the years of frenzied finance.

  SEPTEMBER 9, 1931

  The Youngstown Sheet & Tube Co. at a directors meeting decides to omit the quarterly dividend. The stock is now selling at $35 per share. This is lower than in the 1921 depression when it sold at 45. U.S. Steel is at 80 as compared to 70 in 1921. Railroads are all down to the 1921 levels—Penn at 34, NYC 64. It still seems to me that blue chip stocks such as AT&T at 165, Consolidated Gas at 90 and G.E. at 40 must come way down before it can be said that the market has been fully deflated.

  I am getting weary of depression talk and patent remedies. You hear it on all sides. The favorite remedy is repeal of Prohibition and the bringing back of liquor in the hope that a new industry will give employment and that real estate values will be stimulated. Then there is a great deal of talk about socialism and Communism and revolution. It all seems silly to me. Everything will work itself out without these radical changes. The depression has loosed all the radical thinkers who call themselves “liberals.” The true liberal and conservative has been silenced and is in disgrace.

  8/29/36

  This guess was pretty accurate. In summer of 1932 these stocks were selling as follows: Sheet & Tube at 6; U.S. Steel at 17; Penn R.R. 5; N.Y.C. 8; AT&T 70; Consol Gas 15; GE 10.

  Liquor became legal in 1933 but failed to help recovery. It stimulated the imbibers but not general businesses. Today we have 2 or 3 beer parlor lunchrooms in every block.

  SEPTEMBER 10, 1931

  An item in the financial column today states that the Payne Whitney estate increased $59 million in value during the 1929 boom. It consisted entirely of high grade stocks. Even tho the high grade stocks suffered in the depression very few of them were wiped out and will probably come back.

  AT&T is still paying its $9 dividend and has proven to be an outstanding stock.

  Many Youngstown millionaires have been hard hit by the failure of Youngstown Sheet & Tube to pay its dividend. In a great many cases these families have over a million tied up in Sheet & Tube and Republic Steel and depended entirely on these stocks for their income.

  I feel more and more convinced that the time to buy stocks has not yet arrived because the blue chip stocks have not yet come down even tho the depression is already two years old.

  8/29/36

  AT&T paid its usual dividend thru the depression. Other high grade stocks did not but practically all of them have come back again and the holder who did not sell will lose nothing except the unpaid dividends.

  SEPTEMBER 13, 1931

  We bought peaches yesterday at 75¢ a bushel. The trees are still loaded to the ground and will go to waste because the fruit cannot be sold. In the meanwhile thousands are starving. It is hard to understand. There is no sign of a pick-up this fall. If anything things are worse. There is simply no money in circulation. This scarcity of money is what makes people think if more money were printed business would be better. This is a false and vicious theory.

  SEPTEMBER 15, 1931

  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.

  8/31/36

  An 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.

  SEPTEMBER 28, 1931

  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.

  SEPTEMBER 29, 1931

  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.

  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.

  OCTOBER 2, 1931

  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.

  OCTOBER 6, 1931

  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 hav
e 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.

  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.

  OCTOBER 7, 1931

  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.