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...a letter written from a lawyer from Mason City, Iowa in the Corn Belt recounting the impact of the Great Depression on his town. It is a poignant and somewhat eerie story to read considering the date of writing is 1933."
-- Dr. Housing Bubble,
Personal Story by a Lawyer from a Previous Asset Bubble, August 02, 2007
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...Below are paragraphs of the entire letter:"
The boom period of the last years of the World War and the extremely inflationary period of 1919 and 1920 were like the Mississippi Bubble and the Tulip Craze in Holland in their effect upon the general public. Farm prices shot sky high almost over night. The town barber and the small-town merchant bought and sold options until every town square was a real estate exchange. Bankers and lawyers, doctors and ministers left their offices and clients and drove pell mell over the country to procure options and contracts upon this farm and that, paying a few hundred dollars down and expecting to sell the rights before the following March brought settlement day. Not to be in the game marked one as an old fogy, while paper profits were pyramided and Cadillac cars and pleasure trips to the cities took the place of Fords and Sunday afternoon picnics. Everyone then maintained that there was only a little land as fertile as the fields of Iowa, Illinois, and Minnesota, and everyone sought to get his part before it was all gone. Like gold, it was limited in extent and of great potential value. Prices skyrocketed from $100 to $250 and $400 per acre without regard to the producing power of the land.
During this period insurance companies were bidding against one another for the privilege of making loans on Iowa farms at $90 or $100 or $150 per acre. Prices of products were soaring. Everyone was on the highroad not only to comfort, but to wealth and luxury. Second, third, and fourth mortgages were considered just as good as government bonds. Money was easy, and every bank was ready and anxious to loan money to any Tom, Dick, or Harry on the possibility that he would make enough in these trades to repay the loans almost before the day was over. Every country bank and every county-seat town was a replica in miniature of brisk day on the board of trade.
The drastic deflation of Iowa loans under the orders from the Federal Reserve Board, upon which Smith Wildman Brookhart, depression Senator from Iowa, poured forth his venom, definitely marked the downward turn in the mythical prosperity of boom days. Despite our hopes for the better, conditions have grown steadily worse.”
“During the year after the great debacle of 1929 the flood of foreclosure actions did not reach any great peak, but in the years 1931 and 1932 the tidal wave was upon us. Insurance companies and large investors had not as yet realized (and in some instances do not yet realize) that, with the low price of farm commodities and the gradual exhaustion of savings and reserves, the formerly safe and sane investments in farm mortgages could not be worked out, taxes and interest could not be paid, and liquidation could not be made. With an utter disregard of the possibilities of payment or refinancing, the large loan companies plunged ahead to make the Iowa farmer pay his loans in full or turn over the real estate to the mortgage holder. Deficiency judgments and the resultant receivership were the clubs they used to make the honest but indigent farm owners yield immediate possession of the farms.
Men who had sunk every dollar they possessed in the purchase, upkeep, and improvement of their home places were turned out with small amounts of personal property as their only assets. Landowners who regarded farm land as the ultimate in safety, after using their outside resources in vain attempts to hold their lands, saw these assets go under the sheriff’s hammer on the courthouse steps.
During the two-year period of 1931-32, in this formerly prosperous Iowa county, twelve and a half per cent of farms went under the hammer, and almost twenty-five per cent of the mortgaged farm real estate was foreclosed. And the conditions in my home county have been substantially duplicated in every one of the ninety-nine counties of Iowa and in those of the surrounding states.
We lawyers of the Corn Belt have had to develop a new type of practice, for in pre-war days foreclosure litigation amounted to but a small part of the general practice. In these years of the depression almost one-third of the cases filed have to do with the situation. Our courts are clogged with such matters.”
“Gone, too, is that pride of ownership which made possible the development of stock and dairy farms with their herds of fat cattle and hogs, their Jersey cows, their well-kept groves and buildings which beautified and developed the countryside. The former owners were willing to use a large part of receipts from a farm’s income to increase its value and appearance but the present absentee owner regards it only as a source of possible dividends.”
“From a lawyer’s point of view, one of the most serious effects of the economics crisis lies in the rapid and permanent disintegration of established estates throughout the Corn Belt. Families of moderate means as well as those of considerable fortunes who have been clients of my particular office for three to four generations in many instances have lost their savings, their investments, and their homes; while their business, which for many years has been a continuous source of income, has become merely an additional responsibility as we strive to protect them from foreclosures, judicial receivership, deficiency judgments, and probably bankruptcy.”
“The old maxim of three generations between shirt sleeves and shirt sleeves is finding a new meaning out here in the Corn Belt, when return to very limited means in a formerly prosperous population is the result not of high living and spending, but of high taxes, high dollars, and radically reduced income from the sale of basic products.
George Warner, aged seventy-four, who had for years operated one hundred and sixty acres in the northeast corner of the county and in the early boom days had purchased an additional quarter section, is typical of hundreds in the Corn Belt. He had retired and with his wife was living comfortably in his square white house in town a few blocks from my home. Sober, industrious, pillars of the church and active in good works, he and his wife may well be considered typical retired farmers. Their three boys wanted to get started in business after they were graduated from high school, and George, to finance their endeavors, put a mortgage, reasonable in amount, on his two places. Last fall a son out of a job brought his family and came home to live with the old people. The tenants on the farms could not pay their rent, and George could not pay interest and taxes. George’s land was sold at tax sale and a foreclosure action was brought against the farms by the insurance company which held the mortgage. I did the best I could for him in the settlement, but to escape a deficiency judgment he surrendered the places beginning in March 1st of this year, and a few days ago I saw a mortgage recorded on his home in town. As he told me of it, the next day, tears came to his eyes and his lips trembled and he and I both thought of the years he had spent in building up the estate and making those acres bear fruit abundantly. Like another Job, he murmured “The Lord gave and the Lord hath taken away”; but I wondered if it was proper to place the responsibility for the breakdown of a faulty human economic system on the shoulders of the Lord.”
“When my friend George passes over the Jordan and I have to turn over to his wife the little that is left in accordance with the terms of his will drawn in more prosperous days, I presume I shall send his widow a receipted bill for services rendered during many years, and gaze again on the wreckage of a ruined estate.”
“I have represented bankrupt farmers and holders of claims for rent, notes, and mortgages against such farmers in dozens of bankruptcy hearings and court actions, and the most discouraging, disheartening experiences of my legal life have occurred when men of middle age, with families, go out of the bankruptcy court with furniture, team of horses and wagon, and a little stock as all that is left from twenty-five years of work, to try once more – not to build an estate – for that is usually impossible – but to provide clothing and food and shelter for the wife and children. And the powers that be seem to demand that these not only accept this situation but shall like it.