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Isn’t it about time that we began thoughtfully to examine some of the fundamentals of our banking and investment theories and methods?-- Former bank president in New York, November, 1932
An article from a former bank president in New York - November, 1932By Dr. Housing Bubble
August 16, 2007
Source...I’ll be posting an article that came out in the Saturday Evening Post in November of 1932 from a former bank president in New York, three years after the crash, highlighting the economic situation of a post bubble world. This is an old article so I retyped the important paragraphs:“If I draw illustrations from the banking field to indicate the limits to which the depression reached, it is only because I am writing about banks and not because the banks are the one glaring example marking the extent of the financial cataclysm. The railroads, the insurance companies, the building-and-loan societies and mortgage companies would quite as well depict the situation.
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The decline in the price of bank stocks was only a minor phase of our debacle. The quoted value of all stocks listed on the New York Stock Exchange was, on September 1, 1929, $89,668,276,854. By July 1, 1932, the quoted value of all stocks had fallen to $15,633,479,577.
Stockholders had lost $74,000,000,000. This figure is so large that not many minds can grasp it. It is $616 for every one of us in America. It is, roughly, three times what we spent in fighting the World War. The bursting of the South Sea Bubble concerned a single company. In the bursting of the New York Stock Exchange bubble, the value of all stocks fell to 17 per cent of their September 1, 1929, price – almost as great a drop as the South Sea Company stock, with its fall to 13 per cent of its top price. Remember that this calculation is not a selected example. It is made from the average of all stocks listed on the Exchange.
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The South Sea Bubble wasn’t so much! We have done pretty well in the way of bubbles in our own time. All financial history shows no parallel to what we have been going through. Never before, in this country or anywhere else, has there been such a general loss in “security” values.
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The decline in the quoted value of New York listed stocks is only part of the story. The total of real-estate mortgages in default, particularly mortgages on city property, is unexampled. The value of real estate can no longer be accurately appraised, because the market for real estate has been practically paralyzed.
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The loss of $74,000,000,000 in the value of New York listed stocks is something more than a mere item of financial data. Implicated in it are ten million cruel heartaches. I am using “million” as an adjective, and making an understatement. The laborious savings of an uncounted number of lifetimes have been swept away. Prudent provisions for the future has been made to contrast unfavorably with the pleasures of spendthrift waste…
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Not only did our investments shrivel in the last three years but we even frequently lost our pocketbooks. Cash in hand, left for safekeeping in a bank, often went the way of our investments, and worse. Almost $3,000,000,000 of our daily-used cash funds were sequestered in the doubtful assets of the 4835 insolvent banks. Widespread communities were left with only the mattress as a safe depository, and with little to put into it. People became so frightened in regard to the safety of the banks that they locked up in safe-deposit vaults, or selected elsewhere, more than $1,500,000,000.
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This is a shameful and humiliating exhibition. It is uniquely bad. Across the border in Canada, there was not a single bank failure during our period of depression, and one must go back to 1923 to find even a small one. Nowhere else in the world at any time, were it a time of war, or of famine, or of disaster, has any other people recorded so many bank failures in a similar period as did we. We were not experiencing a war, a famine or any other natural disaster. All the economic tribulations we have undergone in the past three years have been man-made troubles, and Nature has continued to shower us with an easy abundance – more, indeed, than we have known how to distribute with economic wisdom.
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Human stupidity and cupidity were the taproots of this great financial disaster. Those are evils which will always best us. There have, however, been revealed faults and weaknesses in our banking and investment practices that account in part for the extreme nature of this experience. Isn’t it about time that we began thoughtfully to examine some of the fundamentals of our banking and investment theories and methods?"