The Great Depression (18 page)
Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
President Hoover delivered his “farewell address” yesterday. He pointed out that the world is now engaged in economic warfare which may spell ruin. 44 Nations are off gold standard and only U.S. and France are left among the leaders. These 44 nations have depreciated our almost worthless currency and are flooding U.S. with low priced merchandise paid for in worthless or depreciated currency. Even with our tariff walls we can’t compete. If Europe wants us to cut down war debts she will have to go back on gold standard and stabilize her currency. Otherwise we will also have to go off the gold standard and depreciate our currency in order to compete in this destructive trade war.
The country is shocked by an order of the governor of Michigan closing every bank in the state for 8 days. The situation was created by the imminent closing of one of the largest banks in Detroit and the fear that other banks would follow. Detroit as an automobile center has been hit harder than the average city by the depression. It is feared that the action in Michigan will bring reactions in other states.
A similar situation existed in Louisiana last week but the situation was relieved after 24 hours by the help of government money.
So far there has been no serious reaction in other states of the Michigan Bank Holiday. Not only are the banks closed in that state but business is at a standstill because of lack of cash.
Other news items of the day:
FEBRUARY 24, 1933Japan withdraws from League of Nation and continues her war against China.Farmer strikes in the West continue. Milk is being dumped rather than sold at a penny a quart. Youngstown retail price of milk is 8¢ per quart.President-elect Roosevelt is shot at five times by an Italian radical but escapes injury. Several other persons are seriously hurt.The distrust in banks all over the country makes it difficult as well as risky to transact business.
The Michigan “Bank Holiday” ends and the banks re-open but restrict withdrawals to 5% of the amount on deposit. This will probably continue for some time.
Two banks in Indiana follow the Michigan example and severely restrict withdrawals. In actual practice this is almost as bad as closing the bank.
Japan is now invading China and a real war threatens.
There has been no “spring rise” this year in the stock market and the trend is downward. The average is 45 and some prices at random are: Truscon 3; Sheet & Tube 9—pffd 19; AT&T 97; U.S. Steel 26; Gen. Motr. 11; Gen. Elec. 11; Radio 3.
I am reading Beveridge’s
Life of Abraham Lincoln
. It contains some description of the panic of 1837. I am again struck by the similarity between conditions in 1837-1873-1893 and now. Sound currency at all times has been one of the main issues.
Life of Abraham Lincoln
. It contains some description of the panic of 1837. I am again struck by the similarity between conditions in 1837-1873-1893 and now. Sound currency at all times has been one of the main issues.
Every bank in the State of Maryland closes today in an enforced “holiday” brought on by excessive withdrawals. The governor asks the State Legislature of Maryland to pass a law permitting the banks to reopen under very restricted withdrawals as in Michigan. At the same time the governor of Indiana gives to the State Banking Dept. full power to limit withdrawals to any extent that may become necessary. I hope the movement does not spread further because it paralyzes business.
The purchase and sale of pass books on restricted withdrawal banks has become a regular business in Youngstown. By state order it can be handled only by the regular brokerage houses. The daily newspapers list quotations the same as stocks and bonds. The following was taken from last night’s
Vindicator
:
Vindicator
:
PASS BOOK PRICES
(Quoted by Licensed Brokers)
(Quoted by Licensed Brokers)
| Last Sales | |
|---|---|
| Central Savings & Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 25 |
| City Trust & Savings Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 52 |
| Mutual Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 36 |
| Dollar Savings & Trust Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 70 |
| Federal Savings & Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 63 |
| Home Savings & Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 50 |
| Metropolitan Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 45 |
These books are purchased by debtors to pay off obligations owed to banks. Prices quoted are per $100.
Again and again dishonesty and speculation by bankers with bank funds becomes the subject of newspaper notoriety. The latest investigation discloses such practices on part of National City Bank of New York. By manipulation the officers boosted and unloaded on the public their own stock in National City Bank to the public as high as $650 per share when its book value was only $60. Likewise when the crash came this same bank sold out collateral of its customers but loaned money to its officers to save them from loss. Other similar practices enriched the bank officials at the expense of the depositors and the public. In spite of this the vast majority of banks and bankers were honest.
Thoughtful men everywhere express the thought that something is wrong with our banking system and Europe looks on in amazement. Over there the banks are part of the government and close only when the government itself goes bad. We may come to such a form of banking ourselves. As it is now the careful and thoughtful people who followed the maxim of saving for the “rainy day” are just as badly off as the most profligate spend-thrift. In fact debtors who can lay their hands on a little money can pay their bills at 50% on the dollar by buying bank pass books. Very few however can avail themselves of the opportunity.
Again I witnessed happenings today that will be long remembered in the history of Youngstown and the State of Ohio. Without any warning this morning 69 banks in Ohio including three in Youngstown restricted withdrawals to approximately 5% of deposits. All day in the Union National Bank bedlam reigned with hundreds in line clamoring for money. There was no violence but I saw one woman faint. The same thing was happening in every other city of Ohio. The governor immediately called the State Legislature together to pass a restrictive banking law.
Practically every bank in State of Ohio is this morning restricting withdrawals to 5%. At 11:30 P.M. last night the governor of Ohio signed a law giving the banking dept. unlimited power to restrict withdrawals in any bank in any way he sees fit. As a result everything is at a standstill in Ohio, Michigan, Maryland and Indiana. I do not see how they can stop the movement from spreading to every state. If it does we will now have a “money panic” as we did in 1907.
I just returned from a tour of the banks. The Union National Bank seems hardest hit. About 300 people are lined up at the withdrawal windows. About 100 others are standing by waiting. At the other banks withdrawals are being made but very quietly.
Noon papers announce that the State of Pennsylvania has followed Ohio on a banking holiday. The streets outside are crowded with people all talking about banks.
The run on local banks—particularly on the Union National Bank—continues into its 3rd day but is abating rapidly. I was fortunate this morning in having the Union National Bank pay me $530 in
cash
for an out-of-state check I had given them several days ago “for collection only.” If I had originally deposited the check in my account in the usual way, it would have been indefinitely restricted. On the other hand I learned that the bank would not honor an insurance premium check I had issued prior to Feb. 28th.
cash
for an out-of-state check I had given them several days ago “for collection only.” If I had originally deposited the check in my account in the usual way, it would have been indefinitely restricted. On the other hand I learned that the bank would not honor an insurance premium check I had issued prior to Feb. 28th.
The “bank holiday” movement has now spread into 8 states. If it ever reaches the large New York banks I don’t know what will happen. There is considerable agitation for government control and guarantee of deposits. Also considerable blame is attached to the governor of Michigan who declared the original “holiday.” In the meanwhile Henry Ford in Detroit becomes practically the sole owner of the two largest banks in Detroit by paying eight million in cash. The old stock holders and officials step out and he becomes virtually the financial dictator of the city.
The “bank holiday” movement spreads to eight more states. It seems contagious. Also yesterday seven banks in Washington D.C. stopped withdrawals above 5%. So far New York has withstood the strain of withdrawals.
In the meanwhile, Congress has only two days to go before the inauguration of President-elect Roosevelt.
Times are certainly exciting. Everybody is talking of banks and money. Twenty-two states have now declared “bank holidays.” The latest to join the ranks are California and Texas. In most of the states the banks are not closed but withdrawals above 5% are refused. Only New England and New York still remain open. There is considerable talk of “scrip money” and of U.S. guarantee of deposits. In the meanwhile a new President will be inaugurated tomorrow. Backed by a united Democratic Congress and by Democratic administrations in nearly every state he has an unparalleled opportunity for service. The people are now waiting for the “new deal” he promised. It is my own guess that natural forces of recovery will go far toward making his administration a success.
Numerous lawsuits have been filed against banks in Cleveland to test the withdrawal restrictions. It is my guess the banks will be sustained by the courts on the grounds of “public policy.”
There is talk about closing the stock exchange during the period of the emergency.
EDITOR’S NOTEOn March 4, 1933, as one hundred thousand Americans gathered at the Capitol to witness his swearing in, Franklin Roosevelt proclaimed a national bank holiday from March 6 to March 9, under the somewhat dubious auspices of the Trading with the Enemy Act of 1917. The closing would allow the treasury secretary to reorganize the sound banks, set up loans from the Reconstruction Finance Corporation, and close the banks that wouldn’t make it. Roosevelt also chose not to issue scrip but to allow the Federal Reserve Board to print more currency to meet the demand so that, in under eight hours on March 9, Congress passed the Emergency Banking Act of 1933.
Today is inauguration day at Washington. Banks in thirty states are closed or withdrawals restricted. The situation becomes hourly more serious. The governor of New York holds an all-night conference with leading New York Bankers. This may be a fore-runner of trouble in that state. If so there may be a complete collapse of the stock market. So far it has held fairly well. The inaugural message of the incoming President is awaited eagerly. Scrip issued by banks has appeared in several Ohio towns. In Jefferson, Ohio it cannot be cashed until it has 20 endorsements.
Big news. An “extra” just announced that New York State and New York City Banks have joined “the bank holiday” and also that the New York Stock Exchange was closed at 9:15 to prevent trouble. It is also expected Chicago and other stock exchanges will be closed. Practically all banks of U.S. are under moratorium on payments. This last announcement comes at almost the exact moment that Franklin D. Roosevelt is being sworn in as President. It seems that every bank depositor in the country wants to withdraw his money and this of course is impossible. The closing of New York Banks and Stock Exchange was preceded by an all night session.
During my lunch I listened in on the radio and heard Roosevelt take the oath of office and heard his inaugural. I was a little disappointed. He promised immediate action but gave no definite plan. A special session of Congress will meet shortly and he will ask broad war-time authority to deal with the situation. The whole situation is dramatic however because it comes at the most acute point in the depression thus far.
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