Recommended Reading: “The Great Depression” by Benjamin Roth

Posted on October 19, 2010

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Found the book via Megan McArdle’s recent post – “Should We Just Call a ‘Do-Over’ on the Mortgage Market?“. (The answer is a resounding “no” BTW… There are other more painful, but more effective ways to solve the problem.)

Benjamin Roth was a lawyer in Youngstown, OH through the Great Depression and kept a running diary of his market observations.  They were later found and reprinted as a book cataloging life and outlooks during these times.  Here’s a couple of key points I’ve found after reading about 1/3 of it this morning:

  • Second mortgages greatly contributed to financial distress.  New homeowners entered the real estate markets as speculators, financed by second mortgages.  When the market crashed, so did mortgages.
  • Mortgage borrowers who could not make payments simply refused to do so.  Banks attempted foreclosures but there was little demand for the properties.
  • Hoover initially ignored cries for government intervention to economic woes.  When he did intervene, programs didn’t help.  This includes the Organization for Unemployment Relief, the Reconstruction Finance Corporation, the Agricultural Marketing Act, and the National Credit Association.  (I’ll forego linking to Wiki on these – Google the terms on your own…)
  • There was a general disconnect between underlying economic conditions and the financial markets in many cases.  When the market did crash, Congress investigated the practice of short-selling.  (Sound familiar?)
  • The 1932 primaries were dominated by candidates favoring the repeal of Prohibition.  Huh?  Seems the moral question is long-standing in American politics.  Made we wonder is this was then what abortion and gay rights are to today.
  • Banks slowed the pursuit of bankruptcy cases.  They figured it’s better to hope the individual or company works their way out in the long run to get something for the outstanding money owed than nothing.

I have a hunch I’ll be writing more about what I learn thanks to Benjamin Roth.