Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
The Great Depression (12 page)
Chile goes off gold standard, Brazil may follow and still the stock market continues its unbroken decline.
No change for better. First quarter reports show that Sheet & Tube lost 3 million. Republic lost 2 million and U.S. Steel lost about 12 million. U.S. Steel drops common dividend and sells at 27. Western Union sells at 24. Receiver asked for Continental Shares. With most people it has come to a daily effort to get food. It is almost funny today to see how quickly people are willing to plead poverty and brag about how much they lost.
EDITOR’S NOTEIn 1924 war veterans of World War I were rewarded a pension, or “bonus,” of about a thousand dollars for their service to be delivered in 1945. But beginning in the late ’20s, war veterans—who had become a major national political force—began demanding that the government pay the bonus immediately. In May 1932 a few veterans in Portland, Oregon, led by a sergeant named Walter W. Waters who’d endured joblessness for eighteen months, decided to march on Washington and demand an early distribution of their bonuses. They dubbed themselves the Bonus Expeditionary Force, a reference to the American Expeditionary Force that was dispatched to Europe during World War I. The small Portland group jumped onto boxcars and began their trek to Washington. Their voyage was mostly peaceful and orderly. But in East St. Louis, after they were booted from a freight train and the Illinois National Guard came to break them up, the “bonus army” didn’t just become front-page news but a national movement. More and more out-of-work vets from around the country joined the march; Roth would see a group of veterans in Youngstown in June. By the time Waters and his crew reached Washington, one thousand vets, dressed in their old, tattered army attire, had descended on the capital. In the coming months, their number would swell to more than twenty thousand. As Roth notes, the incident ended in violence.
In connection with the two billion dollar bonus for soldiers of the world war there is considerable agitation for the issue of “fast” money and again there is considerable talk in Congress and on the street on the subject of sound currency, controlled inflation, silver and gold standard, bringing back prices to 1926 level, etc. So far Congress has failed to balance the budget. The veterans of the world war appear to have unlimited power over Congress and it is possible their demand for bonus money will have to be satisfied.
Awaiting the Congressional vote on a “bonus bill” that would release the pensions promised to World War I veterans in 1932—rather than 1945 as originally planned—thousands of men camped in front of the Capitol on June 13, 1932, to the agitation of President Hoover. (Library of Congress)
Food prices are way down—eggs fresh from the farm sell in the city at 15¢ per doz. Butter @ 25, etc.
Stocks are almost back to 1900 levels and receiverships for railroads are often mentioned. Railroads are fighting back by cutting fares, improving service, etc.
It seems certain now that the Dollar Bank will re-open shortly with the help of a large loan from the government reconstruction corporation. No news about the City Bank.
Tomorrow is primary election day and there is literally a swarm of candidates for each office—17 for sheriff; 7 for prosecutor, etc. Hard times has a great deal to do with it.
Signs of the times:
French premier shot and killed by a fanatic.
Five people killed in Chicago communistic rioting.
Community chest drive opens tomorrow with much greater needs and little chance of getting it.
Dr. Philo [a Youngstown rabbi] chooses as his topic last night “If I Were Dictator of the U.S.”
He makes numerous radical statements.
Again I question if any man could have foreseen the severity of this depression. Both stocks and commodity prices are back to 1899 level. Those men who were wise enough to sell during the boom and then keep their funds liquid in the form of government bonds, etc. were not far-sighted or patient enough to wait almost three years to re-invest. Most of them reinvested a year or more ago and now find stock prices have sagged to 1/3 of what they were when they thought they were buying bargains. Of course they will come out ahead if they can hold on long enough and—most important of all just now—if a receivership does not intervene. Patience, rather than boldness, seems to be required just now. A receivership is possible today for any corporation except possibly the very largest such as U.S. Steel, AT&T etc.
I question whether it is not a wiser plan today for the purchase (of either stocks, bonds or a business) to actually wait until the turn has come before he does any buying. Of course he will have to pay more but at least he avoids further depression with the possibility of a receivership if the interim of waiting for business to turn is too long extended.
Rodef Sholom Temple holds its annual meeting tonight and the congregation faces grave problems in planning a budget for next year.
All “wet” candidates win in today’s poll. Looks as tho present unrest will bring with it prohibition repeal.
The Keith-Albee Theater announces policy of exhibiting only moving pictures hereafter without vaudeville b/c of the economic conditions. This leaves Youngstown without a vaudeville theater.
Beginning next week employees in McKelvey store will be paid by commission on sales—instead of a regular salary.
Good news at last. The court today authorized the re-opening of the Dollar Bank. Checking accounts can be withdrawn in full but savings accounts only to the extent of 10%. There remains among the larger banks only the City Bank to be re-opened. Even in the banks that re-opened, the stockholders are heavy losers.
An armored truck from Cleveland Federal Reserve Bank just delivered three million dollars in cash to the Dollar Savings & Trust Co. which reopens tomorrow morning. This represents a loan from the government Reconstruction Finance. As collateral, the Dollar Bank turned over to the Federal Reserve Banks its “frozen assets” consisting of mortgages, notes, etc. Without this loan the Dollar Bank could not have re-opened. It is likely that the City Bank will be re-opened in the same way.
I talked to Miss K—this morning. She says that at time of Bethlehem Sheet & Tube merger fight, she was owner of 1200 Sheet & Tube common. Sold most of it to the highest bidder at $165 per share and almost immediately re-invested in Republic Steel at 70. She did not realize that she would have to pay a huge income tax and later was hard put to raise cash to pay this tax because in the meanwhile the banks had closed and Republic Steel was selling at about $3 per share. Here again an ideal situation would have been created if she had placed all the cash in government securities and then reinvested during the panic when Republic and other stocks were way down. Such foresight was apparently given to a few people.
Signs of the time:
MAY 18, 1932Japanese Premier is assassinated. This is the second Japanese premier to die this way in the past year.Peru and Brazil are now both off the gold standard. France continues to withdraw gold from the U.S.The stock market continues its steady decline without a halt. This has been going on for several weeks.
The Dollar Savings and Trust Co. re-opens this morning with a great deal of ceremony including blowing of whistles, flags on the stores, etc. The bank is now filled with people withdrawing money in an orderly fashion. The line of people outside is 4 abreast and extends from the main entrance back to the Wick Ave. entrance. Approximately five million dollars will be put into circulation by these withdrawals.
Withdrawal depositors of Dollar Bank again stand all day in line four abreast extending back to Wick Ave. entrance. Everything is quiet and orderly. The interior of the bank is full of flowers. I just congratulated Carl Ullman who was named executive vice-president.
Each day brings new and interesting stories of great fortunes wiped out in the past year. Here are a few that appear to be well-founded:
1. W. G. Mather of Cleveland held steel stocks (most Sheet & Tube) worth forty million in 1929. When he died in 1931 his estate had dwindled to six million and his will gave to charity bequests amounting to $3 million. At the present date the estate has further dwindled so as to leave nothing to the heirs. His estate contained no bonds or government bonds.
2. Mr. F. F. of Youngstown invested his all in Dollar Bank stock and for years had lived comfortably on a monthly income of about $1000. With closing of bank last October his income stopped and he faced the possibility of double liability. The re-opening of the Dollar Bank may eventually pull him through but he faces a long period of uncertainty. Here again there was no diversity.
3. Mr. M. T.’s story is about the same. In 1929 he sold at top price his holdings in Sheet & Tube. Immediately reinvested in City Bank stock and the other 1/2 in Republic Steel Common @ 70. City Bank now closed with possible double liability to stockholders and Republic @ 3. Again no back-log of governments or other high grade bonds.
4. Miss K—who is of German extraction invested considerable money in German bonds during the post-war currency inflation period. These bonds are now about worthless. To make the investors feel better she tells me the German government now runs a lottery by “drawing” a few bond numbers each month. The lucky holders get 5 times the original cost of the bond—the others get nothing.
And so the stories run without end. It all comes to the same point. Every investor should at all times have a reasonable portion of his holdings in liquid securities that can’t shrink much. In boom times everything should be sold and converted into government securities. When prices of more speculative stocks and bonds and businesses have reached bottom—then is the time to buy again.
The line of depositors withdrawing money from the Dollar Bank becomes shorter every day.
It occurs to me that preferred stocks are better to gamble with today than common. If prices keep going down, then corporate earnings (and price of common stocks) will be low.
When conditions pick up the common stocks will still sell at about 7 or 8 times earnings but the preferred (if the company survives) will then be worth $100 par plus three or four years accumulated dividends at 6 or 7 %. For instance Republic pffd @ 8 serves a better gamble than the common @ 3 and likewise Sheet & Tube pffd @ 25 looks better than common @ 8. Both stocks now have more than 2 years of cumulative dividends due. For real investment purposes many good bonds can be bought today at a yield of 8 to 10%.
3/5/68This proved to be correct. Almost all of these preferred stocks eventually paid off in full plus accumulated dividends.
The line of withdrawing depositors has disappeared from in front of the Dollar Bank and the bank is settling down to normal business.
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