The Great Depression Diaries

A serialization on In The Big Money of the diary of Benjamin Roth, a lawyer for local businesses who lived through the Great Depression, there’s several entries with disturbing parallels to our present economic crisis. Here’s one:

July 30, 1931. Magazines and newspapers are full of articles telling people to buy stocks, real estate etc. at present bargain prices. They say that times are sure to get better and that many big fortunes have been built this way. The trouble is that nobody has any money.

Depression Diary [The Big Money]

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  1. Crabby Cakes says:

    And who can get a mortgage to buy real estate with the current credit crisis?

    • chrylis says:

      @Crabby Cakes: I can. I just locked a 30-year mortgage at 6% with .75 points.

      That said, I work, and I had to cough up pages and pages of documentation to prove that I have a reliable income. I’ve been careful with my credit, and so now, out of college 2 years, I have a very high credit score (although I did have to get a negative item–apparently a billing mistake–removed to get a decent rate). And, perhaps most important, I’m making a down payment of 10%.

      Banks are lending… but they’re remembering that they don’t make profits if borrowers don’t pay them back, and so are making as sure as they can that they lend only to people and businesses who will pay them back.

    • woohhaa says:

      @Crabby Cakes: I just got a great deal on a house. Mortgaged through Bank of America with a low originators fee and 6.00% interest. It was pretty easy, except the whole signing over your soul thing. I had some trouble with that.

    • FLConsumer says:

      @Crabby Cakes: The banks are lending to people who can actually afford the house they want to (re)finance now. No shortage of loans being made out there for residential housing that I’ve heard of in Florida, even in the bubble areas.

  2. ryno365 says:

    my life after college graduation is starting to look worse and worse

    • laserjobs says:

      @ryno365: Hopefully you are studying Bartending

      • ChuckECheese says:

        @laserjobs: Excellent comment. My friend’s bar has seen a 20% decline in receipts in the past year. I told him to start selling Milwaukee’s Best Light on tap.

    • Cat_In_A_Hat says:

      @ryno365: Already there. Graduated last year, working entry-level, and just got an additonal part-time job so I could cover my basic expenses and start saving again. Adulthood feels fantastic!!!! (but I also live in San Francisco, one of the most expensive cities in the world so this is what I should expect)

    • mcjake says:

      @ryno365: You aren’t the only one dude. Both my wife and I graduated two years ago and it’s been a pretty bleak situation for both of us. She ended up having to work at Starbucks and I’m still making no where near as much as I should considering how much responsibility they have piled on me. Oh, yeah and it totally doesn’t help my company is bleeding money right now.

      But look on the bright side. If you have younger siblings the economy should be great for them when they graduate. I know it will be for my brother and sister who are freshman. Shit, well, at least I know I hope it will be.

      • Xerloq says:

        @mcjake: Not to rain on your parade, or anything, but sounds like you have a normal, entry level job – the kind that’s one step above an internship? Perhaps this can help you: [consumerist.com] In any case, I’ve been in your shoes. Just be glad you’re both employed, and focus on keeping your job. Most believe unemployment’s only going up.

        As for your wife, sorry man, that sucks.

    • Robobot says:

      @ryno365: Same. It’s a scary time to have your head buried in books, huh?

      The field I’m going into has a stable and very large employment base here in the D.C. area, but that is not exactly reassuring even in the most “recession-proof” area of the country these days.

    • mac-phisto says:

      @ryno365: so why graduate? :P

      seriously though, take advantage of opportunities on-campus to assure that you have a job when you leave & if that doesn’t pan out, maybe it makes sense to stay a little longer – there’s nothing wrong with adding on a minor study or two, or even moving on to graduate school right away. you might consider obtaining your teaching certification (that’s one field that always seems to be hiring).

      the good news is, you have an advantage over many people currently in the workforce in that you’re a cheap hire. companies looking to save a few bucks will often can the well-paid experienced workers & replace them with recent grads at a fraction of the cost in compensation & benefits.

  3. EricLecarde says:

    Wow, its like looking into a mirror. Whats funny is because of all this, I’ve considered buying stocks in hopes that the economy will turn. Maybe I should buy out Ford or GM…. I’ve got 50 bucks in change at the house. I’m sure with that I could buy both of them at the same time.

  4. thewriteguy says:

    To those who think now is the time to buy stocks:

    Who’s to say the stocks of certain companies will ever go back up? Maybe they have been seriously overvalued for several years, and they are, in fact, going down to their “real” value.

    The belief that stocks will always rise in value is a false one. Things do go down in value over time — cars and computer hardware are the foremost examples of this. Why do Americans these days feel that stock in a company, or a house/real estate, is an exception to the simple law of supply and demand?

    • catcherintheeye says:

      @thewriteguy: I agree that these companies may have been overvalued, but since a stock is an evaluation of a company’s future earnings, and if we assume that a company will continue to grow at a certain percentage, then the stock will surely grow, as well.

      The difference between cars and computer hardware is that cars and computer hardware depreciate. A company growing at 5% a year does not.

    • B says:

      @thewriteguy: Companies make money, they have profits, which is distributed to the shareholders via dividends. That’s why they don’t act like cars or computers which lose money over time.

    • Xerloq says:

      @thewriteguy: In a very basic macro-economic sense, assets (like stocks) generally go up in value. A car and a computer aren’t assets in this sense.

      Adam smith is your friend. Also, see these comments:@catcherintheeye: @B:

    • loueloui says:

      @thewriteguy: @thewriteguy:

      These are actually two particularly bad comparisons. The depreciation cycle on computer equipment, and cars are extremely short. Neither of these items produces a direct return on investment (unless of course you are buying a car to turn it into a taxi).

      Those people investing over the long haul should do well. I am in my early 30s and won’t need this money for 20+ years. Think about the difference between the 1930s(poverty, hunger, desperation) and the 1950s(explosive growth, prosperity, rise of consumerism). Unless you plan on working your whole life, or need the money soon, BUY STOCKS NOW!

      Don’t forget that over any 15 year period, including the Great Depression, the stock market has never lost money. The people who should be afraid are the day traders, and the get-rich-quick flipping houses idiots. I hope they get the drubbing they so rightfully deserve.

    • woohhaa says:

      @thewriteguy: @thewriteguy: @Jevia: Hell when I lived in Mississippi I ate rabbit, squirrel, frogs, deer, and various other varmint my family and I killed. My grand mother made some hella good squirrel dumplings but she wasn’t so good at getting all the bird shot out.

  5. MercuryPDX says:

    My grandmother and her sister emigrated here from Italy.
    This was one of her Great Depression stories told to me when I was seven years old:

    Meat was a luxury, so she and her sister set up a bushel basket in the back yard with some scraps of bread. Passing crows looking for a snack would swoop in. My great aunt would yank out the stick, trapping the crow in the basket. My grandmother’s job was to reach underneath the basket and snap the crows neck. They’d prep it like a chicken and eat it for dinner.

    I looked up from my dinner, horrified. My dad nodded that it was true. From that day forward I never ate anything my grandmother cooked… ever.

    • m4ximusprim3 says:

      @MercuryPDX: My grandmother hunted pigeons with a bolo. No joke.

    • samurailynn says:

      @MercuryPDX: I’ve joked about raising rabbits in my backyard if things get too bad. We have a lot of squirrels running around in our neighborhood, but they have so little meat on them that I don’t think they’d be worth it.

      • chauncy that billups says:

        @samurailynn: gives new meaning to the phrase “Eat crow”, huh…

      • The Warrior-Poet says:

        @samurailynn: Try opossum (from the Proto-Algonquian for “white dog”). We hillfolks can attest that it’s meatier than squirrel (and easily obtainable right off the backcountry blacktops–no trapping skills required). Heck, just lure your neighbor’s dog onto the back porch, if need be. Mr. Cheetoh Jackson (the best orange cat in the world) would be highly appreciative, too. (He would even help, I’m sure, wily devil that he is.)

    • Jevia says:

      @MercuryPDX: Just an FYI, but outside the U.S. people eat all sorts of things. I have relatives in Europe and have eaten rabbit, pigeon, frog, quail, pigs feet, and other assorted parts of cows that I never see in US markets. Waste not, want not.

  6. billbillbillbill says:

    I hate these comparisons to the Great Depression-

    Unemployment: Then 25% Now- 6.9% Not even close
    Foreclosure: Then- 40% Now 2% Not even close
    Also- 1930′s had no insider trading laws, tons less regulation

    We are far better off and will pull through this time just like we have in the 70′s, 80′s and 90′s.

    • howie_in_az says:

      @billbillbillbill: The Great Depression lasted for months, and we still use months in our calendars. Not so smart now, are ya?

    • sburnap42 says:

      @billbillbillbill: The unemployment rate in 1930 went from 3.2% to 8.7%. That is the year after the crash. It took three years to hit 25%. We’re only a month after last month’s debacle.

      Hopefully we will avoid a real depression, but looking at today’s unemployment rate is pretty meaningless. Companies don’t instantly start laying off. Instead, they slowly shed jobs as the capital for new work dries up.

    • fizatdh says:

      @billbillbillbill: Also tons of banks literally failed so people lost their entire savings, I think/hope the FDIC has prevented this.

    • dantsea says:

      @billbillbillbill: Shush, now. You’re going to ruin everyone’s financial apocalypse fantasies. You’re supposed to run around screaming OH NOES OH NOES in a high pitched voice, dontcha know.

    • Brontide says:

      @billbillbillbill: They have changed the unemployment stats. If you look at U6 rather than the “official” number you will see we are over 10% nationally and much higher in some locations.

      • chauncy that billups says:

        @snowmoon: BULLSHIT.

        • losiek says:

          @bilups: I wanted to say the same but snowmoon is right to some extent. Unemployment rate now is calculated as “number of people actively seeking jobs, who are unemployed”. It is adjusted by people, who “fell out” of job market. Exactly how this “falling out” is calculated no one knows, so the whole rate is bull.

          • Tmoney02 says:

            @bilups: @losiek: who “fell out” of job market. Exactly how this “falling out” is calculated no one knows,

            The term you are looking for is “discouraged workers”. A person becomes a discouraged worker when they do not “actively” seek out employment for two weeks. Actively being going on interviews, searching the unemployment ads, etc.

            Once you are a deemed a discouraged worker you are no long counted in the unemployment figures.

            Thus yes unemployment figures are misleading and don’t paint a true picture of how bad things are because the worse things get the more people give up and try to make do on single incomes or savings/welfare/social security.

            Just look at Michigan unemployment rate of 8.7%. That doesn’t mean 91.3% of able workers are employed. Believe me I am from there and the number that would take/need jobs especially full time jobs is way way higher than 8.7%. This also makes it hard to lower the unemployment rate because as things improve more people start looking again and keep the number up until all the discouraged workers are brought back into the system.

        • Brontide says:

          @bilups: No BS…

          [www.bls.gov]

          From the horses mouth, the Bureau of Labor and Statistics. The seasonally adjusted October numbers will be a disaster as well.

        • Tmoney02 says:

          @bilups: I think you need to read this article about how all the numbers you hear on the news aren’t that accurate and have been tweaked over the past 40 years by politicians to make things appear better.

          Harpers article from May 2008
          From the conclusion of the May 2008 article:
          “The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today’s U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional “Pollyanna Creep,” what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically but globally.”

    • humphrmi says:

      @billbillbillbill: Absolutely. And if you read any text books on what turned the recession into the “Great Depression”, it was protectionism. You see this over and over again – the panic and bank failures and unemployment would have ended sooner and countries would have avoided depression if they didn’t have protectionist policies that prevented recovery. Every country set out to make their country’s economy “safe”, but without any regard for other countries and the impact on the world economy. So some countries, for instance, stop accepting imports (to keep their own farmers busy) which didn’t really help them (farmers still wanted to get paid, and nobody had enough money) and made the other countries fall into deeper depression.

      Today, countries are working together to solve problems. Nobody is protecting their economy at the expense of other countries (other than those who already had been, who will undoubtedly be even worse off.)

    • JiminyChristmas says:

      @billbillbillbill: Actually, the late 70s through early 80s would be bad enough. I was just a kid at the time, but you can just look at some stats and imagine how awful it was.

      Imagine a 30-year fixed mortgage rate of 18%. National average unemployment of 12%, with some state averages above 15%. Annual inflation rates over 14%. You can find all those around 1980.

      • The Warrior-Poet says:

        @JiminyChristmas: I, too, remember the Carter recession / malaise vividly, though I was (much) younger at the time. My father was a small businessman (that is to say, his business was modest, though he was not a small Man). Due to hijackings of tractor-trailers for their cargo, he would meet propane deliveries strapped with a long-barreled revolver; holstered, yes, but in plain view to dissuade the foolish. And we managed to survive those times.

  7. mcjake says:

    Holy shit. That certainly is very erie.

  8. Alexei says:

    My great-grandfather was also a lawyer in Youngstown during the Depression. As my family tells it, he did quite well through the crisis by bartering his services. The grocer might give the household food for a month in exchange for my great-grandfather drawing up a will, etc. My great-grandfather also got cheap servants willing to work for room and board, which always rather horrified me as a child because it sounded like slavery.

    The moral of the story is that if you have skills that are rare and useful locally, you can weather all sorts of financial crises.

    • mcjake says:

      @Alexei: Damn, I totally missed you on that one. I thought the moral of the story was that if you looked in the right place during these uncertain financial times you could get yourself a set of really cheap slaves.

  9. no.no.notorious says:

    good thing all our goods are made in china because otherwise they’d be wayyyy too expensive for times like these. at least some country has people working for pennies so we can afford those bratz dolls and mac books.

    /sarc. we’re so well off in comparison to other countries it’s disgusting that people think that this is a depression. ok so, you may have to scrimp a little bit with groceries, but in the long run, we’re going to be A.O.K.

  10. thebluepill says:

    If you look at history and growth since the dow’s inception, the market should be about 9K in 2009; 13-14K was nothing more than a bubble.

    [finance.yahoo.com]

    • losiek says:

      @thebluepill: Exactly. This is how I am explaining this to people: if growth on the market is more than real inflation (close to 6% over last few years) + GDP growth (something like 2%), we are in a bubble, there will be a correction coming.

  11. chauncy that billups says:

    The quote in the original post doesn’t really have any parallels to today, except the omnipresence of yellow journalism. 1) People today have plenty of money. Bank runs in 29 and 30 caused a lot of people to go bust. We are backstopped by the FDIC. 2) The market is definitely oversold. As Warren Buffett himself says, if you have money, buy equities because these firms are worth more than the present market price. 3) Whereas the depression was caused by the tightening of monetary policy and protectionism, the current (evil, so so so evil) administration is doing everything in its power to relax monetary policy to provide liquidity to the system. And it’s working. And unless Obama undoes everything that Bush has tried to do in the past few weeks, we should squeak by with a small recession. My prediction is that modern technology and the speed of the financial system today will reduce the length of any recession because growth can move so fast now.

  12. moore850 says:

    That classic picture says a lot… we are in bad times, but we are a long way from bankrupted investors selling their cars for whatever they can get cash on wall street.

  13. Urgleglurk says:

    @EricLecarde:

    Your $50 could probably buy the Ford and GM companies…

  14. bishophicks says:

    On another board back in January I wrote that the coming recession was going to be bad. About 4-5% of our economic activity was based on borrowed money. Once we reach our collective borrowing limit, that extra activity vanishes. Also, we still owe the money and now have to service the debt (pay it down) so the spending on goods and services shrinks even more. I wouldn’t be surprised if the economy shrinks by 5-8% over the next couple of years.

    But I don’t think we’re headed for a depression (25% unemployment, 30% decrease in economic activity). Yes, there are similarities, but there are also major differences. The Depression hit it’s peak around 1932 (peak unemployment, bottom of the market, etc.). Why? Because until right around that time, the government did next to nothing except take steps that tightened credit, reduced government spending, and reduced economic activity. There was no deposit insurance back then, so if your local bank failed, you lost your savings. The first side effect is that people stopped trusting banks with their money, and the second is that a bank without deposits can’t make loans. How much is any big ticket item you own worth if the general public can’t borrow money to buy it off you? The ultimate result was deflation, which is an economic catastrophe.

    Today, rather than doing nothing, the world governments are doing everything they can think of to keep the banks lending and the system functioning which is kind of the opposite of what happened in the early 30′s.

    I’ve been paying attention to the markets since the 80′s and I remember Depression comparisions after 1987, 1992, 1998 and 2000. I think the next couple of years are going to suck, but I don’t think we’re headed for a world wide economic catastrophe. I also hope that 5 years from now we as a nation will actually have a decent savings rate, we’ll be building/buying more modest, more energy efficient homes, and people won’t be carrying ridiculous credit card balances because that will have stopped buying stupid crap they don’t need.