Benjamin Roth was born in New York City in 1894 and moved shortly thereafter to Youngstown, Ohio. He received a law degree and moved back to Youngstown after serving as an Army officer during World War I. When the stock market crashed in 1929, he had been practicing law for approximately 10 years, largely representing local businesses. After nearly two years, he began to grasp the magnitude of what had happened to American economic life, and in June 1931, he began writing down his impressions in a diary that he maintained intermittently until he died in 1978. His perceptions and experiences have a chilling similarity to our own era, and The Big Money believes that Roth's words—though they are 75 years old—have much to teach us today; we'll be serializing several excerpts.
Here is the first installment:
June 5, 1931. Immediately after the 1929 crash the speculators rushed in to buy "bargains" but were badly mistaken because the market kept going down and down even tho' industrial leaders kept on assuring the people that everything was fine and the worst was over. At the present time the newspapers are urging people to buy these "bargains" but opinion is much divided as to whether or not the bottom has been reached.
Investments in real estate and mortgages fared almost as badly as stocks. Since 1929 foreclosure by the banks has been the order of the day. Day after day real estate can be bought for the price of the first mortgage and there are no bidders except the bank which holds the first mortgage. In this way the banks are becoming the holders of huge quantities of real estate.
The worst feature about real estate in a depression is that it is illiquid and cannot be sold at any price. If it is free of mortgage the owner may hold on until normal times. But in most cases it is subject to mortgage; he cannot collect his rent from the tenants, cannot pay on his mortgage or taxes and eventually loses his equity by the foreclosure route.
June 15, 1931. Stocks continue to go lower and lower and dividends are being slashed right and left. For over a year now people have been buying stocks at what they think are bargain prices. These prices are much below 1929 but there is no way to tell if they have reached bottom. Only the blue chip stocks are still high. It seems there should be no rush to buy bargains in a panic. The opportunities are many and the period is often protracted. The best time to buy, of course, is when the panic is almost over. My guess is that we haven't seen the end yet.
[Subsequent annotation, dated February 12, 1936. I am re-reading this. These early buyers were badly mistaken and many of them were wiped out. The market reached bottom in the summer of 1932. After the summer of 1932 a slow upturn began.]
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. On account of numerous bank failures, the few people who have money are afraid to spend it and are buying government securities. From the extreme of speculation in 1929, people have now turned to the extreme of caution. In my own case I find it a problem to take in enough to pay expenses and there is nothing left for investment.
August 5, 1931. The town is stunned by the news that The Home Savings and Loan Co. has suspended payments and would demand 60 days notice of withdrawals. This is followed quickly by similar announcements from The Federal Savings and Loan Co. and The Metropolitan Savings and Loan Co. All of these loan companies paid 5 ½% on savings deposits and earned their money by lending on real estate. With the coming of the depression people stopped payments on their mortgages; mortgages became frozen and the banks had no ways to get cash. Mortgages are a safe investment but cannot be liquidated quickly and are not a good investment for a bank which has agreed to pay out its deposits on demand. For the past three days these institutions have been besieged by hysterical depositors demanding their money.
This is the first in a series of Depression era diaries originally published by NEWSWEEK's content partner, TheBigMoney.com