Wednesday, January 16, 2008

It's Never Been This Bad Before (reprint)

This article first ran April of 2007, but not everyone has been on board since the beginning of this blog. I thought it worth repeating.

Reading some of the blogs, I run up against this phrase “We’ve never been in a bubble like this before.” On one hand their right and on the other they are wrong. They're right that none of us alive have experience a calamity of this sort, but they are wrong in assuming that it hasn’t happened here before. Here is a cut and paste from: Xroads.virgina.edu (the link is well worth reading if you have time)

By 1927, according to Homer B. Vanderblue, most of the elaborate real-estate offices on Flagler Street in Miami were either closed or practically empty; the Davis Islands project, "bankrupt and unfinished," had been taken over by a syndicate organized by Stone & Webster; and many Florida cities, including Miami, were having difficulty collecting their taxes. By 1928 Henry S. Villard, writing in The Nation, thus described the approach to Miami by road: "Dead subdivisions line the highway, their pompous names half-obliterated on crumbling stucco gates. Lonely white-way lights stand guard over miles of cement side- walks, where grass and palmetto take the place of homes that were to be .... Whole sections of outlying subdivisions are composed of unoccupied houses, past which one speeds on broad thoroughfares as if traversing a city in the grip of death." In 1928 there were thirty-one bank failures in Florida; in 1929 there were fifty-seven; in both of these years the liabilities of the failed banks reached greater totals than were recorded for any other state in the Union. The Mediterranean fruitfly added to the gravity of the local economic situation in 1929 by ravaging the citrus crop. Bank clearings for Miami, which had climbed sensation- ally to over a billion dollars in 1925, marched sadly downhill again:
1925.............................$1,066,528,000
1926................................632,867,000
1927................................260,039,000
1928................................143,364,000
1929................................142,316,000
And those were the very years when elsewhere in the country prosperity was triumphant! By the middle of 1930, after the general business depression had set in, no less than twenty-six Florida cities had gone into default of principal or interest on their bonds, the heaviest defaults being those of West Palm Beach, Miami, Sanford, and Lake Worth; and even Miami, which had a minor issue of bonds maturing in August, 1930, confessed its inability to redeem them and asked the bondholders for an extension.

Here is another article that is even more intense that has to do with conditions in 1933: Pg 285 America’s Great Depression by Murray Rothbard. Quoted from Agricultural Discontent in the Middle West, 1900-1939,Wisconsin Press 1951 p.448

As in most depressions, the property rights of the creditors in debts and claims were subjected to frequent attack, in favor of debtors who wished to refuse payment of their obligations with impunity. We have noted the Federal drive to weaken the bankruptcy laws. States also joined in the attack on creditors. Many states adopted compulsory debt moratoria in early 1933, and sales at auction for debt judgments were halted by Wisconsin, Iowa, Minnesota, Nebraska, and South Dakota. Governor Clyde Herring of Iowa asked insurance and mortgage companies to stop foreclosing mortgages. Life insurance companies protested that they were being very lenient, yet in many areas the courts would not enforce foreclosures for insurance companies, enabling many borrowers arrogantly to refuse to pay. Minnesota forbade foreclosures on farms or homes for several years.

So we can say without a doubt that we have never seen anything like this, but it did happen here about 78 years ago. We could be on our way to an experience of a life time. Are you ready?

Copyright 2008 All rights reserved

6 comments:

SACKERSON said...

Hi Jim - very apposite. I've said for some time we should be thinking about the social consequences of recession, rather than about investment opportunities. The social fabric can be torn, and there are some who would like to see it happen.

Jim in San Marcos said...

Hi Sack

I had to google "apposite." I learned a new word "Strikingly appropriate and relevant."

I don't think there is much that will be done to fix a lot of this. A lot of property vacated in the north and south will become literally worthless because of neglect and the ravages of nature.

It will ruin a lot of people, but when you think about it, stepping away from the house will improve your life, if your job is still intact.

Germany solved their employment problem in the 1930's by preparing for war. What worries me, is that every country can come up with a different solution.

The real problem from any collapse could be third world starvation.

Anonymous said...

I also had to google "apposite".

The first is a great quote, and is worth reposting every six months. I think you might have posted it on calculatedrisk, for which I'm grateful if you did.

But I also come from a place where I think we should consider the social consequences. I have some talent, but much of what I have achieved has been by building on the work of others. This notion of individual achievement often reminds me of Anne Richards' remark about W's dad that he had been born on third base and gave himself credit for getting there.
--Creekside

Jim in San Marcos said...

Hi Creekside

I don't think is was me that posted to Calculated Risk. I will comment on another blog or shamelessly copy content (mostly visual aids) but I always give credit to the source.

Its very peculiar, you are the second person to address the social consequences issue. It is by far the most important issue of our time and one most overlooked.

I will try to focus on it more.

Thank you for your comments.

Anonymous said...

2006 was not the year point, I've been saying 2008. For the record, it is 9:00AM EST Tuesday, January 22, 2008. I've seen this coming, and have been predicting this for the past five years, but few listened.

I am closely watching the markets today, especially as I just received an alert that: THE FEDERAL RESERVE CUTS KEY INTEREST RATE BY THREE-QUARTERS OF A PERCENTAGE POINT IN AN EMERGENCY BID TO SUPPORT THE WEAK U.S. ECONOMY. Is this what happened prior to 1929?

All that comes to my mind, are the song lyrics, "This is the day, your life is gonna change."

Anonymous said...

We have become citizens of The United Slaves of America. We have enslave ourselves to greedy creditors, banks, the real state mafia and to the federal reserve wrong policies. You didn't have to be a fortune teller to predict the outcome of the economic debacle we will face soon.