“If you don’t have the money in your pocket, don’t spend it.” That was my father’s common saying, which I remembered keenly with the economic crunch of last fall.
In the history of our country, there have been several economic depressions, which took years to overcome. The one we compare with our current problems started with a stock market crash in October 1929 and ended not entirely until we plunged into World War II, some dozen years later.
I was born in 1932 and have no firsthand memories of what happened in my early years. The struggles of my family, the loss of our investments, the poverty of most of our neighbors, the government spending programs, and a general sense of hard times determined our way of life and were the topic of much family conversation.
There are some parallels and some differences between that crash and our current one. The stock market had thrived during the 1920s. The economic prosperity had spurred real estate development in Florida with a building boom. Lots of people with modest incomes had invested in the stock market. Many of them bought shares on margins of 10% to 15% of the sale value. Their stockbrokers loaned the rest of the price, expecting to make profits for both brokers and buyers as stock prices rose.
When stock prices plunged, banks called loans for brokers, and brokers called loans from their customers. In most cases, the lower price of the stock was a fraction of the amount of the loan. The shares were forfeited. A few brokers jumped out of their high-rise office windows, and banks were left with bad debts. Some of them began to close, and people with deposits rushed to withdraw their money before the banks’ closure wiped them out. Most people did not make it in time.
In my little town, only one of four banks survived the first years of the crash. To my father’s good fortune, it was the one where he kept his money. As a carpenter, he had gone to Florida in the 1920s to work on the building boom. He had saved much of his earnings and sent the money back home. Part of his earnings was in the form of shares in buildings he had helped construct. He ignored requests from the building owners to invest more money. By then, he had returned to his hometown and was drawing from the savings when he did not have steady work.
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