"In Cook County, outside of Chicago, we had, in 1928, 151,000 improved lots and 335,000 vacant. On the basis of our Regional Plan Commission's estimates of future population increase, it will take until 1960 to absorb the vacant lots al-ready subdivided in 1928. In fact, on the basis of these computations, we shall still have 25,000 of these
vacant lots for salein the summer of 1960. In one township, Niles Township, we have a population of 9,000, and enough vacant lots for a population of 190,000."
"The famous stock market bubble of 1925–1929 has been closely analyzed. Less well known, and far less well documented, is the nationwide real estate bubble that began around 1921 and deflated around 1926."
"The present crisis is not the first time that the real estate securities market has expanded to the brink of collapse. The U.S. real estate securities market was remarkably complex through the first few decades of the twentieth century. Many parallels with the modern market can be observed. The early real estate development industry fed the first retail appetite for real estate securities. Consequently, easily obtainable financing via public capital markets corresponded with an urban construction boom...Ultimately, the size, scope and complexity of the 1920s real estate market undermined its merits, causing a crash not unlike the one underpinning our current financial crisis."
"Our latest speculative movement differs from all previous speculative eras in the United States in the fact that it has been distinctly an urban field of speculation, ..."
"Although long obscured by the Great Depression, the nationwide ‘bubble’ that appeared in the early 1920s and burst in 1926 was similar in magnitude to the recent real estate boom and bust. Fundamentals, including a post-war construction catch-up, low interest rates and a ‘Greenspan put,’ helped to ignite the boom in the twenties, but alternative monetary policies would have only dampened not eliminated it. Both booms were accompanied by securitization, a reduction in lending standards, and weaker supervision. Yet, the bust in the twenties, which drove up foreclosures, did not induce a collapse of the banking system. The elements absent in the 1920s were federal deposit insurance, the ‘Too Big To Fail’ doctrine, and federal policies to increase mortgages to higher risk homeowners. This comparison suggests that these factors combined to induce increased risk-taking that was crucial to the eruption of the recent and worst financial crisis since the Great Depression."
"Now, when it is recalled that these were not mortgage banks, organized on principles of long-term financing, investing their own capital funds, and free from deposit liabilities, but that they ordinarily purported to be commercial banks, engaged in accumulating and carrying large deposits, and that their operations were financed largely through the funds of their depositors, it will be realized in what a highly over-extended position this segment of our banking system was placed."
"...all the financial resources of existing banking and financial institutions were utilized to the full in financing this speculative movement. The insurance companies bought what were considered the choicer mortgages; conservative banks loaned freely on real estate mortgages; and less conservative banks and financial houses loaned on almost everything else that represented real estate in any form."
"Eventually we reached a point where most of the city and outlying banks of the country were loaded with real estate loans or real estate liabilities of some sort. Not all of these loans were speculative; many of them were intrinsically sound and conservative. But a large, probably a major, portion of this loan structure depended for its solvency upon a continuation of the rate of absorption and turnover which had characterized the real estate market, and on a continued advance of real estate values. When the rate of absorption halted and the price movement stopped, one of the largest categories of bank collateral in the country went stale, and the banks found themselves loaded with frozen assets, which we have been trying ever since to thaw out."
"We do not have all the facts and figures, and in the nature of things probably will never have them. But it would seem that we can safely say this much: that real estate, real estate securities, and real estate affiliations in some form have been the largest single factor in the failure of the 4,800 banks that have closed their doors during the past three years and in the ‘frozen’ condition of a large proportion of the banks whose doors are still open; and that as the facts of our banking history of the past three years come to light more and more, it becomes increasingly apparent that our banking collapse during the present depression has been largely a real estate collapse."
"A particularly ominous development was the expansion of the banking system itself for the specific purpose of financing real estate promotion and development. Real estate interests dominated the policies of many banks, and thousands of new banks were organized and chartered for the specific purpose of providing the credit facilities for proposed real estate promotions. The greater proportion of these were state banks and trust companies, many of them located in the outlying sections of the larger cities or in suburban regions not fully occupied by older and more established banking institutions. In the extent to which their deposits and resources were devoted to the exploitation of real estate promotions being carried on by controlling or associated interests, these banks commonly stopped short of nothing but the criminal law and sometimes not short of that."
"...the disruption of the financial sector by the banking and debt crises raised the real cost of intermediation between lenders and certain classes of borrowers."
"Fear of runs led to large withdrawals of deposits, precautionary increases in reserve-deposit ratios, and an increased desire by banks for very liquid or rediscountable assets. These factors, plus the actual failures, forced a contraction of the banking system's role in the intermediation of credit."
"...that the federally directed financial rehabilitation – which took strong measures against the problems of both creditors and debtors – was the only major New Deal program that successfully promoted economic recovery,"
"...made investments in the shares of thrift institutions, and substituted for recalcitrant private institutions in the provision of direct credit. In 1934, the government-sponsored Home Owners’ Loan Corporation made 71 percent of all mortgage loans extended."
"TO UNDERSTAND THE GREAT DEPRESSION is the Holy Grail of macroeconomics."
"...that monetary shocks played a major role in the Great Contraction, and that these shocks were transmitted around the world primarily through the workings of the gold standard..."
"The purchase of approximately $500 million worth of government securities by the Federal Reserve banks...The total deposits of the member banks increased from $28,270,000,000 on March 31, 1924, to $32,457,000,000 on June 30, 1925, an increase of over $4 billion...This additional bank credit was not needed by commerce and it went preponderantly into securities: in part into direct bond purchases by the banks and in part into stock and bond collateral loans. It went also into real estate mortgages purchased by banks and in part into installment finance paper. This immense expansion of credit, added to the ordinary sources of capital, created the illusion of unlimited capital..." (pp. 127—28.)
"There is no need whatever to be doctrinaire in objecting to the employment of bank credit for capital purposes, so long as the growth of this is kept proportionate to the growth of the industry of the country...But when in the period 1924—29 there came an extraordinary spurt of this kind of employment of bank funds, and when commercial loans began going down in the banks at the same time that the stock market loans and bank holdings of bonds were mounting rapidly, the careful observer grew alarmed. And when in addition there came a startling increase of several hundred percent in bank holdings of real estate mortgages, the thing seemed extremely ominous." (p. 135.)
"As in all past crises, at the root of the problem is a loss of confidence by investors and the public in the strength of key financial institutions and markets. The crisis will end when comprehensive responses by political and financial leaders restore that trust, bringing investors back into the market and allowing the normal business of extending credit to households and firms to resume."