By the time he finished, Frank was staring at the floor. If he starts talking about how to profit from the farmers’ plight, he thought, I’m leaving. He wasn’t sure how much money Reginald and his investors had made in these last six months, but he knew for sure that it was an obscene amount. Celeste had told him that what she had invested with her father had now more than doubled as Boston’s elite clamored to purchase shares in the investment firm. In six months Celeste had made more than a quarter of a million dollars! It left Frank a bit dazed and feeling this nagging sense of guilt.
But Brockhurst said nothing about how to profit from the current situation. “I am happy to tell you,” he was saying, “that this last decade has been good for Utahza, too. At the beginning of the decade, we had three banks and called ourselves the Central Arizona Bank and Trust Company. Now we have thirteen banks, seven here in Utah and six in Arizona. And we have plans for more in the future. And because of our conservative fiscal philosophy, I am happy to report that all of those banks are on very solid ground.”
“I sense a ‘but’ coming,” Mitch said out of the corner of his mouth.
Frank and Jacob both nodded. They felt it too.
“But. . . .” Brockhurst’s expression was grave now. “There are some things that worry us, and that is what we want to share with you today.”
June 5, 1929, 11:17 a.m.—Main Conference Room,
Utahza Bank and Trust Co., Salt Lake City
Aaron Brockhurst stopped, letting his eyes sweep across the crowd. There wasn’t a sound now, and every eye was riveted upon him. Frank was no different. To his astonishment, the bank president’s last words had sent a little chill through him. Clearly, this meeting had just taken a very different turn than the one in Boston.
“I don’t want to alarm you,” Brockhurst finally went on. “I’m not here to announce that things are about to collapse. We believe the economy is on solid footing. . . .”
Here comes another but. And Frank felt another chill.
“But our economists have noted what they have chosen to call a few ‘bellwether’ indicators.” He was silent for a moment, musing. “That is an interesting term, bellwether. Do you know where it comes from?” Many heads nodded, but others moved back and forth. “A bellwether is the leading sheep in a flock. He or she wears a bell that rings as the animal walks, and the rest of the flock follow that sound even if they can’t see the leader. Thus the word bellwether has come to mean a harbinger, a herald, a trend that may signal things that are to follow.
“A bellwether is not a sure thing, especially in something as complex as the economy of a country the size of ours. But when we hear the bell ringing, it is wise to pay attention and take a closer look at which way things are headed.” Now he picked up a sheaf of papers from the podium. “Here are a few bellwether indicators that turned up in our research. Not all of these are negative, but they do indicate possible trends that should at least invite closer scrutiny.”
He stopped. “I see that some of you are taking notes, and that is good. But we will have a handout for you with this information on it. And these trends will be explored in greater depth in future newsletters. So with that, let us begin.
“Bellwether number one: though the 1920s have proven to be a prosperous decade for many in America, a good portion of that prosperity has come through installment buying by consumers. We—and by ‘we,’ I include banks and other lenders as well—have made it easy for individuals to buy now and pay later. This has fueled a great deal of our growth. That is not bad, but it should be cautionary for us. As long as the economy is strong, people can pay off their debts. If that changes dramatically for any reason, it is a cause for concern.
“Number two. As noted, farmers are the exception to this trend. We have talked about this before, since both Utah’s and Arizona’s economies depend heavily on agriculture. And here, as in many other areas of our nation, farm prices have plummeted due to oversupply. Thousands of farms have been abandoned or repossessed by the banks. And let me make another side note here: many banks have loaned generously to farmers, trying to be good community neighbors and all, but now those banking institutions have a substantial number of foreclosed properties on their books. A further concern is that many of these banks are posting those properties on their books at what the market value was before the downturn in farm prices. This makes their balance sheets look better, but in reality what they have is nearly worthless paper, because there are no buyers out there.”
Oh yeah? Frank’s mind was spinning. Buying those worthless loans for pennies on the dollar was at the very core of Reginald’s investment plan. And Brockhurst was saying this was a major concern? And what was more disturbing, in a way, was that the more Frank heard from this man, the more impressed he was with him. This wasn’t about capitalizing on the misfortunes of others. He was sounding a warning note. Frank saw that Mitch was giving him a questioning look, but gratefully Brockhurst went on.
“Number three. Our nation’s economy is growing by billions of dollars. Total income has risen from seventy-nine billion dollars annually in 1923 to a projected eighty-nine billion dollars for this year. That is a very healthy growth rate. But that prosperity has not been distributed equally. The top one percent of families in the U.S. received a full seventy-five percent of that increase, while the other ninety-nine percent saw an average increase of only nine percent of their disposable income. And eighty percent of our population has no savings at all. They live from month to month, barely scraping by.” Brockhurst paused and then added solemnly, “And often they are not able to make the monthly payments on their debts.”
He lowered the papers for a moment. “Let me comment on that further. We may be tempted to think, ‘But if we have all those poor people out there, isn’t that an enormous potential consumers’ market?’ It would be if those people had income to spend. But they don’t. They live from hand to mouth. So having a large group of the poor actually tends to depress an economy rather than stimulate it. And that is especially true of the farmers. The average annual income for most American families is $750. Care to guess what it is for a farm family? $273! About a third of the average. And that becomes particularly relevant for our discussion when you remember that thirty percent of all Americans still live on farms.”
A hand came up just behind Mitch and Frank. Brockhurst nodded at the man. “Yes, Jim?”
“Does Utahza have a lot of those repossessed farm properties on their books?”
“Good question. The answer is no, we don’t have a lot. As you know, we are a very fiscally conservative company. We have strongly counseled our branches to be very careful in what mortgages they finance. But we do have some. And we have instructed our local branch managers to take a careful inventory of those properties. We plan to develop a strategic plan for clearing them up. And we will make certain they are not listed at an inflated value.”
“Thank you,” Jim said.
Frank was sorely tempted to raise his hand and say, “I know some investors that will probably buy those loans from you.” But he resisted.
The president of Utahza went on. “Point number four: since the end of the Great War, the United States has become a creditor nation. We have lent over ten billion dollars to our former allies to help them rebuild. We have also lent a huge amount to Germany, our former enemy, to help them pay off their war reparation debts and prop up their economy. And that is good, in a way. They are rebuilding and returning to some normalcy. But that’s all they are doing. Their economies are not strong enough to repay us yet.”
To Frank’s surprise, his father’s hand came up. Aaron Brockhurst turned to him. “Yes, Mitch.”
“As you know, Jacob and I are close friends with several families in Germany. They are telling us that things are going well there, the best they’ve been in years. The inflation has stabilized. Consumer goods are becoming available again.”
“Yes,” Brockhurst said, “and that’s what I meant by this being a good thing. But in another way, it is an illusionary prosperity.”
“How so?” Frank asked. He had lived in Germany for three years while getting his doctorate and had also found things greatly improved.
“Because the majority of the economy is based on the loans from America and other nations, not on their own manufacturing and natural resources. So yes, they are doing better, but it’s built on credit. The people are still too poor to buy our goods yet, so we’re getting very little return on our huge investments there. And Germany especially is not even keeping up with the interest accruing on their loans, let alone paying it back. And that’s true of other European nations, too. So basically, though things are better, Europe is still in a depression, and we are not only financing it, we are not getting any return on our investment. The question is, how long can that go on?”
“So,” someone from the back called out, “why doesn’t someone tell the government to wise up and stop lending Europe all that money?”
“Good question. To be honest, our current government officially takes a laissez-faire attitude when it comes to business. In economic terms, it means that the government leaves things alone, lets things run their course without interfering. I am tempted to say more on that, but I shall forbear for now.
“So, let me summarize. While our economy seems to be doing very well in certain ways, there are some indicators that raise some concerns. If there were just one or two, it wouldn’t be so concerning. But we have all of these factors converging now. Farmers are in a desperate state. Farmland is all but worthless now because no one has the money to buy it. Many banks have overextended themselves in loaning money and now have lots of basically worthless loans on their books. With the number of poor increasing, the purchase of goods is falling because there is just not enough money to buy them, even though those goods are dropping in price. There are surpluses of all kinds of goods because people can no longer afford them because their wages have been cut back.”
Brockhurst reached down and picked up a newspaper. “There was a photo in the paper the other day that says it all.” He unfolded the paper and held it up. “I know you can’t see this very well, so I’ll pass it around. But what you see here is a back lot outside a Ford factory in Michigan. This lot is huge, fifteen or twenty acres I would guess, and it is entirely filled with brand-new Model A Fords that have come off the production line but haven’t yet been sold because of the tightening economy.”
He handed the paper to a man on the front row. When it reached Mitch and Frank a few moments later, they looked at it together. “Look at that,” Frank exclaimed softly. “There are hundreds and hundreds of them.”
“That’s right,” Brockhurst said, looking at Frank. “So what does Ford do in this situation? They slow the production line. They lay people off or put them on part-time shifts. And they cut their wages, because their profits are cut way back.”
“Which further adds to the problem,” Mitch said.
“Exactly!” Brockhurst exclaimed. “It becomes a self-sustaining downward spiral. And this is not just in our country. The whole world seems to be in this kind of slow decline.” He took off his glasses and began to polish them with his tie. An older woman a few rows back raised her hand. “Yes, Mrs. Arbuckle?”
“So, what is the bad news?”
That elicited a burst of laughter.
Brockhurst laughed too as he replaced his glasses. Then he sobered. “I want to emphasize this point again. We are not saying that we are on the edge of a cliff and are about to plunge over it. The economy shows many signs of being robust, enough that these conditions may self-correct and things may readjust and stabilize. What I am saying is that it is the consensus of our economists and our board of directors that it is a time to watch these trends carefully, and consider taking some precautionary courses of action in case things do get out of hand. Therefore, we should like to recommend five things we—and you!—can do immediately to protect ourselves if things do continue to decline.”
Everyone had paper and pencil out now to take notes.
“First and foremost, this is not a time to panic, to throw our hands in the air and run about crying, ‘The sky is falling! The sky is falling!’ We do see a storm approaching on the horizon, but we say, as the captain of a good ship always does, ‘Steady as she goes.’
“Recommendation number two: debt is the big concern here. If things do collapse, the one thing that will not decline in value is the amount you owe the banks and creditors. In fact, those who hold the notes on your debt will demand payment so that they do not default on their own debts. So we strongly recommend that you clear your debt obligations as rapidly as you can.” A droll smile spread across his face. “And we recommend that you don’t borrow money to do that.”
The room broke out in laughter. Frank was laughing too, even as he marveled at the practicality of the man. Brockhurst was obviously not as wealthy as Celeste’s father, but with thirteen banks he had to be worth a lot. Yet he was down to earth, very much a man of the people, and funny too. Frank could tell that he was well liked. And trusted! Did the investors in Reginald’s company trust him? Oh, they trusted his business acumen all right. But did they trust him? Frank was not so sure.
“Number three. And I’m quite serious about this. Carefully consider before taking on more debt. Even if it is for capital improvements in your business, or even if you have enough cash in the bank to cover it. Remember, banks never have as much cash in their vaults as people deposit. That’s how banks make money. They lend your money to other people and charge them interest. But if everything crashes, as it has in the past, the first thing people will do is run to the banks and demand their money. If you are one of the early ones, you’ll be fine. If not, your money will be gone. So again I say, avoid debt at all costs for a time. And if you are in debt, pay it off as quickly as you can.
“Number four. If people owe you money, encourage them to pay you back as quickly as possible. Just so you know, all of our banks in the Utahza system will be offering a ten percent incentive to pay down or pay off debts. You may consider doing the same if your circumstances warrant it. I know that is a loss of income for you, but if things fall apart, even a small percent payback will be better than nothing.
“And finally, number five. Keep up on what’s going on around you. If you don’t take a newspaper, get one. Listen to radio broadcasts. Now that you know what to watch for, keep your eyes open, and be prepared to move when the time is imminent.”
Brockhurst stepped back, seemingly relieved, and nodded to his audience. “All right. Questions?”
12:35 p.m.—Main Street and Second South Street,
Salt Lake City
Mitch and Frank walked leisurely along the east side of Main Street, walking close to the curb so as to avoid other pedestrians hurrying on their way. A streetcar rumbled past them, windows open and kids hanging out. They waved. Mitch and Frank waved back.
“So,” Frank said, “if you don’t mind me asking, Dad, do you and Mom have any debts? If it’s none of my business, just tell me to shut up.”
“No, we don’t,” Mitch answered. “Well, that’s not strictly true. We have an open account at the mercantile store and the drugstore because we don’t always have cash with us when we go into town. But we pay that off each month. It’s never more than forty or fifty dollars.”
“And have you ever had any debt?” Frank asked.
“Yup.”
That surprised him, and he peered at his father more closely. “Really?”
“Yup. We bought our first automobile on the installment plan. That Model T, remember? You’d better remember. From your reaction, you would have thought heaven itself had dropped a gift in our yard.”
“I remember. But why did you buy on the installment plan?”
“It was in the summer,
before fall roundup when we get cash for our steers. But we paid it off a few months later. When your mother got the monthly statement and saw that we were paying three dollars a month in interest, she was so mad, we paid it off as soon as we sold the herd.”
“I can believe that. So does anyone owe you money? Sorry to be so nosey, but I was really intrigued by what Mr. Brockhurst said.”
“Just MJ and Rowland.”
That took Frank aback. “They owe you money?”
“Yes. MJ bought some of the ranch from us almost fifteen years ago now. We carried the loan with no interest. They’ll pay it off early next year.”
“Wow, I didn’t know that. And Rowland?”
“He bought land from his dad and granddad. It came at a good time for us, so we floated the loan for him too, interest free of course. He’s got about three more years left.” Mitch smiled. “And no, I’m not going to offer them a ten percent discount if they pay it off. And I can’t foreclose on them if they default.”
“Why’s that?”
“Because all we have is a verbal contract. In both cases. And, of course, because we’re family.”
Frank was impressed. “Do you know how unusual that is?”
“For your generation maybe, but not for ours. What about you and Celeste? Do you have any debts?”
“No. My scholarships really helped, but I make a good salary now. And, as I’m sure you know, Reginald Sr. helps us from time to time if we are in need. In fact, we have a pretty good savings account.” Frank hesitated a moment and then reminded Mitch of Celeste’s trust fund and what she had inherited when her grandfather died.
Mitch gave a low whistle. “Sounds like you’re pretty well set.”
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