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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (6081)	7/20/2001 12:06:22 AM
From: Mark Adams	Read Replies (1) \| Respond to of 74559

Some of it never existed- was phantom, some was destroyed. Think of it this way. A farmer goes to the bank, to borrow money for seed to plant a crop. He get's it planted, and things look good. But it's a tough time in the financial markets, as the banks depositors demand their savings to meet their own credit calls, say from the local store where they've run a tab for years. The bank calls the farmers loan. He digs out his savings from under the pig shed, and pays back the seed loan, but no longer has the money to pay for irrigation or hands to harvest, so the crop is lost. Real wealth was destroyed, and it had nothing to do with the price of stocks on the NYSE. That's sort of my picture of the great depression- a viscous circle of liquidity drying up as loans and debts are called and paid up or repudiated. The latter case when a person of good credit would happily pay the store credit, but their bank closed suddenly and they can't tap their savings. I've heard that it was very common then for mortgages to be very short back then- 5 years typically, which were rolled over at maturity until paid. Which worked fine until a farmer or household couldn't rollover their loan and lost their equity.