Beyond the Ohio story
WHEN I first came to work in the Washington Bureau of this newspaper as a cub reporter in October 1929 we had a sort of Indian summer in the news business. True, one picked up rumors of troubles in the economy. There were whispers of scandals in some of the utility companies. But mostly we young reporters had to scratch for news. My first chore was to make a daily visit to the Department of Commerce to see whether there was anything which might make a story out of the Lighthouse Service, and then over to the Interior to visit the Bureau of Indian affairs.
Of course, all that changed abruptly before the month was out. The bottom dropped out of the stock market. Committees on Capitol Hill began investigating the utilities. The head of one of them, Samuel Insull, quietly slipped off to Europe one day and, I seem to recall, never did come home.
Then other committees began digging into Teapot Dome, and on the side we began to learn about ``bucket shops'' and how people lost all of their savings in them. A ``bucket shop'' was a phony stock brokerage firm. It took your money and pretended to invest it for you, but actually used it to pay a false profit to an earlier investor. The thing worked with money constantly flowing in, until of course the collapse of the market ruined the game.
These days I keep being reminded of those days.
On March 4 a court order closed down ESM Group Inc., a Fort Lauderdale, Fla., investment firm which dealt, supposedly, in government securities. Something wasn't quite right about its operations. It doesn't have enough securities in hand to cover its liabilities to its investors. Among them was the government of my hometown, Toledo, Ohio. Toledo may be out much or all of $19 million, which is too much for the welfare of Toledo.
Beaumont, Texas, may lose $20 million.
No one at this writing has the vaguest idea how much other institutions may lose from trusting in ESM Group Inc. We do know that last weekend the governor of Ohio had to close some 70 savings-and-loan institutions in Ohio to head off panic withdrawals which had already closed down the Home State Savings Bank in Cincinnati.
It did not all begin with questionable practices at ESM Group Inc. in Fort Lauderdale. There have been occasional bank failures, mostly in farming communities, for some time now. And we are all familiar with the plight of farmers who borrowed too heavily back in the late 1970s on the expectation of ever-rising land values.
Behind it all is the tightness of money and the high interest rates along with a rising imbalance in US trade with the outside world. And behind the trade imbalance is the federal deficit, which has driven up the interest rate and the dollar and this in turn has priced American goods out of world markets.
It is estimated that a 30 percent drop in the dollar would reverse the flow of trade. If it happened soon enough American exporters might be able to recapture much of their lost markets. If it is delayed too long many a market will be lost beyond recapture. Major beneficiaries from a drop in the dollar would be the farmers.
There is no prospect of regaining all of the lost farm markets. Improved farming techniques in India, China, and many other countries have reduced dependencies on American farm produce. But the high dollar is the cause of part of the loss.
If the market for American farm products improved, then fewer American farmers would face bankruptcies and many a farm community bank would regain soundness. The country needs the lower interest rates which would follow from lower deficits.
Some economists still think that everything is all right and that the American economy will weather such strains as the deficit and the high dollar impose upon it.
But one who lived through the stock market crash of 1929 cannot but feel an occasional shudder when the news comes in of large-scale bank closings and of a securities firm which did not keep its records quite right. Is this where I came in?