Family Memory (XVI): The Bank and the Great Depression

The Great Depression is presumed to start with the Stock Market Crash of October, 1929. Reality is more complicated. In Europe, it starts earlier. For American farmers, it starts earlier. For mid-sized businesses, it hits later.

For the Dietz family, it was the spring of 1931 that mattered.

At that point, my grandfather and great-uncle owned two businesses in addition to their farmland. The first was Economy Roofing and Insulating–a company they started in 1926 and remained in the family until my dad’s death in 1989 (it would still be in the family with me running it, save for an evil, immoral, and unethical stepmother, her biological son, and an incompetent judge…really–but that’s a story for another day and several alcoholic beverages). **My great-uncle’s cool story is here.

The second was the Bank of Walcott–the only bank available in that town of 398. It wasn’t a big bank but it handled farmers’ money for everyone living in town or around Walcott….and that’s where this story comes in.

In late 1930, banks in the US started going bankrupt and closing and when they did, investors, those with savings in the bank, were losing everything they had there–and worse, without that money, they weren’t able to pay other bills and lost their homes, etc, because of this. When one bank closed, it caused a panic that drove others to their own banks to withdraw money as fast as possible.

That didn’t happen in Walcott–because of my grandfather and great-uncle’s reputations. They were men of integrity known to be as good as their word. When bank collapses began happening in Iowa, people started talking, wondering if they should pull their cash from their banks. Walcott was no different. The problem was–banks don’t keep all their cash on site. If everyone wants their money, the bank can’t do it…that’s the nature of banks.

My grandfather was pro-active. Eventually people would ask for their money and the bank would collapse when the cash couldn’t be paid out. So what did he do?

He took a list of everyone with money in the bank, got in a car, and went visiting…you can do that in a town of under 400 people. Heck, you can walk it (I know that from experience) if you want. When he went, Papa Dietz took with him a briefcase filled with cash. At each house, he spoke with the person who handled the money and the savings. He noted banks suffering rushes and panics, that he empathized when people didn’t get their money–and he directly asked if the person wanted their money back…and that he had enough to repay them in his briefcase.

It’s all about confidence. If a banker comes to you and tells you in your own home “Hey, if you want your money, here it is,” and then casually opens a briefcase chock full of cash–you’re going to feel safe. After all, if the bank was in trouble, they wouldn’t go around offering the cash to those with savings accounts. After a few days and meeting with *every* individual who had money in the bank, not a single individual took the money. They all expressed confidence in Phil and Don Dietz to manage the money through the coming storm–after all, they’d done okay with it already in the couple years since the whole stock market collapse started.

And so the Bank of Walcott survived.

The thing is–the bank was under the same pressures as all banks. The cash in that briefcase? It was the entire cash supply of the bank. The bank had no reserve beyond that. If there had been a rush, 90% of the people would have lost everything they had. Instead, 100% got to keep their money.

A bluff, absolutely. A white lie? Maybe, but necessary…but it worked and kept a whole lot of people from suffering.

That was 90+ years ago. I wish I had a way to find out what difference they made. I wish I knew how many other banks resorted to similar actions across the United States to survive.

The entire difference between prosperity and poverty was confidence–in each other as a community.