Finance and Economics Discussion Series

<p>This paper studies how building and loan associations (B&Ls) slowly unwound their obligations following a set of financial shocks during the Great Depression with a special focus on a group of particularly troubled B&Ls in Newark NJ. Investors in B&Ls disagreed over whether to realize losses on foreclosed real estate holdings and those investors favoring liquidation were unable to force action after legal developments nullified statutory withdrawal privileges. In the medium run a market-based resolution mechanism developed in the form of a secondary market for B&L liabilities. Liability holders barred from withdrawal incurred large losses while liquidating their investments on this market. At the same time B&Ls used the market to avoid realizing some losses by exchanging foreclosed real estate for their second-hand share liabilities. More formal resolution ultimately took place from 1938 to 1943 first consisting heavily of closures and then of reorganizations. Reorganizations were spurred by a large scale federal intervention arranging for the creation of bad banks liquidity injections and liability insurance.</p><p>This work has been selected by scholars as being culturally important and is part of the knowledge base of civilization as we know it. This work was reproduced from the original artifact and remains as true to the original work as possible. Therefore you will see the original copyright references library stamps (as most of these works have been housed in our most important libraries around the world) and other notations in the work.</p><p>This work is in the public domain in the United States of America and possibly other nations. Within the United States you may freely copy and distribute this work as no entity (individual or corporate) has a copyright on the body of the work.</p><p>As a reproduction of a historical artifact this work may contain missing or blurred pages poor pictures errant marks etc. Scholars believe and we concur that this work is important enough to be preserved reproduced and made generally available to the public. We appreciate your support of the preservation process and thank you for being an important part of keeping this knowledge alive and relevant.</p>