“Three or more crooks, sharpers or fools may apply to the Secretary of State and secure a (bank) charter.”

23.12.2022 / JOSEPH KITCHENS / DEEP SOUTH STORIES, WRITER’S JOURNAL

US involvement in World War I was relatively brief and left our European allies deeply in financial debt to us. The American economy soared after the war. So did inflation, as America went on a spending spree for automobiles, refrigerators and all the other consumer goods made accessible by installment loans (a forerunner of credit cards).

Speakeasies, flappers, jazz clubs and motion picture idols came to characterize the era -but outside its larger cities, few of these stereotypes reflected the reality of Georgia’s rural towns, where a great exodus of people was beginning and many small towns dried up. Hundreds of thousands of people would abandoned rural communities in the south in the decades that followed. Cotton prices utterly collapsed in 1920 largely due to the inflated cost of borrowing money on which tenant farming relied. The arrival of the boll weevil earlier had made cotton farming riskier. Arsenic concoctions to kill the pest cost money and applying the poison ate up valuable time.

As if all this did not bring enough suffering, another plague visit Georgia in 1926: the collapse of a large part of its banking structure. Let’s begin with a question: why would anyone want to own a bank? One answer comes readily to mind: so you can use your depositors’ money to invest in ways that benefit the bank’s stockholders and officers. Currently, we are hearing in the news about Wells Fargo having to cough up billions in fines and compensation for creating unauthorized accounts and otherwise scamming their customers. The quote in the title to this article came from a banker speaking at a meeting of the Georgia Bankers’ Association in 1910. It would prove prophetic.

Looking back on the 1920’s, how did banks persuade cash- strapped farmers, store clerks, mill workers and Ford assembly line workers in Atlanta to put their hard-earned money in the bank? This was in the days before the federal government established the Federal Deposit Insurance Corporation (FDIC) to protect our bank accounts -or at least some of those dollars.

To assure depositors that their money was safe in a bank, various schemes were devised by bankers. Beginning in the years before World War I, ambitious bankers decided that if they formed banking “systems” consisting of many banks and advertised this fact in local newspapers along with all those combined banks assets , they could convince depositors that their money was safe. The member banks could boast of hundreds of millions of dollars in assets, although a goodly part of those assets were in the form of loans. Unfortunately, as it worked out, a great deal of money had been loaned to bank officers, their families and friends who, in turn, purchased Florida real estate. This slight of hand was perfectly legal and worked as long as depositors did not all demand their deposits back all at once.

By the 1920’s the appetite for speculation in Florida real estate was voracious, with properties hawked on Miami street corners, where you could buy shares in “options to buy” from unlicensed teenage boys and young men wearing sandwich boards promoting land they and their employers might never have seen or hawking lots that might actually be underwater. Many properties were purchased sight unseen. Houses were purchased in housing developments that were never built.

At the same time, Georgia farm lands were falling in price. Larger estates were being sold off in parcels and thousands of farmers in rural Georgia were leaving the cotton farms for employment in the cities -thousands went to Michigan to work in the automobile plants. Detroit is still struggling with the consequences of this today. Populations in small towns of the “cotton belt” were still declining in population well into the 1970’s. Ironicaly, cotton prices had recovered -but not when compared to the rate of inflation and the cost of production.

Investing in Florida real estate became a national rage. Fortunes were made -much of it quite legitimately. At the interest rates they were charging for loans, banks joined in the madness, financing land deals and real estate developments. Miami and south Florida became the new gold rush, but on a scale that seemed to dwarf all earlier bonanzas. Movie stars, socialites and New York celebrities began frequenting the lavish new hotels on Miami Beach. A plethora of new magazines glamorized a youthful American generation whose lives seem to revolve around automobiles, films, and the lavish lifestyles and fortunes to be claimed in Florida.

When the bottom fell out of the Florida boom, Georgia banks found they had invested in worthless real estate. In Georgia and Florida, it was said, eighty-three banks in the Bankers, Trust “system” closed their doors and its president, Wesley .D. Manley declared bankruptcy. Banks tried to reassure people that their money was still safe, but banks -mostly small ones- continued to fail. A disproportionate number of them were in the cotton towns of Georgia -as well as in south Florida.

Wesley D. Manly, who had organized the Bankers Trust as well as the Farmers and Merchants Bank in Atlanta, was considered a financial genius and was socially prominent. After working his way through Swanee (the University of the South), he came to Atlanta -it was claimed, with only thirty cents in his pocket.

Faced with his bank going into receivership, Manley declared bankruptcy, but refused to testify at legal hearings, pleading insanity. A Macon doctor was hired to substantiate his condition in court. The doctor was charged with perjury. The judge ordered Manley to appear anyway; he was brought in on a litter. Ultimately, a grand jury in Fulton County indicted him for bank fraud under Georgia’s banking legislation, a law that was to prove ill conceived. He was convicted and sentenced to nine to ten years in prison. Lawyers appealed his case, all the way to the US Supreme Court.

Manley was freed of state charges when the US Supreme Court declared Georgia’s banking law unconstitutional. But, meanwhile, he was convicted in federal court on charges of using the mails to conduct a fraudulent business, a legal strategy similar to that used to bring down Chicago gangster Al Capone.

During his time in the federal confinement, Manley became a spiritual adviser to inmates, working with the prison chaplain. Outside these walls, creditors launched a suit in Georgia courts to get at the $400, 000 (about $7,000,000 in 2022 dollars) they claimed was in the Manley Company, a private corporation . They also wanted Manley’s home, which they claimed to be worth $1,000,000 (almost $17,000,000 in today’s dollars) and the Manley family automobile for which, they asserted, Manley had paid $17,000 (almost $250,000 in 2022 dollars). The claimants were awarded $125,000. You can not make this stuff up! At the time, a new Chevrolet sedan cost about $800 and $10,000 would build a handsome family home. Naturally, I hope my research will later reveal what became of Manley’s family. Once out of prison, Manley died in a North Carolina mental asylum.

I have little doubt that Manley’s lawyers were confident that the state banking law would be overturned. Indulging in a moment of speculation, I wonder if those senators and representatives in the legislature intended to write a faulty law. After all, many were small town lawyers, sons of bankers and prosperous farmers, investors in cotton gins and short-run railroads -in other words, they were foremost the represenatives of those trying to hang onto their money and status in very threatening times -a time of declining land values, decling availablity of labor and debilitating inflation. It does not require a strain on my imagination to think that many family fortunes -especially in small towns in Georgia -rested in part on the earnings of the very same banks in which legislators or their family members were stockholders and officers. In those days, the rural voters and rural counties -not cities like Atlanta, Augusta, Savannah or Macon -dominated the state government

Inadequate as it proved to be, the clumsy Georgia banking law killed two birds with one stone -it sounded to the uninitiated as if public demands for bank regulation had been satisfied by the legislature -while effectively imposing no legal remedy on those who might misuse depositors money. It appears to me that it was never meant to place limits on profits made by investing depositors’ money.

Keep in mind that the great reforms that would be initiated in the coming New Deal of the 1930’s were formulated -as the reforms from the earlier “Progressive Era” were – on advice from bankers and financiers, for whom stability and predictability were essential. But then, of course, so was profit.

Hopefully, readers will recall that I have written several pieces on my grandfather who was a small town banker in the 1920’s. That is what led me on this journey to understand what happened to the Georgia economy in the 1920’s. This is perhaps the least studied decade in Georgia history, most scholarship being expended on the KKK, the Boll Weevil, bootlegging and fundamentalist religion, and very little on the inflationary disruption of the post- war boom years, that caused a virtual collapse in cotton -and with it the decline of Georgia’s hundreds of small towns in the “cotton belt.” My mother, father and I were all born in one of those small, trackside towns, a town that has today all but vanished. See especially my earlier piece entitled “The Sun is Going Down on Gough, Georgia.”