America's Money Machine

The Gushing Fountain 153
Seventy-four per cent of the increase in total population during the
decade occurred in the metropolitan areas.
A building boom had followed, with the Federal Reserve Board index
of building contracts awarded, 1923-1925 taken as 100, rising from 63
in 1920 to 122 in 1925, and 135 in 1928. A characteristic ofthis activity
was that it was concentrated largely in skyscraper offices and expensive
apartment house developments, whose notes were more readily marketable,
rather than in the modest single family accommodations. The result
was that when the era had passed the slums still existed, like rats' nests
around the whitened skeletons of downtown mastodons.
The part played by the Federal Reserve System in this unbalanced real
estate activity may be noted. Until 1927, national banks were limited in
their real estate loans to amounts no greater than 25 per cent of their
paid-in capital and unimpaired surplus or one-third of their time deposits;
nor could they make loans on improved real estate for more than one
year. In 1927, in response to demand for liberalization of these requirements,
the MacFadden Act was passed permitting the making of real
estate loans to 25 per cent of paid-in capital and unimpaired surplus or
one-half of time deposits. In addition, banks could now extend loans to
a maximum of five years.
By 1929, member bank loans against real estate, other than farm land,
amounted to $2,760 million, against $875 million in 1921, but the growth
ofbank credit on real estate is not fully indicated by these figures. There
is reason to believe that a considerable and increasing proportion of the
"commercial" loans made by banks in this period were directly or indirectly
loans on real estate. The tremendous urban developments,
begun and completed in this. decade, and the continued rise in the assessed
valuation ofreal property, coupled with the large real estate holdings
ofbanks disclosed during the resulting depression afforded convincing
evidence to the President's Research Committee on Social Trends "of
the magnitude of speculative enterprise in real estate and of the important
role which banking credit played in its unfolding."1
Two other important groups ofborrowers appeared at the sylvan pool
of credit during this decade, ready to draw off purchasing power as
rapidly as it was replenished from the copious springs of the banking
system. From the end ofWorld War I down to the end of 1929, over $9
billion was lent abroad, the movement reaching its peak in the four years
1925-1928, when nearly $4.8 billion in foreign government and corporation
issues were floated in the New York market. This money was pro-