Financial Crisis

GRHC - September 1st, 2010

Economic collapse hits Grand Rapids in 1933.    

Transcript

The start of the Great Depression in 1929 is remembered for the Stock Market Crash; however, the collapse of Michigan’s banks in 1933 had a far more devastating impact.  That year the state’s two largest financial organizations, the Detroit Bankers Company and the Guardian Detroit Union Group began to fail.  Though national leaders feared the consequences of a collapse, none would support an unpopular bailout of banks.  Finally, Michigan Governor William Comstock, on February 14, 1933, closed all the state’s banks for one week to stop the financial panic. 

In Grand Rapids, the crisis affected two of the city’s largest banks, the National Bank of Grand Rapids and the Grand Rapids Savings Bank.  Their insolvency swallowed the city’s payroll and savings.  Four other local banks also failed.

To stabilize the housing market the Roosevelt administration created new agencies such as the Home Owner’s Loan Corporation, the HOLC. Instead of short-term mortgages that required refinancing every few years, government-backed mortgages now ran into decades. But, they included an additional requirement, the long-term prospects of borrowers’ neighborhoods. 

Local realtors and officials provided data to create color-coded HOLC maps in 1937; now it could evaluate neighborhoods where it had made loans. These maps helped improve housing standards and expand homeownership, but also devalued historic districts and redlined neighborhoods with low-income residents and racial minorities.  The new mortgage system also favored new housing in suburbs and reoriented families out of Grand Rapids.  Today’s mortgage crisis and its outcome could have a similar impact on how we think about banks and homes in the twenty-first century.