Working Paper: NBER ID: w21786
Authors: Sebastin Fleitas; Price Fishback; Kenneth Snowden
Abstract: During the Great Depression, Building and Loans (B&Ls), the leading home lenders, had a structure that mitigated the crisis. Borrowers were owners of the B&L and dissolution of the institution required a two-thirds majority vote. Using panel data from New Jersey in the 1930s, we find that this voting rule delayed dissolution by about one year. The year delay allowed one-fourth of the borrowers in the at-risk B&L to pay off their loans, but nonborrowers lost share value. The net loss was roughly -0.67 percent of the value of all New Jersey B&L assets in the mid-1930s.
Keywords: mortgage crisis; building and loan associations; Great Depression; forbearance; liquidation
JEL Codes: G23; N22; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| two-thirds voting rule (D72) | delay in dissolution (G33) |
| delay in dissolution (G33) | borrowers paying off loans (G51) |
| delay in dissolution (G33) | losses for non-borrowing members (F65) |
| proportion of SAC borrowers (G51) | likelihood of liquidation (G33) |
| proportion of SAC borrowers (G51) | estimated coefficients on liquidation (G33) |