Fending off Foreclosures with Penny Auctions During the Great Depression, farmers in the Midwest held vigilante "penny auctions" to stave off foreclosures. As the nation faces turmoil in the housing market, history professor Hy Berman explores what can be learned from this strategy.
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Fending off Foreclosures with Penny Auctions

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Fending off Foreclosures with Penny Auctions

Fending off Foreclosures with Penny Auctions

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This past week, President Bush unveiled his plan to deal with the subprime mortgage crisis. And he explained why he supports the government becoming involved in changing contractual agreements between lenders and borrowers.

President GEORGE W. BUSH: The rise in foreclosures would have negative consequences for our economy. Lenders and investors would have faced enormous losses. So they have an interest in supporting mortgage counseling and working with homeowners to prevent foreclosure. The government has a role to play as well.

SEABROOK: Undertones of Mr. Bush's speech harkened back to one given by a governor of New York - Franklin D. Roosevelt in 1932, just months before he was elected to the White House.

(Soundbite of archived speech)

President FRANKLIN D. ROOSEVELT: And it is a sad fact that even though the local lender in many cases does not want to evict the farmer or the homeowner by foreclosure proceedings, he is forced to do that in order to keep his bank or his company solvent. Here, here should be an objective of government itself, to provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations.

SEABROOK: Roosevelt spoke as a foreclosure crisis was expanding in the Midwest. But many of these farmers didn't have the patience to wait for government help to keep their farms. They often took matters into their own hands, sometimes using intimidation tactics.

Hy Berman taught history at the University of Minnesota. He joins me now to talk about how Americans of a different era solved a mortgage crisis.


Professor HY BERMAN (History, University of Minnesota): Thank you.

SEABROOK: Set the scene for us, if you will, sir. Let's focus on Minnesota. We know about the stock market crash of 1929. But how did the foreclosure crisis make it to the Corn Belts in the Great Depression?

Prof. BERMAN: Well, the foreclosure crisis was primarily a rural crisis in that time. And, of course, it had a profound impact on the state - not only its economy but its social structure, its political life and so on. The governor of the state then Floyd B. Olson, a Farmer-Labor governor, issued an executive order stopping all mortgage foreclosures. He declared a moratorium on mortgage foreclosure. Obviously, this led to some strange reactions on the part of the public - some calling him a Bolshevik, but others calling him a great hero. But it was very popular. And the state legislature, when it came into session, was compelled to back the governor by making what he did legal.

SEABROOK: It seems like that would not play well in the banking system.

Prof. BERMAN: No. Oh, the banking community didn't receive it all. I mean, they are the ones that called him Bolshevik, socialist, radical. But, basically, the mortgage foreclosure moratorium was, in fact, in place for a number of years and did rescue some of the farm communities and some of the farmers themselves.

SEABROOK: Professor Berman, I understand there was something called the Farm Holiday Association. What was that?

Prof. BERMAN: Well, the Farm Holiday Association were a group of farmers that organized themselves as a militant and activist group. They intended to use the model of the labor movement and have their militant tactics as a means of solving the farm crisis.

SEABROOK: Were they farmers?

Prof. BERMAN: Yeah. The farmers felt that since workers withheld their labor and was able to strike in order to gain some advantages - although, they weren't gaining too many at that time - they felt that the best way for them to function was to stop the shipment of farmed products to the market. But the major relevance of the Farm Holiday Association to the present crisis has to do with the institution of what they called penny auctions.

When farms were foreclosed in those days, they were foreclosed by the bank, and the bank immediately established some kind of auction to sell off the assets. And the Farm Holiday Association organized farmers to come en masse to these auctions and to bid one cent, two cents, three cents, three bids as a legal auction. They took with them various weapons of persuasion - pitchforks, hunting rifles, knives - and were able to compel the success of the penny auction so much so that auctions were often stopped in mid-stream before they could go any further.

SEABROOK: How did the Minnesota state officials react to these vigilante auctions?

Prof. BERMAN: Most Minnesotans reacted at that time in a very positive way. Remember that the major impact of the Great Depression on the people of Minnesota was, in fact, almost universal. So there was a great deal of sympathy for the farmers and for Governor Olson's actions.

The standoff, of course, didn't last all that long. There were efforts at trying to work out other forms of redress. The mortgage foreclosure moratorium was followed by loans and federal projects. When the federal government started making its relief efforts available, then the state was able to pull back somewhat.

Hy Berman is a professor emeritus of history at the University of Minnesota.

Thank you very much for joining us, professor.

Prof. BERMAN: You're quite welcome.

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