What Reliving the 1929 Crash Tells Us About Today’s Stock Market

In 1929, Andrew Ross Sorkin re-creates the euphoria and mania that led to the most famous stock market slump in history.

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Episode Transcript

Speaker 1 (00:00):
What Reliving the nineteen twenty nine crash tells us about
to day's stock market? By Gary Sernovitz, read by Mara Finnerdy.
There are two ways to read Andrew Ross Sorkin's nineteen
twenty nine, a new book on the stock market crash
of that year. You can pop the popcorn and watch

(00:20):
rich men twisting in the lies they tell themselves and others.
Or you can read nineteen twenty nine to match the
stories Wall Street told itself then to those of to day,
a perversely fun project that Sorkin subtly leaves us to
complete for ourselves. Both approaches are worth while. Neither will
task your brain. That's because Sorkin, one of America's highest

(00:45):
profile financial journalists with twin seats at c n b
C and The New York Times, does not seek to
explain why the stock market fever rose and broke. It
was fomo plus debt. It's almost always foam plus debt.
Nor does he offer a counter narrative about how the
mania could have been avoided. No matter how many warnings

(01:07):
are issued or how many laws are written, he writes,
people will find new ways to believe that the good
times can last forever. He isn't trying to explain the
Great Depression or whether the crash caused it, but in
the current moment, when so much feels and is unprecedented,
Serkin's greatest accomplishment is allowing us to relive precedent by

(01:32):
recreating how the market felt in nineteen twenty nine, week
by week, sometimes day by day to those experiencing it
as its own thing before they knew how it would
live on in history. Ironically, for a book called nineteen
twenty nine, this means making nineteen twenty nine feel less unusual. Yes,

(01:53):
the Dow Jones had almost doubled in a year by
its September nineteen twenty nine peak. Our rally ding s
and P five hundred is up only seventy two percent
since the start of twenty twenty three. Yes, shares fell
eleven percent in aggregate in late October nineteen twenty nine,
across dramatically volatile days Black Thursday, Black Monday, Black Tuesday,

(02:18):
et cetera. Yet the sum of all this movement was
that the Dow was down only seventeen percent in nineteen
twenty nine. There were no major bank failures or big
corporate bankruptcies. That year, suicides were down slightly. The stock
market crash, Sorkin rites, didn't even rate as the New
York Times most important news story of nineteen twenty nine.

(02:42):
That was Richard Byrd's flight to the South Pole. A
relentless unraveling. Part of the national nonchalance was that the
stock market had been down thirty three percent eight years
earlier in nineteen twenty one, before beginning a long bull run,
and in early nineteen thirty the market recovered half of

(03:03):
the value lost from nineteen twenty nine. Then things got bad.
The collapse was not a moment, Sorkin explains, it was
a relentless unraveling. The TAO was down a third by
the end of nineteen thirty. He notes it fell by
half in nineteen thirty one. By nineteen thirty two, it

(03:25):
was down eighty percent from the nineteen twenty nine peak.
The explosion of bank failures started in late nineteen thirty
alongside the terrible unemployment, the bread lines the depression. This
non teleological reading of nineteen twenty nine helps us complete
Sorkin's implicit project, filling in the comparisons to today. Market

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manias come from somewhere. They are excellent fundamentals euphorically extrapolated,
in the words of fund manager Jeremy Grantham, both then
and now, the source was technology to crib from Robert
Schiller's irrational exuberance. The nineteen twenties saw breathtaking adoptions in electrification,

(04:11):
vacuum cleaners, washing machines, talking movies invented in nineteen twenty three,
automobiles from one point seven million in the US in
nineteen fourteen to twenty three point one million by nineteen
twenty nine, and radio broadcasting from three stations in nineteen
twenty to five hundred by nineteen twenty three. RCA was

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the Nvidia corporation of its day, up from a dollar
fifty in nineteen twenty one to eighty five dollars fifty
cents in nineteen twenty eight. People were getting rich off
shares like that, attracting more people to the market. Everything
could be seen as a reason to buy, including the
nineteen twenty nine inauguration of a new president. Sorkin quotes

(04:58):
Bertie Forbes, founder of Forbes, observing, isn't this kind of funny?
You will recall that the newspapers told you before the
presidential nominations that Wall Street didn't want Herbert Hoover. Now,
Hoover's inauguration is hailed by Wall Street as calling for
a wild demonstration of bullish exuberance. Nineteen twenty nine certainly

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contained some evidence of mass exuberance. Kitchen staff watching a
basement ticker tape in a banker's Washington Square mansion. Designated
lounges and galleries where women could watch the fluctuations of
the market, safe from the rowdiness of men buying and selling.
But nineteen twenty nine is primarily a view of the

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top with research from the archives of the Federal Reserve
and the papers of the leading bankers of the age,
and those elite voices were, for the most part not
dumbly caught up in the mania. Some like Charles Merrill
of Merrill Lynch, advised clients to get out in nineteen
twenty eight. Even those who remained invested mainly did two

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things at once. Accepted that the market was an acting right,
and maintained the twitchy desire to dance for one more
song before the music stopped. Some of this is the
usual stuff. Private Equity's present day efforts to open up
four oh one k plans to its funds seem to
echo the exhortation of Sunshine Charlie Mitchell, chief executive officer

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of National City Bank now City Group Incorporated, when his
bond salesmen complained that they had run out of buyers.
Look down there, he said, pointing to the Manhattan streets below.
There are six million people with incomes that aggregate thousands
of millions of dollars. They are just waiting for someone

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to come tell them what to do with their savings.
Take a good look, eat a good lunch, and then
go down and tell them. Some of the selling in
nineteen twenty nine, however, was not the usual stuff the
men featured in Sorkin's book. Usually, Ivy League establishment wasps
come across as smug, priggish, and unshakably self righteous. They

(07:13):
engaged in behavior that you could not get away with today,
and frankly, that they knew was shady even then. Just
one example, elite investors and bankers would form investment pools
to paint the tape by trading with one another to
generate enthusiasm for a stock before selling into the froth or.

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There were schemes like this one by Thomas Lamont of J. P.
Morgan and Company. The bank took public a Cleveland based
teeter tottering empire of bonds and preferred shares called Alleghany,
a company that survived until Warren Buffett bought it in
twenty twenty two to the general public. Sorkin explains, Alleghany

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shares were priced at thirty five dollars, which Lamont knew
sell easily in the rising stock market. Morgan Partners, however,
were able to buy them at a secret price of
twenty dollars a share. Seizing the opportunity to spread goodwill,
Lamont then went around to friends of the firm, retired
heroes such as Calvin Coolidge and Charles Lindbergh, and offered

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them the same discount that heads I win, Tails you lose.
Was even more egregious than this decade's special purpose acquisition
company Grubbiness, and it was done not by the Chammath
Palahapateia of nineteen twenty nine, but by its Jamie Diamond,
almost divine prescients. Sorkin amps up the excitement as the

(08:43):
October nineteen twenty nine crash approaches the similarities to the
present day, with its record highs and melt up warnings sharpens.
During nineteen twenty nine, the Fed, not yet sixteen years old,
raised the discount rate to six percent compared with three
point five percent at the start of nineteen twenty eight,

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and publicly discouraged banks from lending to speculators. Mitchell's response,
have National City extend margin debt to investors far and
wide of Hoover. Sorkin writes on entering the White House,
he knew the economy had been running too hot for
too long, and he tried to make that case to

(09:25):
Wall Street, Congress, and the nation. Unable to gain any traction, however,
he gave up and turned to other matters. On Black Thursday,
the major banks and others pooled two hundred and fifty
million dollars to buy thirty seven of the most vulnerable stocks.
The move was to little effect. Could the nineteen twenty

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nine crash have been avoided? Sorkin asks. The short answer
is yes, there were plenty of opportunities to arrest the
forces of speculation before they got out of hand. The
long answer is that it would have taken almost divine
prescients to look beyond the short term incentives for making
money and focus instead on the long term consequences. The

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crash came because shares were volatile all year. The fear
of missing out on the opportunity to buy tipped into
the fear of missing out on the opportunity to sell.
The last third of nineteen twenty nine leaves Wall Street
and nineteen twenty nine for the Court House and Washington.

(10:29):
Here the differences from today are most acute. Federal intervention
in the economy was muted, first because of Hoover's politics
and then because of jockeying with Franklin Roosevelt. The lack
of intervention, in contrast to our current situation wasn't due
to scarcity. The US ran a budget surplus in nineteen thirty.

(10:51):
Sorkin also lays out the similarities with our era. The
Smoot Holly Teraf Act passed in nineteen thirty, just as
with the appas after math of the global financial crisis
in two thousand and eight, there were not a lot
of satisfactory people to prosecute for a crash that eventually
ruined lives. A large part of the last section of

(11:12):
nineteen twenty nine focuses on Mitchell's trial for a wash
sale to book his large capital losses for the tax
benefits the sale was to his wife. Mitchell got off, and,
as with the two thousand and eight crisis, a congressional
probe revealed bad behavior. The Pakora Commission of nineteen thirty

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two had little power to punish, but it added to
the political momentum, leading to the establishment of the Securities
in Exchange Commission and other reforms of Roosevelt's first term.
History progresses, and we should not lose sight of that
the sec exists. We are all Keynesians now. As Milton

(11:52):
Friedman once said, David Solomon isn't giving shares of Figma
Incorporated to Lebron James at forty three p percent below
the initial public offering price. Still, the primary lessons of
nineteen twenty nine seem fresh. That the mania couldn't be
easily contained, the correction couldn't be non divinely stopped. No

(12:13):
one was really punished for things that mattered, and Wall
Street lived to crash another day. And also we like
reading books like nineteen twenty nine, maybe because it's always
enjoyable to puncture wall Street's self regard that, for one
never crashes