Andrew Ross Sorkin on Market Bubbles, Banking Rules, and the Real Lessons of 1929

“If you go back to 1929 and the parallel to 2008 is actually apt, people weren't selling their stocks out of panic or fear. They were selling because they had taken out too much money and were at too much leverage. When stocks fell by November 13th, 1929, by 50% from their high, it wasn't just that the equity value had dropped by 50%. They were levered 10 to 1 and the bank had called them and said, excuse me, you need to pay us.”— Andrew Ross Sorkin

Economics & Markets · Psychology & Behavior

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Leverage transforms price drops into forced selling spirals

“The Glass-Steagall bill was not as pure as most people thought. It was not that Carter Glass had decided this bill would look like the bill that was put in place in 1933. The bill was as corrupted as ever. Parts of the bill were ultimately written by effectively a member of the Rockefeller family who owned Chase, and it was done in large part to just shiv J.P. Morgan, its competitor.”— Andrew Ross Sorkin

History & Geopolitics · Strategy & Decision Making · Economics & Markets

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Rockefeller wrote Glass-Steagall to attack Morgan

“In the spring of 1929, the Fed knew that speculation was getting out of control. They desperately wanted to tamp it down. There's a battle about whether to raise interest rates and by how much. But the view was that they would have to raise them so much that they were almost convinced themselves that to really tamp speculation down, you'd have to raise interest rates so much that you by default would tip the economy, and they didn't have the courage to do that.”— Andrew Ross Sorkin

Economics & Markets · Psychology & Behavior · History & Geopolitics

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Fed knew what to do, lacked courage to do it

“John Raskob got involved in politics. He was a Republican turned Democrat. He spent an extraordinary amount of money to secretly try to undermine the reputation of Hoover. I actually think that part of the reason that Hoover's reputation is so dim even today is a result of this very influential, wealthy individual who spent 2 years paying off journalists and running this secret campaign.”— Andrew Ross Sorkin

History & Geopolitics · Strategy & Decision Making

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Raskob paid journalists to destroy Hoover's reputation

“Carter Glass and Hoover, and even Roosevelt, did not want to implement the FDIC. This idea of deposit insurance was super unpopular, both Republican and Democrats, because they believed that it would effectively allow banks to almost become too big to fail, that you would basically be supporting everybody. Those that were weaker were going to have the same kind of support that the strong banks had.”— Andrew Ross Sorkin

Economics & Markets · History & Geopolitics · Philosophy & Reasoning

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Deposit insurance opposed for creating moral hazard

“Prior to 1920, 1919, it was a moral sin for many Americans to take on debt. People didn't do that. You were sort of the dregs of the universe if you were a debt holder. That really shifted in 1919 when John Raskob, who was running General Motors, wanted more people to buy cars. He said, how are we going to get people to buy more cars? We're going to lend them the money to buy the cars. That really shifted the mindset around debt.”— Andrew Ross Sorkin

Culture & Society · Economics & Markets · Business & Entrepreneurship

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Consumer debt created to sell cars, not vice versa

“There are two issues in a crisis: can you prevent the crisis on the front end, and what do you do once you're in a crisis on the back end? Not only did they not choose to try to do something to prevent it demonstrably on the front end, but on the back end, when there was a debate about could you lower interest rates, flood the system with money, for the most part they sat on their hands.”— Andrew Ross Sorkin

Economics & Markets · History & Geopolitics

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Crisis management: prevent before, act decisively after

“John Raskob was the Elon Musk of his time. Somebody who ran General Motors, became a super influential investor, a philosopher king that everybody listened to at every given moment. He constructs the Empire State Building, probably the equivalent of SpaceX at that time. He had written a paper about creating a 5-day work week in November 1929, not because he wanted people to work less and be nice to them, but because he thought there was an economic argument that if people didn't have to work on...”— Andrew Ross Sorkin

Business & Entrepreneurship · Economics & Markets · Strategy & Decision Making

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Weekend created to increase consumer spending

“In 1928, there's an article with the headline 'Our Second Billionaire.' That was the title. And it was Henry Ford. Our first billionaire was Rockefeller. These are of course not inflation adjusted figures, these were real. The actual leaders, whether it was John Raskob or Mitchell, were not that philanthropic, in part because they were new money in the 1920s. It was sort of a new thing, and they were not philanthropic yet. Then the crash happened and most of them frankly lost it all.”— Andrew Ross Sorkin

History & Geopolitics · Economics & Markets

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New money vanished before philanthropy could begin

“People walking into brokerage houses all over the country, which had sprung up like Starbucks on the corners, you'd give them a dollar and they'd give you $10. I always wondered, had somebody just stood up and said, we're not doing that anymore, 2 to 1, 3 to 1, we're good with that. After that, this is not allowed. There are things, by the way Carter Glass was trying to impose a tax on trades.”— Andrew Ross Sorkin

Economics & Markets · History & Geopolitics

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10:1 margin ubiquitous; simple caps might have helped

“In 1929, when people lost money, for the most part, at least initially, they blamed themselves. There actually was personal accountability. Groucho Marx famously lost his home. He had to mortgage his home because of margin loans. While he blamed the broker to some degree for suggesting he buy some of these stocks, he ultimately blamed himself, which is a very different approach to life than we have today, where there's always finger-pointing. It's never our own fault.”— Andrew Ross Sorkin

Culture & Society · Psychology & Behavior

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1929: investors blamed themselves, not system