Transcription
C-SPAN's America's Book Club [music] programming is brought to you by the cable, satellite, and streaming companies that provide [music] C-SPAN as a public service and is supported by the Ford Foundation.
From the nation's iconic libraries and institutions, [music] America's Book Club takes you on a powerful journey of ideas, exploring the lives and [music] inspiration of writers who have defined the country in conversation with civic leader and author David Rubenstein. As a young boy growing up in Baltimore, I went to my local library and was inspired to read as many books as I could. Hopefully people will enjoy hearing from these authors and hopefully they'll want to read more.
Now, from the New Orleans Book Festival at Tulane University, [music] a conversation with best-selling author Andrew Ross Sorkin, co-anchor of CNBC's morning program [music] Squawk Box, and the founder and editor-at-large of the online financial report DealBook. He has authored two best-selling books, Too Big to Fail about the 2008 [music] bailout of the US financial system and 1929 on the Great Stock Market Crash. Join us now for a stimulating conversation between Andrew Ross Sorkin and our host David Rubenstein.
Well, welcome to New Orleans. Good morning. Good morning everybody. It's nice to see you David. Thank you for having me. So, we're going to talk about your new book 1929. And before we get into that, I wanted to ask you a question I've always wanted to know. Your name is Andrew Ross Sorkin. Why do you need three names? I have two names. I'm David Rubenstein. Why isn't Why aren't two names good enough for you?
It's a little pretentious. I I don't disagree with you. The truth is actually, it's a funny funny question with maybe a funny answer. I don't know. I was always Andrew Sorkin my whole life until I was 18. Ross is my mother's maiden name so you can go steal my credit cards now. Um and but I never really used it. I occasionally if I was super pretentious I might write Andrew R. Sorkin. I happened to get this internship when I was 18 years old at the New York Times. I was there for five weeks for free. The plan was to Xerox, staple, and maybe get some coffee. I never thought I would put together, you know, two words let alone a sentence. And the third week I was there an editor who had no idea how old I was saw me in a suit. I think I had a tie on. She assigned me a story to write. And they ended up publishing the story the next week, but the day before the story was to publish I went to lunch with my grandfather, my mother's father whose last name was Ross. And he said, "Andrew, you got to use Ross in your name. This is going to be the one and only time we're ever going to get in the New York Times with the full name." And so So, the rest is history.
Rest is history. So, before we talk about [applause] How many people watch Andrew Ross Sorkin on TV in the mornings? Okay. Wow. Okay.
Apologies. So, let me ask you, you are doing the show Squawk Box. Yep. You're doing DealBook which you invented. And you're doing a column for the New York Times. Yep. And you've got three teenage children. Two teenage, one coming who acts like a teenager but isn't yet. So, how do you have time to write a book?
Uh They would like the answer to that question too. Um Slowly is maybe the answer. It took me about eight years to to write this book. Now, part of that was because it was extraordinarily complicated and difficult to do the research. And part of it was that I really do have these other responsibilities. So, there was I'd be writing at nights, on weekends, on vacations. They were not too thrilled. They They love the book now, but they did not love it then. But you realize the Great Depression was over in less than eight years.
This is very true. This is very very true. So, let's talk about the book and I'd talk about a book that I guess was a you could call a sequel to this prequel. So, you wrote a book Too Big to Fail. Yes. About the collapse of the markets in '07-'08. And that is made into a movie or a documentary I guess I would call it on TV, HBO. Mhm. And or is this going to be made into a documentary or movie or you don't know yet?
Stand by for news as they say in the business. All right. And Hopefully soon we'll have a a good answer for you there. Okay. When very often when authors write things that are made into documentaries or docudramas, they appear in the in the documentary themselves as a little walk-on.
I had a cameo. Were you in a cameo? I had a cameo. In Too Big to Fail I had a cameo. I was a reporter asking Hank Paulson a question in the middle of the crisis that Monday after Lehman Brothers of course which had filed for bankruptcy the night before.
All right, but you didn't get an Emmy award for that. I did not get an Emmy. We We got We got nominated for 11 Emmys, but I was not My acting prowess was not
So, for those people that did not read Too Big to Fail, what's the essence of what what it's all about?
The essence of the book Too Big to Fail was about trying to bring the public, the reader, inside the room of the financial crisis of both um the bankers on Wall Street and in the corridors of power in Washington and to try to to demonstrate how interconnected all of these people on a very individual level actually were and to try to understand the decisions they made, the mistakes they made, and how all of this ultimately played out cuz I think that, you know, during that crisis in particular, and by the way this is true of 1929, in the aftermath there was obviously a lot of finger pointing and there was always this sort of idea of white hats and black hats, but my view as a reporter and a journalist and as a writer is that the world is never black and white. That the most interesting part is just how gray it is and when you can get inside the room and understand what's happening, you may not agree with it all, but it makes it all that much more understandable.
All right. So, for those who might not have had a chance to read Too Big to Fail or see the documentary or docudrama, can you summarize what happened in that period of time '07-'08 that led to the crash? What was the fatal mistake that led to it?
The fatal mistake of of the 2007-2008 financial crisis is was the mistake of 1929 is the mistake of every major systemic crisis. It's taking on too much debt. And so you had obviously banks taking on extraordinary amounts of debt in part because they were lending it out to consumers in America who were buying homes who were also taking on extraordinary amount of debt and they had sliced and diced and the these these piles of mortgages if you will in ways that I think unfortunately people didn't appreciate or understand the depths of how much debt there really was and what the risks really were and when it all came due it all came undone.
Okay. Let's talk about the in effect prequel 1929 book. In 1929 there've been a lot of books written about it. John Kenneth Galbraith wrote a famous book about it.
Fabulous book. Why do you think the world needed another book on 1929?
So, I had read that book in college and after I wrote to Too Big to Fail, invariably people would come up to me even at a book event and say, "Hey, so how was that different than 1929?" And the truth was I never had a good answer for them. I didn't know. And about 10 years ago, in part because people would ask me this question and I felt frankly embarrassed that I didn't know more about 1929, I started reading lots about it. I became enamored by by the by the period. And for whatever reason, the books that were written about that period were mostly written some in the '30s, '40s, the famous book in the '50s, there was another great book that was written in the '70s. None of those books um put you in the room. I always loved books like Barbarians at the Gate and Den of Thieves and the kind of books that Bob Woodward would write where you actually feel like you're there and you can actually see not just what happened, but you're actually with the people to understand what their motivations were and their incentives and what what what their alignment or you know, misalignments were, the greed, you know, who's trying to screw over who. I mean, that's to me what what was And for whatever reason those that part of this story, the human drama of 1929, I had never read and so I went on this eight-year what I thought was quixotic at some points journey to try to get at that.
And the books that you've talked about Barbarians at the Gate and things like that were written at the time when the people who were the actors in those were alive. And 1929 those people are gone. So, how did you capture the the in the in the room moment that way?
That was the most complicated part. Um So, I the book is based on letters and diaries and memos and depositions and and all sorts of transcripts and other material to bring you back into those moments. And that was that was the hardest part to find. There was no, you know, archive one, two, three places. It was everywhere and the book began for me I was up at Harvard University giving a lecture and I happened to get there early and I walked in the library. This is now close to 10 years ago. And there was a character named Thomas Lamont who ran J.P. Morgan at that time back in 1929. His family had donated his papers to the library and I had asked the archivist there could I look through one of the boxes. I just had some extra time and I I'm opening these folders and looking at these notes. His his secretary used to keep transcripts of his conversations with Roosevelt and his letters back and forth between Hoover and I thought to myself, "Oh goodness, maybe you really could do this." And then I I went to her. I explained who I was and what I was trying to do. She had actually read Two Big to Fail and she said, "You're not going to be able to pull this off." And that was like throwing down the gauntlet for me. And I she said that there really wasn't, as I said, a couple of archives that you could really go mine. She didn't believe that the material even existed and and she wasn't wrong in terms of there weren't those places, but what ultimately happened in every scene that you'll read in this book you know, might come from five or 10 different places. It might come from a letter that somebody wrote about a dinner that they had the night before explaining it to a friend of what happened at that. I might have gotten a picture of the room or the architectural diagram. I might have gotten the menu from that dinner or whatever it was to put it all together so that you were getting sort of the full picture.
Okay, well, it worked out. So, let's talk about some of the key elements. Let's talk about the stock market crash.
Yes. Now, the stock market crash is generally associated with 1929. Yes. How much did the stock market actually go down on the biggest day of the crash?
So, that's actually I think one of the great myths of this period. You know, everyone thinks that, you know, there's Black Thursday or Black Tuesday or Black Monday. It was all of them. Um and in certain cases it wasn't that there was some extraordinary drop. The the drop was a 50% drop effectively between September, end of September 1929 and November 13th of 1929. Um and it was the it was really the collective. But the most interesting part about 1929 is actually that by the end of the year the stock market had only fallen by 17%. All of those losses have actually been returned. The problem was that most Americans who had invested in the stock market were leveraged. They had taken on extraordinary loans. In this case, back then you could go to a brokerage house put down a dollar and they would lend you $10. So, when the stock market fell 50% you couldn't hold on to get back to 17% because the bank was calling you saying, "Excuse me, you now not just owe us 50% down, you owe us you owe us 10 times that." In which case you were losing your home, mortgaging your house and all of it.
So, the margin then was roughly you could borrow 90% or more or less. It was wild.
And today if you buy stocks, you can more or less borrow 50%, something like that. Close to it.
Hopefully less than not even. I'd say two to three times. So, just to illustrate, when the when the 1987 the market crashed in October of '87, the market went down by I think by 22.6%.
Right. On any day in 1929 did the market go down by 22.6%?
No. So, most was probably 12% or something like that.
13% was the what was the worst of the worst days.
So, it was a gradual decline. There wasn't a one day that had a epic episodic kind of loss.
I would say there was a a horrific week Okay. that started on a Thursday and then a sort of gradual decline from there. And that didn't really even account for what ultimately happens not just in 1929, but what's encapsulated in the book, which is that the book continues through to 1933 and it really it we don't really have a true economic problem in the country, genuine economic problem in the country, frankly, until the end of call it '30 or '31.
So, there's images or stories about people jumping out of windows on Wall Street. Did that really happen?
So, yes and no. Um they absolutely jumped. There were real people who jumped. The the more interesting component part of that question is that if you actually look statistically at suicides in New York in the fall of 1929, it was actually flat to possibly lower than the number of suicides in 1928. And so there is a view that it sort of overdone. Having said that, the suicides that did take place were typically related to the crisis meaning a lot of the people who were were killing themselves, it was a function of losing all the money that during that period. And I'll tell you a personal story not told in the book which is that my grandfather, Sidney Sorkin, who's no longer alive um used to tell us a story. He was a messenger boy down in the exchange during that period with his with his older brother. And he would tell a story about how he was there. This is late October, November 1929 and how he watched somebody jump out a window. And it had such a um impact on him personally that for his 92 years on this planet, he never bought a share of stock again. He always would tell us uh that he thought that the stock market was a casino. He'd buy bonds, um owned his home but stocks he thought were uh
What about uh private equity? Did he invest in private equity? No. Didn't think about that.
We we got a a semi-liquid instrument for him that you guys can put together.
So, I'm talking about the stock market. Um in those days, who were the big buyers of stock? Was it the little individual investors who were getting lost or were the big wealthy people who were buying a lot of stocks on on margin?
Well, so it was a combination of the two. I mean, you had this extraordinary elite class uh in New York. Some of the big names, I mean, in the book Charles Mitchell who runs National City and John Raskob and so many others, Durant who who were buying up stock and frankly manipulating the market. It wasn't just that they were buying stock, they were creating what were then called investor pools um where they literally had ganged up and were running the the equivalent of pump and dump schemes on Wall Street. And interestingly during these pump and dump schemes where they would say for the next two weeks we're going to try to run the stock up. By the way, they'd pay off some journalists to maybe write some nice articles about the stocks. During that period the public knew or at least some of the public seemed to know that this operation was taking place. And some of the public would try to quote jump on and off the train before they would pull the rug. So, it was a very sort of unusual thing in so far as it was sort of in the open though I think obviously today we'd all look back and say that's crazy. It was not illegal because there was no SEC, there was no insider trading laws. You could do this.
And did people also buy these investor pools and short stocks? They weren't just buying stocks and shorting
>> pushing the stock up, others were trying to push stocks down. There was a real I mean, among the elites there were some extraordinary things going on. Jesse Livermore was a famous short seller. One of the things that he would do, um the information on the floor of the New York Stock Exchange was was poor. What I mean the information. The prices on the the the boards on the wall of what each stock was worth at any given moment was often out of out of sync with what was happening in reality by hours sometimes. He had his own people on the floor who would then call him on the telephone and tell him exactly what was happening so that he could get ahead of everybody else.
So, one of the most interesting parts of the book is the characters you developed even though you couldn't interview them. Um the characters are are quite interesting. Why don't we go through some of the leading ones. At that time the leading bank on Wall Street was J.P. Morgan. Yes. But it was a private bank.
Mhm. But Mr. J.P. Morgan, the founder of it, wasn't really involved so much. It was his son that was then the head of it.
Well, J.P. J.P. Morgan, the father, had passed away. Right. And so at this point Jack Morgan, his son, is called the CEO in name but in truth is is letting a guy named Thomas Lamont effectively run the firm.
You mean a strong father didn't produce a strong son? We'll just leave that there for for the for the audience. Okay, so he was his son was not quite as dominant a figure as as as J.P. Morgan the original had been. So, he turned everything over to Thomas Lamont.
Yes. And was he a reputable person?
He was possibly the considered at that point the most reputable, but when you go back and and think about how reputable he was, you you might have questions. Uh this guy would spend time with just about every CEO in the world, every major world leader. He would go visit and have dinner with you know, Mussolini. He would spend time with Hitler. He was um he was the guy that you would go you would see because they would both lend you money and frankly make you money. And interestingly, not just make you money they were effectively often times giving out shares in companies uh, at discounts not just to their favored clients, but to favored politicians, uh, to all sorts of people back then. Again, something that was considered legal.
Politicians were taking something they weren't uh, supposed to get? If you thought the good old days that didn't happen, think again.
Right. So, let's talk about Charles Mitchell, who was the only person in the book who's who actually was indicted. Yes. Uh, of your characters. Talk about Charles Mitchell and what happened to him.
So, Charles Mitchell's probably my favorite character in the book. Charles Mitchell ran a bank called National City. Uh, National City becomes Citigroup. Uh, for those of you who spent time in New York, uh, Charles Mitchell lived uh, between 74th and 75th Street uh, on 5th Avenue, what is today the French Embassy. That was his home. Uh, he had two Rolls-Royces that were at a parking lot up in uh, 97th Street. He used to walk to work and have uh, some of his uh, drivers frankly chase him uh, so that he could jump in the car if he needed.
The customers' Rolls-Royces? The customers, uh, some of the customers did have Rolls-Royces in the end, but um, and and then lost them frankly, but um, no, most of the customers did not have have Rolls-Royces. But, Charlie Mitchell really revolutionized the idea of democratizing finance. That was actually a phrase, we hear that kind of phrase now a lot. That was a phrase that he used all the time back then. And the the the real innovation that he came up with was that he was going to lend people money so they could buy shares in stock. He was going to lend money to consumers directly and lend money to brokerage houses so that um, the ordinary investor could participate in what he called the great American dream. Okay. And ultimately though, um, he does something that gets him in trouble. What is it that he does that gets him in trouble and later leads to an indictment?
Um, you know how they always say, you know, Al Capone was was they got him for the taxes. It's always the taxes. Um, after the crisis uh, in '29, he had lost an extraordinary amount of money on paper uh, that he had but he had not sold his shares. And so, what he did uh, was he sold his shares um, to his wife so that he could claim a uh, tax loss um, and then but his wife would hold on to the shares. So, it was a um,
Is that legal? Well, interestingly, um, it doesn't look great today. A jury of his peers acquitted him in 1933.
I just ruined the end of the book, so. Well, but he was acquitted, but his name was disgraced, was he not and did he not really have to leave the bank?
He ultimately did leave the bank. He left the bank even before um, the the case itself. It was it was right it was actually right before he was arrested. Uh, but he was arrested, ultimately went through this trial, acquitted, and then yes, his his reputation I think was left in in some form of tatters, but interestingly, he actually did return in his own way to a smaller part of Wall Street later.
Now, one of the people you mentioned, Jesse Livermore, was also one of the biggest short sellers.
Yes. He'd buy a lot of stock and then he'd short a lot of stock. And what ultimately happened to him?
So, Jesse Livermore was a was a short seller, he was a trader. And and most uh, short sellers I would argue, I you know some some famous short sellers today. I hate to admit that they're they're they're kind of emotional wrecks uh, most of them because they sort of they have to bet on demise, right? That's what they're doing. Um, he was somebody who made a fortune, made about a hundred million dollars in the crash of 1929, probably more money than anybody else at that period. Um, he ended up uh, making some money, losing some money, making some money again, losing some money. He had uh, drinking problems, he had wives and girlfriends and all sorts of things um, and ultimately in uh, 1940 uh, walks into the Sherry Netherland Hotel for those of you who know New York on 5th Avenue, which is actually now it's next to the Apple Store. The Apple Store wasn't there back then. Um, and um, he walks into the cloakroom and shoots himself. So, you can add him to the list of suicides.
Now, one of the people was one of the leaders of the I think Democratic Party, chairman of the Democratic Party. And he was a major stock buyer as well, Raskob?
John Raskob is also a unique character, probably un- unsung in America for so many reasons. John Raskob, even more than Charlie Mitchell, changed the face of of America in that prior to 1919, um, taking on debt, you're you're you're you're in the private equity business, debt, um, was considered a moral sin. People did not take on debt. People did not take on even a mortgage was something you did not do. Proper people did not take on credit like that. They didn't take big loans. And John Raskob was running um, General Motors at the time. I think of John Raskob as sort of the Elon Musk of his time. He had this idea, how are we going to sell more cars? Um, the way we're going to sell more cars is we're going to lend people money so they can buy cars because buy cars were very expensive. And it worked and worked spectacularly, so well that it really changed the psyche of America such that after that, Sears Roebuck started lending people money so you could buy appliances. And then Charlie Mitchell on Wall Street clocks what's happening and goes, "Oh goodness, we can loan money, too, to people and they'll they'll buy stock." And so, John Raskob really changed the entire dynamic in the country around debt. He then went on to be a spectacular investor, uh, tried to create what was probably one of the first mutual funds, also with debt. He would let you buy buy stock with debt. He goes on after that uh, to build what is probably the equivalent of uh, what if since we're comparing to Elon Musk, the SpaceX of its time, he built the Empire State Building in New York. Um, and he's also responsible for the reason that we all now have a five-day work week and not a six-day work week. Uh, so back in the fall of 1929, uh, he wrote a uh, an essay about how we needed to shift from a six-day work week to a five-day work week um, not because uh, he wanted to be nice to people, uh, but because he thought it would be better for the economy. He even also suggested that all national holidays be moved to Monday uh, with the exception of Christmas so that we could all have three-day weekends. And if you had two and three-day weekends, uh, he would there'd be a lot more reason to buy cars cuz you'd have to you could go travel. Uh, you'd buy home appliances and home things to fix up your home, you'd buy different outfits cuz you'd go to different places and that would be a real boon to the economy. So, um, John Raskob, sort of maybe unsung hero for those of us who would have otherwise been working on Saturdays. The stock market used to be open on Saturdays, by the way.
So, one of the people who was very famous before your book is a man named Richard Whitney. Yes. Richard Whitney famously walked across the stock exchange one day to calm everybody down and got uh, applauded for that. But, what was the real story and what ultimately happened to Richard Whitney?
So, Richard Whitney was running the New York Stock Exchange during the crash of 1929. Um, he really was the deputy, he was not really supposed to be in charge. The guy who was in charge happened to be on his honeymoon in Hawaii during the crash. Sort of think about being out of place um, when you're supposed to have the gig. Um, and Richard Whitney also had a brother who was very senior at J.P. Morgan. And because of that connection, I think people um, gave Richard Whitney uh, lots of respect and credit for what he was doing. He one of the things that he did try to do uh, successfully for about a day and then after that it it failed, it was was try to buoy the market by um, rounding up some of the banks and their their money try to push up the the price of stocks. But, ultimately uh, we found out that Richard Whitney was not uh, the great guy that everybody thought he was. You talked about people going to jail, he was really one of the only people to go to jail. He ended up in Sing Sing. Um, he uh, after the crash um, borrowed an extraordinary amount of money, I should say borrowed, stole uh, uh, money uh, from the pension funds of the New York Stock Exchange members um, for this other fund that he was running and he was doing all sorts of wild things.
Final person I wanted to ask you about is Ferdinand Pecora. Who is he?
Ferdinand Pecora um, is an extraordinary character who's responsible for bringing either justice or at least attention to what happened in in 19 uh, '29. In 19 '32, '33, there was uh, what was known as the Pecora hearings. Um, and he was a lawyer uh, who ran a series of hearings uh, for the first time where he interviewed uh, and interrogated and prosecuted effectively uh, a number of the individuals that I just described.
He an elite lawyer from a big firm?
An elite lawyer. He was the least elite lawyer, it was very hard to find uh, um, uh, Congress wanted to find an elite lawyer, but didn't have the money to pay an elite lawyer. This was a guy who who had wanted to make his name and boy, did he. And he uh, really pushed and pushed and pushed uh, on all of these people um, in these hearings and exposed how Wall Street really worked. And to a large degree, I would argue that uh, those hearings led ultimately to things like the Glass-Steagall bill, which ultimately broke up the banks and broke up the investment banks from the commercial banks. Uh, Morgan Stanley today is a function of that. Morgan Stanley was the investment banking portion of J.P. Morgan that ultimately gets broken off. And so, you you did have uh, that law get put in place, by the way, FDIC insurance, um, all sorts of things that happened, the creation of the SEC. I think all of that happened in the aftermath of what he did.
And your book is called 1929, but it could have been called 1929-1934 or five. Cuz much of the book is about what happens after the market crash. Let's talk about that. After the market crash and then it comes back as you point out, 1930 is the economy okay or is the economy finally beginning to slip in part because the market had gone down?
So the reason that I I wrote the book the way I did is and this is the other sort of I think myth of that period at least under my sort of ignorant understanding of it. I think a lot of people think there was this crash in 1929 and all of a sudden we had this great depression. It did not have to happen that way. The crash really did suck confidence out of the system, but it was really just the first domino in a series of dominoes and ultimately policy choices uh made by President Hoover, made by the Federal Reserve, uh made by the Treasury Secretary, uh made by so many others. We can talk about all those component parts that led to what ultimately turns out to be, you know, 25% unemployment in this country in 1932.
So the president when we start when the economy is going down a bit, uh the president is Calvin Coolidge. Calvin Coolidge was the president prior to 1928.
Right. But when he he has the view that basically government should do nothing more or less, right? Hoover I mean Coolidge was a pretty hands-off president and by the way, hands-off was working at the time because the stock market uh and the economy was uh running hot uh on all cylinders. By the way, between call it the beginning of 1928 and September of 1929 and this I think explains why so many people got involved in the market, the market went up 90%. And so if you were not in the market I mean they didn't have the phrase FOMO back then, but I think it really explained the sort of psychology behind why so many ordinary Americans uh decided they needed to get in on this action. Coolidge's view generally was let the government do what it does and the market will do what it does and stay out and famously he was laconic and someone once said to him, "I just made a bet that I could get you to say more than two words." And he famously said, "You lose."
So 1928 Herbert Hoover is elected president of the United States and he has a uh wonder boy image. He'd been reconstructing Europe. He was a businessman. He was thought to be the perfect person to be president of the United States. He'd been secretary of of uh commerce under Coolidge. What did he do when he became president? Did he start taking a lot of actions to help the economy?
Not immediately. And by the way, worth also noting at least famously uh reportedly Coolidge said that he believed there would be a crash coming. That was one of the reasons that he later said he he ultimately didn't run again. It's very unusual uh to have a one-term president then not even try to run. Uh people [snorts] were always questioning well why didn't Coolidge run again? Hoover gets the job uh by the way, gets uh inaugurated in March of 1929. Uh back then the inauguration wasn't uh in January, it was in March. And that's important because if you think about it, there was only about five months before the crash happened. So there is there is I to the extent I have empathy or sympathy for Hoover in this. I know he gets a very bad reputation. I oftentimes think to myself, if you just got into the into the role, what were the things that you would have done to try to, you know, jump in front of the train?
What did business people or others go to Hoover and say, "You got to do something, get the federal government to do something?"
There was so there was a lot of worry on the front end of this crash. Um yes. So um there was a trader named Durant who actually uh went to the White House, told Hoover that he thought this was going to happen, begged him to do something. Hoover was unsure what he could do. He also had a relatively obstinate Treasury Secretary in Andrew Mellon um who had a view that, you know, capitalism was capitalism and just let the markets do what they're going to do. The Federal Reserve, you know, reading through some of the diaries and I was actually by the way you'd asked about sort of how I'd gotten some of the documents. One of the big sort of unlocks to the whole book was I got the Federal Reserve of New York to give me uh the minutes from that period of time which had never been released publicly in the last 100 years. And that became sort of a treasure map for everything else. Um but when you read those diaries and and and see what they're talking about, they thought there'd be a crash. In fact, they thought the speculation was getting out of control and they were having a debate inside the Federal Reserve about whether they should raise interest rates to try to tamp down the speculation. Uh but they were so scared this actually gets to maybe the we think about Fed independence today. They were so scared of the politics back then. Not because they thought Hoover was going to do something to them, but they they thought that um they were considered still an experiment. They were born in 1913. Um and they were worried not that they were just going to get hauled in front of Congress if in fact they raised interest rates and the economy went wrong, uh but that maybe the Fed would be disbanded. And so that weighed on them in terms of why I think they didn't act sooner.
Did they were they in control of what the margin uh levels were or is not the Fed? Who who set them the margin at let's say 90% or whatever the margin level was?
Well, the bankers were the ones who who were setting the margin, but but but the the lending rate was set by the Fed and that could impact the cost of cost of capital uh for those banks and that would have that could have tamped down some of this.
Now Hoover never took Roosevelt seriously. He thought he was a bit of a playboy, a dilettante. And so when Roosevelt ran
Worse than that, he thought Hoover thought that Roosevelt was a I mean he talked about him that way and said this guy can never even be in the White House. There's no way that he will ever be the president. Therefore he just didn't even take him seriously. It was it one of the great political mistakes of his time of that period. And well, as we know in 1932 Roosevelt wins, Hoover loses. Hoover then realizes he has to deal with Roosevelt, but in that five-month period between November and March does Hoover try to get Roosevelt to do certain things that will help the economy and what does Roosevelt say?
Well, this is this to me is one of the most interesting uh moments in in political history which is you have this transition period between Hoover and Roosevelt. Hoover finally is now I don't want to say in on the joke, but he finally realizes the mistakes he's been making for years um along the way. We haven't even talked about some of those mistakes by the way including uh implementing tariffs which we can get to. Um but uh he does an assortment of things that that put the economy in a a horrible place and now banks are having bank runs. I mean this is now we're into the sort of a wonderful life moment where there's thousands of people outside of of banks and and people are losing their money every single day. The banks are going out of business. If you had money at the bank you lost it all because there was no FDIC insurance or anything else. He uh thinks to himself, "Okay, we have to do something with the banks. We have to rescue the banks. We have to put some kind of uh rescue mechanism in place for the banks." But he only wants to do it if he can get Roosevelt on board because the idea is he needs to establish confidence in the system and thinks if he does it on his own and everybody knows that a new president is coming, you know, in in weeks or months, it's not going to work. I mean the confidence won't be there for people to keep their money in the banks and for the economy to get back in shape. So he goes to Roosevelt uh secretly and is writing these letters to him saying, "Let's do this together. If we do this together, then there'll be confidence cuz we'll know it's a uh that the transition will be the same." And of course Roosevelt says talk to the hand. I I don't want to do any of this. I'm not basically suggests he's not going to do any of these things. Um and why doesn't he want to do any of these things? Because he doesn't want to be stuck with uh something if it's if it turns out to be politically unpopular and a mistake. And so what happens? He nothing happens. He gets inaugurated, meaning Roosevelt, and literally the day later he does everything that Hoover was going to do anyway. So they they basically had a bank holiday for a day or so?
They had a bank holiday that turned into a a weekend if you will, but they they put that that bank holiday in place. They shut down a lot of the failing banks, uh effectively supported the the other banks that were were were ostensibly safer and and that did put a sort of a baseline underneath underneath those banks.
Let's talk about the SEC. The SEC is created under President Roosevelt.
Yep. Um was there any opposition to creating of such an organization then?
Oh goodness. I mean all of the banks were against the SEC. Um it's not that different than you might imagine. Uh you know, I think a lot of the folks in the financial industry were worried that the SEC was effectively going to overregulate uh the industry. But you know, back then because the politics had become so bad and and when I say politics, the economy had become so bad. I mean when we talk about 25% unemployment in this country, think about tented camps all over the country. They were called Hoovervilles and that's one of the reasons that Hoover got such a bad reputation. You could by the way walk through Central Park, it would be a tented camp. Uh literally people all over the country living in these tents. And so I think at that point the political pressure on Wall Street was real. And by the way, we haven't talked about him, but there was one major character who had been on this from the get-go uh long before the crash ever happened which was Carter Glass.
Carter Glass >> was a senator from Virginia?
Uh Carter Glass was a senator from Virginia. Uh Carter Glass was the I would call him the Elizabeth Warren of his time. Uh he he would rail about Wall Street and in particular he railed about this thing called Mitchellism, Charlie Mitchell, and how he believed that Charlie Mitchell was going to upend the economy by allowing people to speculate. And one of the things that he was trying to do was both break up the banks. At one point he was trying to put a tax on short-term trading cuz he thought that would shut things down. But he was sort of a real major player in terms of both identifying things early and then ultimately putting in place what turned out to be Glass-Steagall which was this bill that broke up the banks and and had a huge role in this before the SEC was ever even created.
So let's talk about the man who becomes the first chairman of the SEC. Who is that and why is he picked?
Well, you're talking about a a man from Boston who famously are we going to talk about the shoeshine story? Is that where you're going with this?
>> Okay, go ahead. I didn't I There's a there's a funny story um about Kennedy in this regard where he goes to see a shoeshine boy apparently in 1929 and the shoeshine boy is giving him stock tips. And so he he realizes that this is when he knows the market
He was a thought to be a guy that broke a lot of the non-existing rules at the time. But why would he become the chairman of the SEC?
Because he was in with Roosevelt. I mean, by the way, interestingly Roosevelt's people think that Roosevelt's was somehow you know, not in with with with Wall Street or banks or corporations was sort of considered a very sort of super liberal progressive president. And in certain ways he was. But by the way, the number of CEOs that spent their time in the Oval Office is pretty much the same number of CEOs who spend their time in the Oval Office today. I mean, Roosevelt was very engaged
>> had been a Wall Street lawyer. He had been a Wall Street lawyer. He was very engaged with Wall Street, the bankers, the CEOs. In fact, Glass-Steagall, shockingly you talk about sort of lobbying and and money transfers and and wildness, the bill that broke up the banks that Carter Glass ostensibly wrote, part of the bill was actually written by a banker himself, someone who worked for Chase under the Rockefellers who was doing it wanted to put the bill in place to break up J.P. Morgan to screw J.P. Morgan over because he worked at Chase.
So with respect to the recession, the Great Depression, how much longer does it go on for another how many years would you say before we really got out of the Great Depression?
Well, that's a complicated question because things looked like they were getting better '35, '36, but then '37 things went wrong again. And so, you know, people look at the New Deal and say did the New Deal get us out of things? There's an argument to be made that it did and there's argument made that it didn't. It really was probably World War II if anything that really put us put us on a more stable trajectory in terms of timing.
Now you mentioned earlier was something we should talk about, Smoot-Hawley. Yes. What was that? Who was Smoot and who was Hawley and why did they want to do what they did?
Well can I take that from a slightly different angle? I want to go back with Hoover cuz it'll explain things. So this is the Smoot-Hawley Tariff bill that was put in place in 1930. Back in 1928 Hoover is running around the country so desperate to get elected and trying to get farmers in particular to elect him that he pledges to them that he is going to enact tariffs and that he's going to put these tariffs in place to try to protect them. And as a result it actually made him quite popular. And so when 1930 came around Smoot and Hawley had both been on the hill trying to get this bill
of their own passed, which is obviously named after them. But it was really Hoover who, who said, "I made this commitment in '28 to these farmers, and despite everybody." I mean, look, Thomas Lamont, all of these bankers, economists would go down to Washington, they'd get down on their knees and literally beg the president, say, "If you put these tariffs in place, you are going to ruin everything." And he says, "I still am doing it because I made this commitment to the farmers." So he did it. And then, of course, global trade, or trade with the rest of the globe, dropped over the next 12 months by 60%.
So, who do you most admire of all the characters that you wrote about in this book? Is there somebody that you really admire that he or she did a wonderful job for the country at this time?
Uh, we haven't talked about Evangeline Adams. So maybe we should.
I don't know if she did great things for this country. She's just a fun character. Evangeline Adams actually played a huge role in 1929. Evangeline Adams was an astrologer in New York City who every banker, including, by the way, J.P. Morgan before he passed away, used to go visit. And they would go see her to figure out what was going to happen in the stock market and whether they should buy or sell. Um, she had a newsletter. You know, I have DealBook today. She had a newsletter then. She had 100,000 subscribers in 1929. People would pay her $50 an hour to go visit with her, like a psychiatrist. And it was extraordinary. She had an office in Carnegie Hall. And she, for most of the late '20s, was right. So some people thought she was a great American. But of course, everything went wrong.
But of the people that are the major characters in your book, Yeah, who went, who, who did it better?
That's a great question. Must be somebody you admire. I think I admire Pecora in many, many ways because of what he ultimately did in terms of exposing what had happened. And in truth, I actually think that John Raskob, despite doing some awful things, by the way, I, we didn't talk about how John Raskob had also spent an extraordinary amount of money to try to ruin the reputation of, of Hoover. He, he had, like Elon, got involved in politics actually on the wrong side. He had supported Al Smith against Hoover and lost. And then basically spent two years running the DNC and and effectively placing articles and stories all over the country trying to undermine Hoover's reputation long before even the crash had happened. And the phrase "Hoovervilles" was effectively financed by him. I can't imagine what he would do if he owned Twitter.
So you spent eight years on this book. I assume you're rested a little bit, but you have another book in mind?
Do I? I'm wondering. My wife says that I'm not allowed to write another book.
I thought that she was your book agent.
My wife is a book agent, which makes this a complicated conversation. I don't know. I'm fascinated. I look, I love a crisis, not because I love crises. I hope, I hope, as I said, that this book is, um, a prequel and the prequel to "Too Big to Fail," so we'll never have to have a sequel. If we understand these things, maybe they won't happen again. But I do think that there's so many lessons embedded in a crisis when you actually get to spend time with people who go through a crisis. Invariably, there's failure, and in underneath that failure, hopefully we can learn from them.
Let's talk for a moment about your life as a Squawk Box, Squawk Box host. Okay. What is that like? You have, you have to get up at 2:00 in the morning or 3:00 in the morning? How does that work?
4:30 for me. I'm, I'm late TV morning land.
So what time do you have to be in the studio? What time?
The show starts at 6:00 a.m. and the running joke is that I am often there at 5:59. No, maybe 5:58.
And is it all rehearsed the night before?
No, no, no, no. In fact, actually, we do best, I would argue, when we haven't talked to each other a lot beforehand because then it's totally spontaneous. And I think that one of the things that's so great about the show is between Joe and Becky and myself, and I think we all come to the table clearly with very different perspectives on what's happening in the news that morning.
And so it's unscripted to some extent, but do you actually agree in advance who's going to interview who or how does that work?
So we typically know the day before, often times, not always, but a lot of the guests that we've, we've lined up for, for that day. And yes, we've typically decided that someone's going to quote unquote lead the conversation, but invariably then one or two of us will ultimately jump in with different perspectives. So that happens in advance, but then often times the show will be happening and news will be coming out and we'll be getting guests on literally as the show is happening. We're texting with people, emailing with people. I mean, what's so to me fabulous about the broadcast is it's one of those shows, one of the few shows I think that's, despite the debates about politics, there's all sorts of politics on the show, all sides. I mean, and and the viewers, you know, it's, it's it could [snorts] be Jamie Dimon in New York and Tim Cook in California and Ted Cruz in Texas and Elizabeth Warren in Boston and the president in the White House all watching the same thing.
So when you finish the show, Yes. Do you go take a nap right away?
I am not a napper. I tried that about 15 years ago. I can't, I can't do it.
So you basically stay up until you go to sleep at 9:00 at night?
At 9:30. 9:30 to 4:00. If I can get 9:30 to 4:30, I'm good.
Okay. So you've been around a lot of people. You've interviewed a lot of business people, and you probably have said, well, they're not really smarter than I am. You're pretty smart. Why do you, why do you not say, "I should go into business and do what they've done? I can do just as what they've done just as well." Has it ever occurred to you?
It's occurred to me. I don't want to tell you it's never occurred to me. I think this is the most interesting job in the world. I mean, I think I have this sort of remarkable license to ask people questions, and I get to spend time with them, either on television or in my writing, in the most interesting moments of their lives, and being able to sort of tell that story and try to make sense of it. Now, I think one of the thing I'm doing every morning, whether it's in DealBook, which is this newsletter I I started 25 years ago that a million people get every morning, or on television, as we're all waking up together, trying to make sense of the news together. And I think there's something extraordinarily valuable about that and and extraordinarily fun, and and we've made it work out, so.
Okay, so no business career in the near term, probably.
Well, unless you're offering a job, in which case, well, we can talk afterwards, but.
And in terms of, in terms of DealBook, how does that get put together?
So, I started DealBook about 25 years ago in my pajamas. I also was waking up at 4:30 in the morning back then, just I wasn't going on television. Now, I have a small team that I work with, an extraordinary group of people. We work all day and planning for the next day's newsletter. I write the top and other parts of it. My colleagues will assign out different parts of it, and then I have two colleagues who work actually in Europe overnight, so sort of we'll put together, call it 70% of it by day. I'll go to sleep. They'll update and fix the mess that we've made, and then I'll wake up in the morning and maybe, you know, start editing and changing things again. So, it's sort of an all, it's a 24-hour a day operation.
Right. Many paying times you interview government officials, and you must think that you're probably as smart, if not smarter, than some of those government officials.
I would not presume.
So, have you ever thought about taking a position in the government that you might agree with the president or whoever's policies might be, if you like the president, would you ever go into government as a, as a finance official or treasury official?
I don't know about that. I would, I having having been through this experience of covering this world, I would think being an elected official, particularly an elected official, I think is a very compa- I think the act of getting elected and what you have to put yourself through and put yourself out there. I think I'm a semi-public person, but to to put yourself out there to be an elected official, I think would be an extraordinary thing.
Okay, so of all the people you've interviewed, >> Yes. Over the many years on Squawk Box. Okay. >> Who are the one or two or three most impressive people in terms of their character, their truthfulness to you, their wisdom? How many of those would you cite like that that are really outstanding and you say, "Wow, I wish I could be as good as that person." There must be somebody.
>> No, there's a lot of them, and you've interviewed a lot of them, too. I'll tell you, the people that I admire most are the ones that I think are truthful and the ones that actually grapple with the question. So, there's certain guests, and I imagine you've had this over the years, where the, you ask a question and within a second, they are rattling off an answer, and often times the answer has nothing to do with the question. Right. Right. You could have asked whatever it is, and they'll tell you, they'll start telling you about the weather or whatever it is. It just has nothing to do with anything. So, I love somebody who's actually sitting, even when there's an awkward pause. I mean, it's funny. I think some of those people think, if I've interviewed Elon Musk a whole bunch of times over the years, and often times with Elon Musk, there can be these sort of awkward silences in the room. And if you're in the TV business, I think people don't like silence. People, people are scared of silence. But I think one of the reasons that there's silence is he's actually grappling with the question. Whether you like the answer or not, Okay. I don't know, but the, he's trying to answer the question. By the way, I'm trying to answer your questions right now. I'm grappling with the question. Look, I think that one of the people that I'd put on that list is Jamie Dimon of, of JP Morgan. I think that he has been, of the people in finance that I know, who've been unbelievably honest about what they actually think, and often been willing to say things that are politically unpopular, often been willing to say things even during this administration that are at odds with the president of the United States, who, by the way, is now suing him personally and JP Morgan. I have, I have great admiration for people who are willing to to speak, to speak the truth.
Now, you speak to a lot of people about the economy, and presumably you have your own views on it, but can you tell us your view? Are we heading into a recession? Are we in reasonably good shape? What is your own view of the economy as somebody who covers it and knows a lot of people who work in the economy?
So, often times that question is framed in the context of this book is of, are we about to go off the cliff and and you know, have another 1929? And and my answer invariably there is, is I don't think that we are about to have a another crash of that magnitude. Do I think that we are, um, in a precarious moment that could end badly? Yes. I 100% believe that right now, given the run-up in values in the stock market, given the amount of borrowing, though it's not nearly the levels of 1929 or even even 2008, that we are possibly due for a correction of sorts, and that the kind of investing that people have done, I mean, look, there's a whole generation of people here since 2008 that have not seen what a crash looks like. And so, sort of just, just the sort of carefulness with which people have invested, and given all of the sort of new products that are now in the markets, prediction markets, everybody, I mean, there's a whole new sort of gambling economy that's taking place that invariably, to me, will will fall or will fail at some point. I can't tell you when. I'm very excited by AI, but I think AI, you know, some people worry about a bust in AI, meaning, are we in an AI bubble and whether it bust, that's one worry. I'm also, as excited as I am, I'm worried about what happens if AI works. Because if AI has success and it creates the kind of productivity that's needed, frankly, to support the kind of valuations for all of these companies, invariably that productivity, What does productivity mean? It means we're going to have to grow at an extraordinary rate with a lot less cost. Well, what's the cost? We're the cost. And so, what does that mean to the underlying economy?
A lot of people are worried that they'll lose their jobs. You're not worried that Squawk Box hosts will lose their jobs because of AI, right?
It could happen. By the way, as an author, I worry about this. I worry about how easy it's going to, I worry about whether in 5 years from now, people will write books the way they wrote them or the way I wrote this book. I imagine people will write books that will, at at a minimum, be AI-assisted in some form or fashion, and then what is that?
So, have you ever thought your incredible career as a journalist and broadcaster would not have happened if you hadn't used the middle name Ross?
Uh, it would have been less memorable. How about that?
All right. Well, I'm sure your grandfather was very happy. He was very, very, very, very happy, and he would have been thrilled. He, he was, he was alive for "Too Big to Fail," but he was not alive for, for this book. So, congratulations on the book. I really enjoyed both your books and I look forward to a third one. I trust I know you will write at some point.
I don't know when it's going to be.
And congratulations on your very successful career and thanks for being here.
Thank you so much. The great David Rubenstein, and always good to be here with you.