Andrew Ross Sorkin on the Crash of 1929 & The Parallels We See Today | The Real Eisman Playbook

Why did you want to write this book? >> There are economic forces at play in a financial crisis, but there are also human forces at play. Today, I welcome an old friend, Andrew Sorcin. Here's his new book, 1929. >> We, the American public, today have a vague idea that something very bad happened in 1929. But I wanted to know who the people were. I wanted to understand their motivations. I wanted to understand their incentives. And I wanted it to feel intimate. So, why don't you set the stage about how little rules existed? This truly was the Wild West. There were no rules. The SEC didn't exist. It would be like the guest list at Davos if they had all gotten together to pump and dump a stock. 9,000 banks failed all over the United States. Let's talk about some people. >> I was so fascinated by these guys. This is so juicy. It's unbelievable. And it just got worse and worse and worse and worse. And this was not something I expected as I was working on this is how much I found things that were happening in 1929 that felt very 2025ish. Like what? >> Hi, this is Steve Eisman and welcome to another edition of the real Eisman playbook. So, since we've started, we've had amongst many of our guests, we've had four authors. So the first author was Wolf Gang Munchow who wrote a book Kaput the end of the German economic miracle. Then we interviewed John Cassidy who wrote capitalism and its critics very recent book. Then we had Gretchen Morgansson on who's written several books and we talked about them. And more recently we had on Patrick McGee who wrote a very interesting book recently called Apple and China. And today I welcome an old friend Andrew Sorcin. Welcome Andrew. >> Thanks for having me. This is like a role reversal for us. >> Yes, a role reversal. >> I'm very excited about it. >> I'm I feel very empowered. And here's his new book, 1929, about the crash of 1929. So, I was thinking about how to introduce this book because obviously I read Too Big to Fail years ago and I was thinking J.R. Tolken first wrote The Hobbit. >> Mhm. >> And then years later, maybe 10 years later, he published Lord of the Rings. And it only became clear that The Hobbit was the prequel until you read Lord of the Rings, right? >> You have done the reverse. >> Yes. >> You wrote first Lord of the Rings, which is too big to fail. And now you've written a prequel. So let me ask you a question about that. >> So I don't have to write a sequel. >> I hope to God we don't have to write a sequel. >> But let me tell you what I really liked about Too Big to Fail. you know, it it came out very shortly after the financial crisis and you got you basically interviewed everyone who was in the room where it happened. And what I really liked about the book was I mean, look, I lived it, you lived it, but you gave everybody details that we couldn't possibly know because it was real. I mean, eventually they all would have come out, but you got to them first. >> My hats off to you about that. I learned a ton. And um but you spoke to living people. >> Yep. >> The people in this book are really dead. >> They're really dead. >> They're really dead. In fact, they're so dead. I was thinking >> in 1929, my father was one year old. That's how dead these people are. So my first question is obviously you couldn't interview people, which is your great skill. >> So why did you want to write this book? >> Look, I think I actually wrote it for the same reason you just said your father was one. I think we the American public today have a vague idea that something very bad happened in 1929. >> But a lot of books were written about 1929. It's not like this is the first book about 1929. >> 100%. What I wanted to do was actually do what I did with Too Big to Fail. I wanted to tell the human drama of that story. You know, I think there have been a lot of books about this period of time that look at this from an economist perspective. They look at it almost with an armchair-like perspective. >> The Galbra book, >> fabulous book, >> excellent, >> excellent book. But I wanted to know who the people were. I wanted to know what they were saying to each other. I wanted to understand their motivations. I wanted to understand their incentives. Why did they do what they did? What were the mistakes that they made along the way? Who were they trying to prove something to that led them into this abyss? And what did they try to do once it happened to get out of it? And I wanted it to feel intimate. And it's interesting that you say everybody was dead and how challenging that proved to be. I remember being up at Harvard at Baker Library with an an archavist early on and I said explained to her what I wanted to do and she said, "I've read too big to fail. what you want to do is impossible. >> And you said, "Why?" >> And I said, "Why?" And she said, "Because it's going to be very hard to find those kind of intimate details." And the truth is there's not one or two or three archives where you can go. I remember her explaining to me because I'm not an historian. said, "You know, most historians, they find an archive or two and they excavate the archive, but the information is typically in one or two or three places, right? >> And you can really understand where it is. And then if you can find that material, you can go." This was not that. One of the reasons that this book took me eight years, >> eight years. >> Eight years to complete was because it was dependent on effectively dozens of archives. There wasn't how did you find them? There wasn't one or two or three places. >> The, you know, Charlie Mitchell, who's one of the the main characters of this book, he ran a bank called National City, which becomes Cityroup, >> right? and all sorts of fascinating and crazy things happened to him which I don't totally want to give away but maybe some people will know there is no Charlie Mitchell archive his family never donated all of his papers to some library somewhere it doesn't exist >> so how'd you find out about >> and so what I ultimately had to do was actually think about almost as a storyteller would okay well who was Charlie corresponding with who was Charlie talking to and I made lists. In some cases, it might have been 30, 40 people that he might have been interacting with. And then I would go to try to find do they have archives >> and in their archives, do they have letters? >> And did they? >> And some of them did. >> And once you started to match up almost like a puzzle pieces, you would find one letter from here. It's like a treasure hunt. And it was it was like a treasure hunt. And the truth is that books like the Galbreth book, which is fabulous, were treasure maps for me. um because I saw the outlines in a way of the kind of story you'd want to tell but without that sort of that detail. And so could you go find that detail? >> And look, there were moments when there were aha moments along the way where I'd find some letter and go, "Oh my goodness, this this explains everything that I was missing. I didn't understand what what was really happening here." And then there were other times where a year or two would go by and I couldn't I didn't have there'd be a gap. There'd be a gap in the story um in terms of being able to explain where they were on this night and what happened the next morning and there's nobody to call and so you you it's almost it's like a needle in a hay stack every time. >> So it took you eight years and so it was an eightyear it was an eight-year project. Sometimes you'd open boxes that had never been indexed at a library. So that's something I learned. Some boxes are indexed because they think there's good stuff in there and >> some are not. >> And some they actually think is all lousy. >> Right. >> Well, those >> Did you ever find any good stuff in those unindexed boxes? >> Yes. But I will tell you u from an efficiency perspective, >> not so great. >> It's not so great. >> Right. But when you land on something, >> the feeling of it is like magical because you think you've discovered something. >> Well, I will say this is a very intimate book just like Too Big to Fail. So, let's let's talk about these people because >> in some ways these people from our time are alien and I think you did a great job in sort of describing that world. I mean, this is, for lack of a better term, this is old Wasp world when the wasps ran this country >> and and nobody questioned that. >> So, let's set the stage. Let's talk about >> even before we get to some of the personalities that are wonderful like >> this when I was reading this book and I knew a lot about you know some of the stuff that happened before the markets are like the wild west here. So why don't you set the stage about how little rules existed? You you know eventually 9,000 banks failed. Were there any bank capital rules? Like like lay the groundwork of what this world was like just from a regulatory pragmatic way. This truly was the wild west. There were no rules. The SEC didn't exist. Um you know somebody recently asked me um about one of the investment trusts that I mentioned in the book. They said, "Um, do you ever see a prospectus for that?" And I said, "Perspectus? >> What's that?" >> They didn't have a prospectus. At best, they might have had a flyer, right, >> that they would hand out trying to sell you whatever it was. I I would even take one step back and say, >> you know, the 1920s really was this unbelievable period of innovation in America, but one of the great innovations was credit. I mean, I think people forget that prior to 1919, it was almost a moral sin for Americans >> to borrow >> to borrow money, >> right? >> People did not borrow money. And it was in 1919 that General Motors created a credit agency effectively, >> GAC, >> GAC, effectively to finance vehicles, >> right? And that was the first time that the American public thought it was okay. And then Sears Robbuk said, "They're doing it with cars. We can do it with appliances." >> Right? >> And then it was people like Charlie Mitchell on Wall Street who said, "Now we can do it with stocks." >> So let I today if you're going to go on margin, you know, for every I mean the most you could do is two to one, >> right? You know, so if you have a million dollars you could borrow, you could have a portfolio of $2 million. That's it. How much leverage did people were people allowed to get on margin back then? 10 to one. >> 10 to one. >> And by the way, you could walk in. There were brokerages that were popping up on the corners of New York City like there's Starbucks today, >> right? >> I mean, you walk into a hotel there. There was a brokerage there. And you would walk in, tell them who you were, and they would literally loan you $10 for every dollar that you gave them. >> Sight unseen. >> Sight unseen. >> No underwriting. >> I mean, it was a it was such a different universe. And for so long, I mean, people forget this. >> The market went up 48% in 1928. By September of 1929, it was up from the beginning of 1928 to to September was up 90%. So if you were buying stocks and only putting down a dollar and they were giving you 10, it was like free money. >> Yes. >> And no one had ever experienced. >> Let's talk what the flip side looked like. >> Let's took shenanigans. Okay. >> Okay. Cuz there are a lot of shenanigans. >> A lot of shenanigans. >> And you you you mentioned them. >> To my taste. You don't go into them as as much detail as I personally would love because I know a lot about this stuff. So give us a couple of shenanigans that went on in the 20s which like if you told someone today like I'm going to do this they would say what are you talking about you're going to go directly to jail if you to go do that. So give me some shenanigans. >> I mean the most pronounced shenanigan of 1929 was the was the idea of an investor pool. >> Okay let's talk about that because you mentioned that a lot. This would be a group of investors, usually wealthy financeers, who effectively collude. They come together. They say, "You know what? I'm going to put in a couple hundred thousand. You're going to put in a couple hundred thousand, and we're going to run a pump and dump scheme." A true pump dump scheme. Typically run, by the way, literally on the floor of the exchange by the specialist, by the specialist himself, who was in charge of the stock. So, the the meme stock of 1929 was RCA, >> right? The ticker was radio for obvious reasons. This was one of the great technology. This is the Nvidia >> of its day. >> Of its day. And this was a stock that was being manipulated, you know, for weeks on end. It would almost be like if there were actors on the floor of the New York Stock Exchange and each tra each each broker going, I'm in for 100. I'm in for 120. I'm in for 140. I'm in for 160. >> And they would drive the price up. >> And they would drive the price up. meantime they'd be oftenimes paying off the journalists to write positive articles about what was going to happen to this stock >> and then of course they would pull the rug. Now it was all done I don't want to say not I I don't want to say in the open but there were articles people would actually write about the investor pools so people did know that this whole thing was bizarrely going on and the public to the ones who even to understood what was happening some of them were trying to ride it >> right >> in the same way that people were trying to ride GameStop >> right >> where you know they were all telling everyone they had their diamond hands they needed to get in but they also knew they needed to get out before the rug was pulled but they didn't know when the rug was going to get pulled. Right. So the people who were in these pools like let's mention some names because this is not like uh you know my grandfather Max Lieberman was not in these pools. >> This would be like these pools. This would be like if the pools were run by >> like if the pool was run by James Gorman and Lloyd Blankfine. Oh, I was going to say it would be like if if Elon Musk uh was running the pool and was an investor in it along with, you know, Jamie Diamond and, you know, every major Bill Gates if >> they would all the biggest guys would get together. >> It would be like, you know, the the guest list at Davos if they had all gotten together to pump and dump a stock, >> right? And they thought this was all normal. >> This was all normal, >> right? >> They would actually they had circulars about what they were doing. They would send to each other. Now, they weren't necessarily walking on the street handing them around, but uh by the way, some of them actually were >> what >> handing out circulars. >> Yes. >> So, it's entirely different. By the way, were there any bank capital requirements back then? >> I don't believe there were any genuine bank capital requirements >> like regulatory bank >> from a regulatory perspective. I think what was happening and one of the things that was fascinating for me was I got access to the New York Federal Reserves bank minutes. >> Okay. >> And it actually underpins a lot of the book. You don't see them in the book itself in large part because it sort of helps the narrative or helped me be able to clarify the points in time. But the minutes are not like transcripts. And a lot of the conversations that they were having and discussions were actually about little banks that were not the big ones in the story. But one of the things you did see was conversations uh that they were having about effectively, you know, whether this bank could fail, how much capital did this bank have, how much, you know, what kind of lines. >> They had no rules to base anything on. They just kind of knew maybe what was happening. >> They knew what was they might have known was happening. I don't think they fully knew what was happening because it was dependent on the banks telling them what was happening and they were usually >> trying to understand what was happening by seeing how much money a bank uh was asking for at any one moment. >> Let's talk about some people because these are fascinating people. >> That's the best from >> that's the best part of the book. So let's talk about um the head of Nat City Charles Edwin Mitchell. Tell us about him and his role in in in the great crash. What was he like? Who was he? >> So Charlie Mitchell was like from a fame perspective probably like almost like a Jamie Diamond kind of character. Given what you do for a living and what you went through in 2008, you might even think of him as like a Dick Fold >> Yes. >> kind of character. >> Yes. >> Um he definitely was. The funny thing about these guys is they all saw themselves >> as like the most upstanding members of society while they were doing things that from our perspective today are completely criminal. >> Totally. >> But like they were sitting in the front pew of whatever church that they go to. They they they're in the papers. They're viewed as like the the best of the best, the cream of the cream. >> So let's talk about Charlie Mitchell. What was he like? So Charlie had become the most probably famous banker besides JP Morgan in America. And >> now JP Morgan at this point is dead. His son is now running. >> Jack Morgan is ostensively running JP Morgan. But there's a fellow named Thomas Lamont who we'll talk talk about in a moment uh who was really uh running the deep state that was JP Morgan at that point. It was a deep state. >> And but Charlie, they used to call him Sunshine Charlie, >> okay? >> And he was one of the the great optimists. I mean, this guy whenever he was quoted and he and by the way, reporters would seem to find him all the time, typically on docks because they were always getting on boats and yachts to go across the ocean on vacation. And he would always tell you about how great the economy was. He was always talking up the stock market. He was somebody who really almost invented the idea to some degree of providing credit to these brokerages uh all over the city and all over the country >> so they could put people on margin. >> So that they could put people on margin. >> Did his own bank put people on margin? >> And his own bank put people on margin. His own bank had two units. There was the bank and then effectively there was a second piece of National City, the National City brokerage which was like the brokerage >> but it was all part of the bank. It was all owned by the bank. >> It was all owned by the bank and there became questions later about whether that was even legal, technically legal later on. But he was a proponent of all of this. He was on the cover of magazines. And the other thing that was happening during this period, this was really the sort of explosion of media for the first time in the 1920s. >> Hence RCA being such a hot stock. And so, you know, all of a sudden, you know, before it was, you know, Babe Ruth and Charles Lindberg on the cover of these magazines, and now it's >> Charlie Mitchell. >> Charlie Mitchell. The financeers, the Wall Street CEOs have become celebrities. >> I think I heard this story before. >> You've heard this story before? >> Yeah, I think I heard that story before. I mean, who on the covers of all the magazines before the great crash? Sandy Wild. >> Same thing. >> History rhymes. >> It sure does. history and sometimes it doesn't it doesn't rhyme nicely. >> That is very true. So Charlie uh by the way if you know your your New York geography his home was what is today the French embassy on Fifth Avenue on 74th and 75th Street. If you ever seen that was his house. >> That's his house. >> That's where these people were the mansions. >> That's some house >> right? And it's like the frick. I don't want to give too much away about Charlie, but Charlie also happens in 1929 to get an opportunity to be on the board of the New York Federal Reserve. Yes. And that becomes an important component of the total story >> because >> because at one point in March after the Federal Reserve actually does try to tamp down speculation, not by raising interest rates by the way, but by sending out notices to banks to effectively tell them to stop lending to speculators, which nobody really understood. And some people took in one direction uh as you know, I can't lend at all and others didn't even listen. >> Right? He did something, again, I don't want to give it all away, that effectively defied the Federal Reserve and put a target on his back uh from a man who was probably the Elizabeth Warren of his time, >> Carter Glass. >> Carter Glass. And Carter Glass had spent a good portion of the 1920s railing about this thing that he called Mitchellism, which was Charlie Mitchell and debt and credit and how he believed that this was all going to end in ruin. >> Okay, so let's talk about the relationship between Jack Morgan and Thomas Lamont at JP Morgan. What was that like? Who were these guys? These are fascinating people. >> I got to tell you, I was so fascinated by these guys. So Jack Morgan obviously son of JP Morgan >> who's dead >> at this point Jack Morgan is >> by the way Jack Morgan you know with all due respect to him >> wasn't the brightest human being in the world but he was bright enough to know >> that he wasn't the brightest person in the world and he needed someone to take on the role of his father while he was the figure head >> which you know what >> good for him >> there was some genius to that >> there's genius to that he was humble enough to understand he couldn't do what his father could do and he needed somebody to do it. >> And that person that was chosen was a guy named Thomas Lamont, >> right? >> And Thomas Lamont was an old line wasp, former journalist, by the way, >> who was a guy who had a lot to prove or I think he thought he had a lot to prove and he was somewhat of a >> this is a behind-the-scenes kind of guy. He was always behind the scenes uh quiet was never trying to take attention away from others. This was and but he was a true client guy. He >> thought of himself as a diplomat >> in many ways. Uh there was a great uh biography of him by the way uh called the ambassador of Wall Street. He was that guy and he would go to meetings with Mussolini and he would go to meetings with Hitler. I mean and he was involved in in everything and and it was a really uh just fascinating kind of human being who believed because of his experience um with his the father JP the true JP Morgan in 1907 that if you could just get the right people around a room in a at a table >> you could settle anything. >> You could settle anything. We could solve anything. >> A typical banker. >> Typical banker. >> Right. And the lesson for him, again, without giving away all of the wild things that happened to him, is of course when October of 1929 rolls around and he attempts to get everybody in the room, they can't control anything. >> It's too late. >> Yeah. >> Let's talk about someone near and dear to my heart. Good old Jesse Livermore. >> Jesse Livermore. >> Who is he? What role did he play? Jesse Livermore was the eyesman of his time. Was he or no? What? >> He's a lot crazier than me. >> He was a lot gambler's a gambler. >> So, I'm actually curious what you think of Jesse Livermore. >> I think this is a type of guy who made and lost fortunes constantly. He'd make a lot of money. He made a fortune shorting the market, which is what he's famous for. Couldn't keep it. um love the love the action. He had to be in the action. He could not be in the action. He needed the action almost like in a manic way. I would for him. I I think this is this is a man who was bipolar. That's what I think. Or some variation of that because eventually killed himself, >> right? >> You know, >> tell tell everybody what what role he served in in during the crash. Jesse Livermore was one of, frankly, the few, though a quiet one, Cassandra's in the room in 1929, right? >> You could look at Carter Glass as a Cassandra. Um later on, we could talk about a a guy named Roger Babson who's a Cassandra, if you will, saying that things might fall or falter. By the way, um Charles Merrill of Meil Lynch was a Cassandra, interestingly, during that period. But when you think about Jesse Livermore, he was a guy who had actually at that point become a bit of a recluse >> in 1929. His ability to short the market had become so difficult that he almost stopped being a short seller because the market >> because the market just kept going up, >> kept going up. This was a losing game. >> A lot of this reminded me of in terms of this in terms of the market, you know, in 1999, you know, all these people were shorting internet stocks and they were getting carried out in coffins. Yes. And all of a sudden in 2000 the thing collapsed. >> Exactly. >> But you had to be there at the right time because otherwise you they they carry you out. >> And that's exactly what happened with him. He almost got carried out. Almost. >> And yet he somehow had a premonition in the late summer into September of 1929. And boy did he call the whole >> And how much did he make in the crash? >> It's a very good question. There's a couple of different estimates, >> right? One estimate is that he made hund00 million in October of 1929. >> Well, whatever he made, eventually he lost it all and he committed suicide. >> 1941. I hate giving away so much of the story. >> Oh, please. >> He ends up walking into the Sherry Netherlands. >> Yeah. >> Walks into the coat closet, puts a gun to his temple, and shoots himself. >> Shoots himself. >> Yeah. >> All right. So, let's talk about the crash. Mhm. You know, you tell you tell this in a very very very intimate way, but let's take a step back, >> please. >> By the way, that's the only the first half of the whole story. >> Oh, I know. We haven't even gotten to the rest of the half. We're coming to that is what happens afterwards, which is also >> actually oddly more interesting. >> Why do you think it's more interesting? because I think watching all of the different characters and what happened to them afterwards, they didn't see it coming. And so, >> let's let's let's hold off on that. >> We're at a cocktail party. >> We're at a cocktail party. >> This is like a cocktail party. >> It's like a cocktail party. Water in my mouth. And I I say to you, Andrew, I just read your book. Give it to me shortorthhand. I read all the book. I got all the characters. I got all the intimacy. But if you had to explain to like a high school class in two paragraphs what caused the crash, what would you say? >> What caused the crash in 1929 to be honest is what causes almost every crash. It is debt leverage >> plus FOMO, fear of missing out. >> Right? >> Those are the two main ingredients. In fact, without the leverage piece, you can have all the FOMO you want and it doesn't matter, >> right? >> So, everybody's lever 10 to one. Market starts to go down panic selling >> always. And by the way, I think that was true in 1929. I think that was true in 2008. I totally agree. >> I think we can go back and look even at the dot uh bust. I I think every major crisis that we've had has been a function of too much leverage in the system. You could have all the bad actors you want on stage doing all the bad things you could possibly imagine. You could tell me the bankers are too greedy, the investors are speculating, the regulators aren't minding the store, everybody's doing all sorts of wild things. But if unless there's enough leverage in the system, it's hard for it to turn into a giant panic. >> So I've given lectures on the financial crisis and I say four causes. too much leverage, big asset class goes bad, systemically important firms own the asset class and derivatives. And the only difference between the financial crisis and every other crisis is derivatives. So this this had like you said too much leverage. >> Y >> big asset class, stocks, >> stocks, equities >> get killed >> and systemically important firms, big banks are involved in the asset class. Story over. That's the story >> I I should with all the details. >> I should have just done two pages and called it a day. >> So, let's talk about Okay, so there's the crash. Okay, we're going to talk about Carter Glass in a second. Okay, but >> I I think you know, one of the things I've always said is that one of the hardest things that any human being has to go through when when God forbid they go through it is living through a paradigm shift. Mhm. Because the guys in this book who are all dead lived in with a certain paradigm of we are the masters of the universe. Sound familiar? You know, we went to the best schools. We are the uber wasps. We belong to the best clubs. We we the president and I I can call the president of the United States and talk to them about what's going on >> at any time I want. We rule the world. >> By the way, that was a true feature of 1929. I mean the idea which >> one could call Herbert Hoover talk about the parallels to where we are today interestingly enough. >> Yeah. >> There's very few times where the CEOs of America could just call up the C call up the president >> United States and he picks up >> and in 1929 it was happening every morning. >> Yes. So they were calling Hoover all the time. Okay. Crash people. You know it's worse than a crash. Eventually 9,000 banks fail. Um what was the unemployment rate at the peak? 15% >> 25% >> 25% >> 25% >> 25% Hooverville's people are >> 1932 >> yeah people I mean it just got worse and worse and worse and worse and then Roosevelt comes in. So let let's talk about Okay. I I actually remember when I went to law school um one of the professors when we were talking about the Great Depression said that the 1933 act was written by three Harvard Law School professors over a weekend. So the let's talk about how the world changed. Let's talk about Carter Glass and what happened to these guys because a lot of stuff happened to these guys. >> I think it's it's first worth mentioning that you know here we are. We're going to bring us bring us to 1933. But the crash in October of 1929 was like the most powerful domino in a series of dominoes that then cascade in 1930, 1931, and 1932. >> It didn't end. A lot of people have an impression that somehow there was a terrible thing that happened in October of 1929 and that was it, >> right? But it was really that plus plus plus plus the confluence of Smoot Holly tariffs and what that did to global trade big questions and the end of the peg to the the gold gold peg to the dollar. >> I mean there was there was so many component parts of this bank failures you know >> bank failures. I mean, >> bank failures, >> bank annihilation, annihilation. >> 9,000 banks failed all over the United States. >> And so, >> and then obviously the unemployment and it just turns into this vicious cycle. And so there's, you know, I only mentioned that because I do think the story keeps going. When I first began writing this, I thought I was going to write about effectively from January 1st, 1929 to the end, right, of 1929. By the way, there are a lot of the his some people who've written these books or books about this period. That's the period, right? But the truth is this book starts in February of 1929 and goes to the summer of 1933. Why? Because that's really the sort of full spectrum of when the true action that changed America happened. >> So, let's talk about that. >> Y, >> you know, banks fail, Roosevelt becomes president. Let's talk about Carter Glass of who eventually created GlassSteagall. >> Glass Deagle. So I mentioned earlier that Carter Glass was the Elizabeth Warren of his time. Maybe he >> By the way, does this about >> a racist Elizabeth Warren? >> Yes. A racist. >> If Elizabeth Warren knew how racist Carter Glass was. I don't know if she actually liked Glass Deagle ever. >> This is an old school southern dem people don't realize that Southern Democrats were completely racist, but in the 30s were also progressive. Yes. >> About economic policy. It's a very weird combination. And Carter Glass was the ultimate like of that. >> He was the ultimate version of that. He was also embedded and inshed in the world of finance because he had actually helped create uh the act which uh invented, if you will, the Federal Reserve >> of 1913. >> of 1913. He uh then becomes the the uh treasury secretary. By the way, uh when was he treasur? >> In the late in the late 1917, 1918. Okay. >> Uh for for for a brief moment, I believe. I hope I'm not wrong on that. Um now my now >> too many facts. >> Too many facts. Um and then becomes a senator in Virginia, >> right? >> And really one of the most vocal senators as it relates to the world of of finance. >> Um as I said, he had sort of, you know, made Mitchell his whipping boy uh for a lot of this. But even once we had gotten into 1929, he was looking for ways to slow down what was going on in the market, >> right? >> He was thinking about, >> you know, taxes on trades. He thought maybe if you implemented something like that, you could do something. >> And then as things progressed, he started to think about could you separate effectively the banking side >> from the brokerage side >> from the brokerage side. could you could could you take the casino piece of this >> out of the bank? But interestingly, he really only wanted to do that to the public big institutions like Charlie Mitch. >> He wanted to protect JP Morgan. I was shocked by that. >> And so he had a great friend in in Russell Leingwell who worked at JP Morgan who worked for Thomas Lamont and Jack Morgan. And I believe partially because of that relationship, he had his own ideas about JP Morgan. He also thought JP Morgan was this, you know, the most patrician honorable place uh in the country. >> Wrong. But okay. >> And therefore was somewhat protective of them. That becomes a controversy uh later on in the story. But he pushed and pushed and pushed for this bill. Again, I don't want to give too much away because I actually think that was one of the great surprises for me how that bill came together. uh in that most people think that Carter Glass and um Congressman Steagall were responsible for that bill. You might even give more credit these days to Steagall, but you would also have to give credit to Rockefeller uh and the folks at Chase who actually were pushing behind the scenes to to do this as a >> wanted to get JP Morgan >> as a as a way to commercially to hurt JP Morgan, right? And so there were all these sort of fascinating >> and most people don't know that. So JP Morgan had to split between JP Morgan and Morgan Stanley. That's the origin of Morgan Stanley. >> Exactly. >> Let's talk about one of my favorite people in the book. >> Ferdinand Pakora. >> What a guy. >> I mean the funny thing about Ferdinand Pakora. Well, tell us about Ferdinand. I think Carter Glass must have hated his guts. >> I think that Carter Glass hated his guts. But Carter Glass hated his guts because Fernakor got a lot of attention and Carter Glass was desperate for attention at almost all times. >> So tell us about Ferdinar because he was the investigator. >> So in 1933 there was a investigation that had actually originally originated with Hoover, >> right? Interestingly, um that was a bit of a charade originally that then there was a view politically they needed to start looking into the banks and at least look like they were trying to figure out what was going on. The Republicans were going to try to look into the bankers, >> right? >> And >> I've heard this before. >> You've heard this before. and they hire uh this uh little known lawyer who was willing to take the gig who's going to get paid $250 a week, which was like nothing compared to all of the >> some Italian guy from Queens basically >> to go do this. And >> meanwhile, he's sitting with these Uber was and this Italian guy from Queens is leading the show. He's leading the show and boy does he do his homework. And he really uses these these inquiries >> not necessarily to uh put them in jail because he doesn't in the end. But what he does do is he shines >> I heard that before too. Yes. >> That nobody went to jail. >> Nobody went to jail. >> But what he does do is he shines a light on all of this. And it is that light and all the attention and publicity uh that ultimately led both to Carter Glass getting his bill passed. It led ultimately to the creation of the SEC. I mean it really led to the ground there was any ground. >> Let's talk about the SEC for one second. Didn't exist. >> So the but the first person to run it was an Uber crook. was in >> Joseph Kennedy >> completely and who by the way >> he was in all those all those trusts and and bulls >> and by the way he was shorting stocks too >> right >> interesting I thought you'd appreciate this point cuz I I was surprised by but maybe I shouldn't have been one of the first things they did in 1930 or 31 was they started investigating the short sellers >> because they were convinced >> I've heard this before >> that's what I thought you'd appreciate so even back then there was this view that politically it was the short sellers who were did it. >> The shorts did it. >> Of course we did. >> History rhymes, man. It just rhymes. So Glass Deagle has passed. >> Yes. >> None of these guys go to jail. >> Nope. >> Tell us what happened to Charles Mitchell. Tell us about is my one of my favorite parts of the book. Tell us about the shenanigans they pulled by selling stocks to their wives. I love this. >> Okay, I will tell you about this part, but then you're gonna have to read the book to find out what happened. I read the book. No, but I want the listeners to because the this is to me the uh >> this is so juicy it's unbelievable. >> It's the finale of the whole story. So we'll we'll leave the finale for the finale. But but what does happen >> uh one of the things that actually a lot of people were doing at that time is they had made to the extent that some of the wealthier people had made money in 1929 and then also lost a fortune on paper, >> right? >> They were desperate to reduce their taxes. Well, how do you reduce your taxes? >> Well, you got to sell stock. >> You got to sell stock. But a lot of these folks, two things, they were wrong in in one way, which was that they thought the stock was going to come back, >> right? >> And what they ended up doing was what was called a wash sale. They would often times try to sell their the shares at a so they could sort of declare the loss to their wives, some cases to their friends. By the way, John Rascco, who created the Empire State Building, was doing this with his friend uh Pierre Dupant. They did the same thing, >> right? >> By the way, Thomas Lamont's uh son was involved in these shenanigans. Everybody was trying to figure out a way to create a wash sale of their of their stock. And I will I will leave you, the reader, to find out what happens to Charlie Mitchell because it is to me one of the wildest things I had ever seen. And I didn't know fully the the whole story because it becomes almost like a family drama. Yeah. >> Uh about what happens next. >> We'll leave that to people to read. >> All right. So after I read your book, I decided to do some research on all the theories about the Great Depression. >> Yes. >> So I'm going to I'm going to list them. >> Okay. >> Okay. So number one, >> Keynesianism. Mhm. >> By the way, I happen to think that one of the problems as to why the crash eventually became a depression is that there was so little understanding of economics at the time. They literally didn't know what to do because they didn't understand what it was really all about. >> Today, we have a much better understanding. Thank God. So, Keynesian argues the crash caused under consumption. The people did not have the Keynesian theory for the government to supplement it. So, it just collapsed. That's one. And there's the monitorist one. Fed screwed up and did not flood the system with liquidity after the after it happened. So they stood there and they let the banks fail. By the way, that's that great scene in in um um It's a Wonderful Life. You actually watch a bank failure. >> Best bank failure in movies. Um that's two. Three is the Austrian view, which is the boom was was credit fuels and then credit disappeared. Then you have my favorite man, Andrew Melon, who we haven't talked about, who was Secretary of the Treasury. He's the only guy who was standing there saying, "This is good. Let everybody suffer. Let everybody get liquidated and suffer and then we'll come back." Of course, he kicked out the true capitalism. Let him eat cake, literally. And if there is no cake, let him starve to death. >> Um, >> those are the big ones. Where do you think? Well, look, if 2008 is any kind of parallel to think about and you consider what Ben Bernanki, who by the way did his thesis at Princeton on the Great Depression, >> right? >> Uh it's clear to me to some degree that part of it was a Fed problem, which is that the lesson was you needed to do two things. One is you need to try to way try to stop this from happening right on the front end and two once it's happening you need to flood the system uh with money in both cases >> they didn't do it >> they didn't do it now interestingly >> and I want to raise this point about today because I think it's so important to thinking about then you know today we're having these conversations in America about the independence of the Federal Reserve and the political pressure and how they shouldn't have any political pressure the tr there's actually a good reason for that and I actually think it's evident in 1929 in 1929 the Federal Reserve was still in its infancy it was

It was just born in 1913. If you go back and read the letters of Benjamin Strong, who had, uh, died, passed away, he was, he had been, uh, he chairman of the Fed, been the chairman of of the Fed, uh, of the New York Fed, the New York Fed, and passed away in 1928. The conversations they were having then were, they were so worried about what the public thought of them, what politicians thought of them. Were they going to get hauled up in front of Congress and have to explain themselves about whether they were, if they were to raise interest rates and have killed the economy, what would happen? Or if they led more to speculation, what would happen?

And as a result, I actually think because of those pressures, I think there was an incentive to sit on their hands because they thought that politically it might not be palatable to raise interest rates. The, I mean, the conversation they were having in 1929 was they thought there was too much speculation, but rather than say, "Excuse me, guys, uh, we're going to raise interest rates the way Volcker did." Uh, they, they couldn't even contemplate doing something like that because they thought they'd be, uh, terminated. The whole, whole, the whole institution wouldn't exist, right?

And so you have that on the front end, and then obviously, you know, come 1930, '31, '32, '33, they don't flood the system with liquidity. They don't flood the system with liquidity. So I think that that was a huge component of the problem. If you genuinely believe in this idea that credit leverage plus FOMO, right, is the problem, then, then I also think I agree with that. But I think the other issue is just that, um, I look, we all took Econ 101 when we went to college, and we all remember C plus I plus G plus X minus M. That concept didn't exist, right? So the idea that, that, you know, Roosevelt was the most activist president that we had ever had up to that point, but even he didn't understand that what he needed to do was have tremendous deficit spending, right? So once the, once the problem was created and the Fed allowed all those banks to fail, the next thing that should have been done was the government should have spent gabillions, and they didn't. We didn't come out of the depression till World War II.

We're in violent agreement, which is, which is not fun for a cable show, I guess. So what parallels would you like to draw between your two books? I don't know how much I would draw between the two books so much as one of the things, and this was not something I expected as I was working on this, is how much I found things that were happening in 1929 that felt very 2025-ish. Like what? So if you think about the 1920s as this sort of revolution in finance, and there were all of these new products, investment trusts, folks are creating the equivalent of mutual funds, the investment pools, there's all sorts of things that are happening in in the investment community, right? It, it seems to me, and I don't think I, again, this was not my intent, and I'm not suggesting we're on the precipice of another 1929, but here we are in this moment where, you know, private credit has all of a sudden become the thing. Private equity and venture capital are about to be made available to us in in 401k plans, right? People are tokenizing, private company, you know, stakes in private companies so they can trade them. So they can trade them. They're, they're, they're buying them in, you know, uh, special purpose vehicles and then they're chopping them up and who knows what, right? You know, the crypto guys are creating these, you know, the equivalent of investment trusts. I mean, if you look at, you know, MicroStrategy, now called Strategy, is kind of like an investment trust, kind of like an investment trust, designed to just buy crypto. That's, they raise capital and they buy crypto, and it's leveraged, right? And back in the 1920s, that's what an investment trust was. And it became a Russian doll, right? Because it was leverage on leverage on leverage on leverage on leverage.

Yeah. And so I look at those things. Again, I'm not suggesting we are, we are there. I don't know what you'd be doing with your your money these days as it relates to shorting the market or being long the market, but I think there are things that are happening, um, that we need to pay attention to. And I'm actually hoping, again, this was not the goal of this, this book when I went into it, but I am hoping that as people think about some of these things that were happening then, they relate them to some extent to what's going on now and say, "Okay, we got to, we got to, we got to keep our eyes on this."

So I just want to end with with the moment and "Too Big to Fail," which I thought was a very important, to me, and in some, in some sense, if it wasn't so tragic, it was actually comedic. So the mistake that I made, and my teammate as investors in '08, was we knew how bad it was, but we actually thought, "It's so bad that surely the government knows how bad it is and they're going to come in here at any point and and and and deal with this." And that was our actual mistake why we didn't short everything that moved. And there's a moment in your book when I read it, I said, "Oh my god, I was wrong." And the moment is, it's right after Lehman weekend. So that's Sunday. The market opens up like a sewer on Monday, then kind of stabilizes, and then Tuesday, AIG begins. Is AIG? And you have a scene, you have a scene in your book, I'll paraphrase, it's sort of like all the important people are in the room where it happens, and somebody walks in the room and says, "AIG is in trouble." Right? And everybody's like, "What do you mean AIG is in trouble?" And and and my reaction was, "Don't you morons read the research?" It's like, "Oh, the whole, you just pick up a sell-side research, you know, immediately." But they didn't know. They didn't know. They just didn't know. They didn't appreciate the depth, I think, of the, they had no clue the problem. And I think unfortunately, they were dealing with so many dominoes that they were so focused, you know, on Lehman Brothers. Prior to that, they were, or that same weekend, they were dealing with, uh, Merrill Lynch. I don't think they could. They didn't have the bandwidth what was really happening. They were focused on what was going to happen with Morgan Stanley and Goldman Sachs next, right? The whole, they would have been next, right? But the whole idea that there was like this insurance business that just didn't even like, they can compute it, compute what was happening to. Yeah.

Yeah. Andrew, thank you. That was a great interview. Thank you. A lot of fun. I really appreciate it. Wonderful book. Everybody should read it. Thank you.

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