Transcription
Stocks took a nose dive on Friday after President Trump threatened a big tariff hike on China. Until then, Wall Street had been at record highs for months, which is why we decided to check in with Andrew Ross Sorcin, one of the country's most influential financial reporters. He's just written a book called 1929 about the market crash a century ago. We wondered if he'd run out of news to cover or is he alerting us that what's been happening in the markets lately is a replay of what led to the most devastating financial collapse in our history.
The story will continue in a moment.
>> Tuesday, October 29th, 1929. >> Imagine the New York Stock Exchange back then. The crush of frightened traders dumping stocks. Investors losing their shirts, businesses, their homes, sweeping away the roaring 20s.
>> Walking that same but transformed floor today.
>> Difference is everything's digital.
>> Well, yeah. Okay.
Andrew Ross Sorcin says we're in our own roaring 20s, the 2020s, with stocks climbing for months just like then. The crazy part about this is from 1928 to September of 1929, the stock market was up 90%.
>> When you say the stock market was way up immediately, I think of now. Are you scared?
>> I'm anxious. I'm anxious that we are at prices that may not feel sustainable. And what I don't know is we are either living through some kind of remarkable boom and part of that's artificial intelligence and technology and all of that or everything's overpriced.
>> or we're reliving.
>> 1929 there was so much anxiety.
Sorcin has covered the markets for two decades. He joined the New York Times after college soon founding the Dealbook newsletter covering finance. He also co-hosts Squawkbox on CNBC.
>> Good to see you, too. Thanks for having me.
Runs the Dealbook Summit, where he interviews The High and Mighty. He co-created Billions, the TV show, wrote a bestseller about the 2008 crash, and now a book about 1929. We're always being undone by bubbles. There was the internet bubble in 2000, housing in 2008. we in another bubble, an AI bubble or something like that?
>> I think it's hard to say we're not in a bubble of some sort. The question is always when is the bubble going to pop?
>> One symptom of a bubble is when the market goes up and up, but the underlying economy, the real economy goes soft, right?
>> And that appears to be happening right now. I would argue to you that the economy is being propped up almost artificially by the artificial intelligence boom. There are hundreds of billions of dollars that are being invested today in artificial intelligence. This is either a gold rush or a sugar rush. And we probably won't know for a couple of years which one it is.
4 million shares a day. 1929 was a sugar rush caused by speculation and debt. People who didn't really have much money were lured by Wall Street bankers to invest using a new fangled concept to take on debt called credit. You only had to put down 10% of the stock price, borrowing the rest from your broker. Prior to 1919, most people did not take on credit or debt at all. It was a sin. It was a moral sin to use credit really.
>> to buy anything.
>> And it was really General Motors that basically came up with the idea that we're going to lend you money so you can afford to buy our cars.
>> Brilliant. And then the bankers realize what's happening and they realize that they can lend out money so that more folks can buy stocks. It was all sort of wrapped in the flag of democratizing access. And in good times when the stock is going up, it's like free money. In bad times, you're on the hook and you're on the hook in a very bad way.
Since then, laws, regulations, and agencies have been put in place to protect investors, especially the less affluent, from being exploited.
>> We put up barriers after 1929.
>> Yes.
>> Protections. So, those are coming down. They're tumbling down. One, the SEC rules aren't as stringent anymore.
>> Yes. The Consumer Protection Bureau practically doesn't exist anymore.
>> Correct. That's what concerns me. It's not that we're going off a cliff tomorrow. It's that there's speculation in the market today. There's an increasing amount of debt in the market today. And all of that's happening against the backdrop of the guard rails coming off. so many.
>> including guard rails that allow only the wealthy to invest directly in private companies that have fewer regulations like AI startups before they go public.
>> So over the last 20 or 30 years, folks who had access to who could invest in private equity and venture capital clearly outperformed folks who didn't.
>> That's how you really made money. But you have to remember that these kind of assets are gambles.
>> Public companies after the SEC was created were required to have all sorts of disclosure rules so that the public could understand what's going on inside them. Private companies don't have that. But historically, the average ordinary American wasn't really allowed to invest in the private companies. But in this flag of democratizing finance, there's a lot of people who want access to that.
>> Wow.
>> Isn't this something? This is spectacular.
Sorcin took us to the Fifth Avenue mansion of one of the big bankers back then who pushed democratization.
>> If this idea of bringing the regular guy into buying stock, if that was a big problem back in 1929, why are we going there again? Doesn't it defy some kind of logic? There is a view that it's been only the elites that have had access to these investments. Facebook before it ever went public, Uber before it went public. So there's this idea that it's unfair actually to the ordinary investor because we haven't allowed them to get access to some of these investment opportunities early. And there is a real push partially by the Trump administration um partially by the industry itself which wants to.
>> get more money.
>> get more money in.
>> to open up the market to more and more people.
>> So we have these guard rails for a reason. I mean they're there to protect and they have protected.
>> they have protected a lot of people but some people would say they protected people from getting rich. Many people don't believe in capitalism anymore and I think a lot of it is because they were not a part of the growth of the economy.
We went to Larry Frink, CEO of BlackRock, the world's biggest money manager handling 12.5 trillion in assets like pension funds. His annual letter to investors is a kind of industry roadmap. In his latest one, he suggested opening our retirement 401ks, bastions of caution, to riskier private investments in the name of, wait for it, democratizing investing.
>> As I wrote, there are many great opportunities to be investing in in in the in startup companies to in invest in AI.
>> or data centers. Right now we are procluded to put those type of assets in many retirement products and the Trump administration has now said we are going to allow in our 401k products the opportunity to invest in these private markets.
>> But they are risky, aren't they?
>> Yes, but everything is risky other than keeping your money in a bank account overnight. But we're talking about 401ks, investing out of retirement accounts.
>> Yes.
>> you're risking the nest egg or part of the a little part of the nest.
>> But what the markets will teach you over the last 100 years, even at the worst moments, if you have the ability to persevere and you have a long-term horizon, you're going to do fine. And a diversified portfolio is essential. We're not suggesting, you know, one shoe fits all. we are suggesting uh the opportunity to have that ability to invest in these private market investments.
He also believes we should be investing in crypto.
>> It wasn't that long ago that the big bankers Jaime Diamond and Larry Frink were saying that crypto was stupid and a fraud.
>> I did say uh Bitcoin because we were talking about Bitcoin then uh was the domain of money launderers and thieves. But you know the markets teach you you have to always um relook at your assumptions. There is a role for crypto in the same way there's a role for gold that is it's an alternative for those looking to diversify. This is not a bad asset but I don't believe that it should be a large component of your your portfolio.
But Sorcin says some crypto can be abused in ways similar to 1929. Take memecoins, cryptocurrencies that can be manipulated by speculators who pump them up then let them crash.
>> There are a number of examples where it felt like there was an inside group of people who were colluding to pump up some of these cryptocurrencies and other things. I give you a bizarre story of my own. I was on television with Larry Frink and he makes a joke I think about how there should be a Sorcin coin.
>> I think the Sorcin coin should.
>> Sorcin coin.
>> Well, two hours later.
>> somebody makes a Sorcin coin. And all of a sudden, this Sorcin coin is now worth millions of dollars. And I'm watching it.
>> Are you serious?
>> Go up and up and up and up and up. The Sorcin coin peaked at $170 million worth of trading in a day.
>> and I think today it does something like 20 or $21 a day. So, um.
>> I'm thrilled to have Bill Gates with us.
Sorton is trusted by the world's top business leaders who talk to him often exclusively.
>> I I have no problem being hated. By the way.
>> what role do you think these business leaders should be playing now? My own view is that most CEOs in America today are very scared to speak out publicly about anything. They are so worried that they are going to be potentially uh attacked by the administration or regulated. They're going to have a merger in front of some agency that's not going to be allowed to go through. They are so nervous about criticizing anything that's going on with this administration.
>> There are some economists who suggest that because Mr. Trump ties his success.
>> to the success of the market that he's not going to let anything like what happened in 1929 happen and that we should feel secure because of that. I think it's hard to know how things get out of control. When confidence disappears, it happens like this.
>> So, you spent nearly 10 years on this book. The inevitable question is, do you think that we will have a crash or not?
>> The answer is we will have a crash. I just can't tell you when. And I can't tell you how deep, but I can assure you, unfortunately, I wish I wasn't saying this, we will have a crash.