Transcription
Now, it was the moment that sent the US and the world really into a panic and drew the roaring 20s to a close. The 1929 Wall Street crash was the most devastating in history, and it eventually brought about the Great Depression. That's the focus of Andrew Rossin's new book, and he speaks to Walter Isacson about it and what we can learn from 1929 nearly a century later.
>> Andrew Ross Orcin, welcome back to the show.
>> Thanks for having me, Walter. You write about the 1929 crash in this book and you say it's one of the most largely misunderstood significant events. Why was it misunderstood?
I think there's two things. One is I think most Americans unfortunately have only a vague uh conception that something bad happened in 1929 and that whatever happened in 1929 led to the Great Depression. I think that's the sort of prevailing view and by the way was my view uh before I invested the last eight years of my life in the archives uh writing this book really the crash of 1929 was so much more because yes it led to the great depression but the number of dominoes uh that did begin in 1929 and what those dominoes were I think will surprise a lot of Americans and a lot of readers.
Does that mean that we could have had the 1929 crash but not the Great Depression of 1930?
>> Oh, absolutely. So, the crash in 1929, which is really only part of this book, was the first domino. And it took the next domino and the domino after that to ultimately get us to the Great Depression. But there were so many mistakes and frankly bad decisions along the way that led us to the Great Depression. And in fact, I'd argue that you could look at what happened even in 2008 in the financial crisis. And one of the reasons that we didn't go into a great depression is I like to believe that we learned at least some of but clearly not all of the lessons.
You talk about 2008, you wrote a great book about it, too big to fail, which was the layman brothers collapse and the problems of 2008. What was different about 2008 than 1929?
>> Oh goodness, so many things. Look, 1929, the 1920s, there was no regulations, zero. Uh, you know, the SEC did not exist. Uh, you know, an early reader of this book asked me, did you read the perspectuses of the companies that were public in 1929? I said prospectuses. There were no prospectuses. If maybe there was a leaflet at best that they might have handed out on the street or at a brokerage firm trying to hawk you a stock. There were no insider trading laws. There were no capital requirements for banks. There was none of that. And so the distinction between then 2008 and now are hopefuly very very different. I I like to say I wrote this book almost as a prequel to Too Big to Fail in hopes that we don't have to ever write a sequel.
One of the common threads though is the Fed, the Federal Reserve Bank that had been around for 15 years, I think, by the time the 1929 crash happens. And uh one of your great characters, Charles Mitchell, Sunshine Charlie Mitchell runs National City Bank. he gets put on the Fed and there's this political push back and forth on the Fed that reminds me of today. Tell me how that was relevant.
Well, you're right and I should say when I began writing this book, I didn't necessarily go into it thinking there were going to be so many eerie parallels to today, but one of them is this issue of the Fed. We talk often times about the independence of the Fed and what the Fed should be doing. Back in 1929, they knew the market was out of control. They knew there was too much speculation and they talked about trying to tamp it down. But there was a big question about how you do that and they were very almost overly concerned I would argue with the politics of the moment. You know as you mentioned the Fed was new back then. It was created in 1913 and there was a view that if they tried to stamp out the speculation by raising interest rates too high and in fact back then the same debate we're having now about lowering interest rates versus raising interest rates and what that's going to do to the economy. The view is if you did what for example Paul Vulker did in the late 70s not only would these people lose their jobs they thought politically and get hauled in front of Congress they thought the Federal Reserve might be eliminated.
You're a great triple threat in media. You have, you know, wonderful book writer. You have the CNBC Squawk Box. You're the New York Times and Deal Book. If you were uh doing Deal Book or doing Squawkbox in 1929, let's say in August, what type of questions do you think uh you would be asking and should we be asking those questions now?
So, I think the question you'd want to be asking in 1929, and I don't know if it would have been asked, but I wish it would be, is how much leverage really is there in the system? Every financial crisis, and I think I learned this writing this book, I think I learned this uh covering the the financial crisis in 2008 and too big to fail is a function really of only one thing. It really is leverage. It's too much credit in the system, and that is what leads to some form of speculation. 1929 it was margin loans on stock. People were literally going to brokerage houses that had sprung up on the corners of streets the way they're like Starbucks on the corner streets and you could put a dollar down and the brokerage would lend you $10. In 2008 it was subprime mortgages, right? And so the question for today would be where is the leverage? And so hopefully we would have asked is there too much leverage in 29 and today you might say to yourself is there too much leverage and where is it?
When you talk about leverage you're pretty much talking fundamentally about debt right people taking on too much debt taking on the government taking on where is there too much debt being taken on now and how does that compare to back in 29?
Well, it's very interesting that you say that um because when you think about today, the debt, and this is something that concerns me, is a little bit out of reach. We don't know where the debt is the way we used to know where the debt is. It used to live on the balance sheet of banks. Today, most of the borrowing, especially among corporate America, is not actually from banks anymore. It's from what's called private credit vehicles. These are things that private equity firms have set up that live very much in the shadows. And so we don't really know how much debt there really is today. And there is a lot of debt that's being embedded in this whole uh artificial intelligence uh revolution that's taking place. So you know, hundreds of billions of dollars being spent to build data centers, but a lot of that is being paid for with credit, with debt. And I think we need to watch that and try to better understand what's really happening.
>> Now I'm reading your book and there's so many similarities between back then 100 years ago and now certainly an age of great technology with electricity and cars and everything being transformed. Likewise, it's a roaring jazz age and roaring 20s comes along. uh tell me about that cultural exuberance that's happening then and uh how that led to the crash.
Well, look, I don't know if people fully appreciate it, but prior to 1919 in America, nobody actually took on credit. Nobody took a a loan because it was almost considered a moral sin to take a loan. People started doing that in 1919 because General Motors wanted to sell more cars and they started to loan people money. And then Sears Robuck clocked what was happening and said, "Well, we'll do the same now for appliances." And then Charlie Mitchell, the CEO you referred to who runs National City, which becomes Cityroup, he says, "Okay, well, we can lend money to people so they can buy stocks." And the exuberance of it create was was a decade long. Uh, and all of these people on Wall Street and CEOs are now on the cover of magazines, Time magazine, Fortune, Forbes magazine. they they become almost cultural superstars the way you might think of an Elon Musk or a Sam Alman or a Jaime Diamond today. And so you have this sort of remarkable period where the stock market kept going up and up and up. In 1928 the stock market was up 48% and if you had gotten a loan from the bank to buy stock it was like free money.
You talk about Sunshine Charlie Mitchell, you know, the head of National City Bank and saying, I think to one of his employees, look down there because employees saying, "Hey, we've run out of people to buy stocks." He said, "There are millions of people down there. We just have to give them credit." Was that part of it, which is getting the average person in America hooked on being in the stock market?
So much of this was about and really almost put in the banner of we are going to democratize finance and that has a lot of echoes about what's happening today. There's a real effort to quote unquote democratize finance in America today. Uh the Trump administration recently passed a bill uh so that common ordinary investors could get access to things like venture capital and private equity and private credit. that historically were considered way too risky for the ordinary American. Uh but there was a view that you know who had access to these things, the elite. And that the elite have have had great success investing in things like Uber and Facebook long before their IPOs. Well, all of that is now coming to us all over again. But it also means that we're taking some of the guard rails off the system again.
Isn't there some truth to that though, which is the economic elites until that got opened up in the 1920s kind of controlled all these things?
>> Oh, 100%. The the economic elites controlled it then and you could argue that the economic elites uh control it now. I think the question is whenever you start to take the guard rails off things whenever you start to create new products which which you sell the the ordinary investor there are some good players in all of this but it's also when the frauds emerge it's when the charlatans arrive and the question is are we watching for that one of the things that really struck me was I guess disparities of wealth if that's a way you want to put it or just how yeah so tell me how that compares to today very very similar. I mean the the truth is that the inequality of the the late the late 20s is very reminiscent of of where we are today. the social unrest interestingly and the questions about the inequality uh were not as pronounced in the late 20s and I don't know if that's a function of the way the media was at that time and you know interestingly it really wasn't until 31 32 and 33 where you really saw the depression really move into full force and Hoovervilles uh which are you know tented camps started to emerge including by the way in Central Park literally just blocks away from where Charlie Mitchell lived on 5th and 74th Street.
You know, Henry Ford, right after the crash happens, he's there in Detroit, of course, and he gives his workers a wage increase. He tries to make sure that what happens on Wall Street doesn't infect what happens uh in regular business. and he laments the fact that so much brain power is moving to Wall Street that there are all these smart people going there instead of making real things. uh to what extent was that a problem that uh helped exacerbate the 1929 crash because it's certainly reminiscent of what we have today.
I think it's reminiscent of what we had today. I think it's reminiscent of really the what happened in 2008 just how much Wall Street became not the backroom engine but the front room engine of the economy. And when that happens, you know what the true implications of that are. You know, interestingly, Henry Ford in 1929 was described as the nation's second billionaire. So, Rockefeller was the first billionaire. This is not inflation adjusted, by the way, Walter. This is for real. And Henry Ford was the second billionaire in America. But you're but you're right. He he did uh and he did not only try to raise um the wages of his workers, he almost did it to embarrass Hoover and to embarrass the other CEOs to try to get them to raise wages.
One of the things that that Hoover was trying to do at the time was almost trying to jawbone uh his way out of this, calling this sort of a psychological problem that if if people could just sort of get over it uh and if companies could could pay people more, he also wanted to tax people more. And by the way, Andrew Melon, who was our Treasury Secretary, was whispering in his ear the whole time. He was a real capitalist saying, you know, let them eat cake. It's fine. Let let them all fail. If they they made poor decisions, they should fail. And so you had this sort of fascinating dynamic taking place inside Washington. And by the way, very much like today's White House, you know, Hoover was on the phone with and constantly in contact with all of these CEOs. They were literally making these pilgrimages to the White House the way they do today.
President Hoover felt that the collapse of the stock market would not necessarily affect business in America. Why was he wrong?
Well, this is, you know, oftenimes we say look at the stock market, look at the real economy, and we think that they're somehow not connected to each other at all. The reason why it was connected is connected today, but I would argue it was perhaps even more connected then was because so many ordinary investors, so many ordinary Americans had taken on so much debt in the stock market. So that when the stock market fell, it wasn't just that they lost money in that they that the stocks they had bought at $10 were now worth $1. It was that they had taken on so much debt that they now owed so much money. And because they owed so much money, they couldn't buy basic goods. That's why they had Hoovervilles. And so it really did spiral out of control to the point in which 1933 9,000 banks faltered. They they failed uh in 1933. And that is really, I think, a direct domino, if you will, from what happened in fall of 1929.
The last third or so of your book is actually after October 1929. It's about the depression, why all of this happens, why it affects business, and then of course Franklin Delano Roosevelt comes in. What does he do?
Well, he does a whole bunch of things, some of which actually Hoover wanted to do, but for whatever reason decided not to or felt he couldn't. And one of the things that he does is he has what's called a national bank holiday. So he actually shutters all of the banks in the United States and then tries to prop up the ones that actually uh he believes are strong enough and then enacts, you know, a series of legislation, including the GlassSteagall piece of legislation, separating the the gambling piece from the banking piece, but also creating the FDIC so that your um money that goes inside a bank is insured and then later in 1934 creates the SEC, which really oversees and regulates It's the stock market, the idea of insider trading and manipulation, which by the way, by the way, which is a huge component of what was happening in 1929. So much of the stock market was being manipulated often times by the elites.
Uh, I must say that when I finished your book, I was like, all right, I got to sell stocks and I'm not a big stocks. It was like, oh my god, this could happen again. It's such a frightening book. To what extent do you think it could happen again? And to what extent do you think you might provoke it slightly if people read this book?
>> Well, I'm hoping not to provoke it. I'm actually hoping that to the extent that people read this book, they they take away some lessons. I hope policymakers better understand what happened in 1929 so that we can take away lessons so this doesn't happen again. It does not have to happen again. We are not destined to have this happen again. It is true. I do think that the train, if you will, is careening towards some form of a crisis at some point. The problem is you'll never know. Every we're always living in a bubble of some sort. And it will pop at some point too. What we want to do though is prevent it from popping in such a way that it creates the next great depression. And I think that can be avoided. The truth is we've actually managed to avoid that ever since then. Yes, we've had crises. 1999 dotcom bubble was a crisis. 2008 was a crisis. But here we are, Walter. And we're better for it. And in many ways, I think, you know, we've had more and more innovation. AI, I think, is very exciting and will be here for as long as I can imagine. Will we have a hiccup along the way? I imagine we will, but let's hope that's all it is.
Andrew Ross Cirin, thank you so much for joining us.
>> Thank you, Walter. So appreciate it.