Andrew Ross Sorkin on the Stock Market Crash That Shattered America

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1:52Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Allaway. Tracy, it's been a theme in a lot of our episodes lately, but we are in an age where trading and speculation, it's just part of the culture. We know that stocks are up. We know that a lot of things are up. But that's different than it being part of pop culture, which it is now. It's a culture of lines. Lines going up. People watch the lines. I really think that if you're walking down the street or on the subway and you see like a guy staring down at his phone, there's a good chance that he's like looking at a Bitcoin chart.

2:24A Bitcoin chart, yeah. Don't you think? Yeah. At any given moment. Well, this was one of the things about Bitcoin. It was so volatile. There was actually something to watch. There's like an entertainment factor. But of course, when you get this kind of speculative activity, everyone starts worrying about when's it going to end? When's the crash? I have this theory that nobody likes bubbles and that basically if there is a bubble, there's two camps of people. One camp that is really upset that they're missing out on it and one camp that is really anxious that they're going to miss the top. And that there are actually very few people on the camp where it's like, oh, this is like really good.

2:58I'm really happy. I'm really relaxed. The people who nail the timing are pretty pleased with themselves, I assume. And there's like five of those people. You know, like that's the problem. Afterwards, it was like, oh, I sold the top. I feel good. Yeah, absolutely. Okay. Okay, so famous crashes. We're going to talk about one of them. You know, I remember the dot-com era very well. I don't remember the market environment we're going to talk about. The 1920s? No. You have no memory of that? Shame on you. I don't remember 1929 very well. I did read John Kenneth Galbraith's famous book, The Great Crash.

3:27But there is a new book out on the great stock market boom and then crash of 1929. We are going to be speaking with the author, someone I'm thrilled to talk to, someone whose accomplishments and work ethic puts us all in. All to shame. We're going to be speaking with the one and only Andrew Ross Sorkin, founder of DealBook at New York Times, co-creator of Billions, co-host of some squawk box CNBC. I made that joke when we had Jim Cramer on as if I'd never heard the network. And now the author of 1929 Inside the Greatest Crash in History and How It Shattered a Nation. Andrew, thank you so much for coming on OddLots.

4:02Thrilled to have you here. Thank you for having me. I feel like I'm a longtime listener, first time caller. Amazing. Thank you. So this isn't the first time 1929 has been written about in the Galbraith book. It's probably like that was up until now, probably the most famous book, right? Yeah. What was the impulse to go back and write a book about this period of time? To be honest with you, it was about 10 years ago. I'd written Too Big to Fail. People used to ask me because I'd written about the financial crisis of 2008. They'd ask me questions about 1929. And the truth was, I didn't really have answers because I sort of knew, I think, like most of the public today, that something pretty bad happened.

4:40Then I had read the Galbraith book. But sort of beyond that, I was lacking details. And I honestly went on a vacation. It was like a nerdy vacation thing to do. I downloaded some books to Kindle and I brought some more with me all about 1929. I sort of poured through them. And I thought to myself, why can't I understand who the characters are, like the people at a visceral level? Like, what were they saying to each other? What were their motivations? What were their incentives? Who was sleeping with who? What was really happening here? And, you know, I grew up sort of loving books like that were written by Michael Lewis or Jim Stewart with Den of Thieves.

5:24You mentioned A Night to Remember. Or A Night to Remember with the Titanic was a great example of a book that really sort of made things feel human. Right. And so I thought, you know what? Could somebody, and maybe it was me, do that to 1929? And the truth was I wasn't sure I could. One of the reasons I think this took so long was the entire time I wasn't sure. And when I first started it actually, I mean, started doing the research, many of the archivists that I went to visit with were like, Andrew, we've read Too Big to Fail. that kind of granular detail, it's just too hard to find. And by the way, all the people are dead, obviously, so there's nobody to interview.

5:59So you're really reliant on letters and notes and memos and transcripts. And the truth is, there wasn't like two or three or four major archives you could sort of go excavate. And so this turned into this sort of bizarre, years-long project of putting these puzzle pieces together. I can only imagine how much archival research you had to do for this book. It is very filled with texture and personality and lots and lots of details. Is there a particular character that kind of stuck out to you in this book? I've read about Charles Mitchell. He's sort of the villain, but then towards the end of it, you have a sort of more nuanced opinion.

6:42So I think there's a couple of characters. And the truth is, I would also say one other thing, because I know we'll probably end up talking about today, like modern day today. When I started writing this book, I never even thought about today. I was thinking really about then. I didn't think I was. Because if this is the top this year, you nailed the topic. But as I was working on this, these characters to me, like Charlie Mitchell, who ran a band called National City, which becomes Citigroup, parallels to me between him. And he effectively invented sort of modern credit for lending, if you will, to individuals to go and buy stock.

7:18I mean, to me, back then he would have been as famous as a Jamie Dimon of today. He might have been the Michael Milken of his time in certain ways. He might have been even like a Dick Fold kind of character from Lehman Brothers. I was fascinated with Charlie Mitchell. And he was actually one of the hardest characters to really write because there really is no archive. He didn't keep his own notes. It was really dependent on actually finding other archives of letters and things that he participated in. He was on the board of the New York Fed, and I was able to get the minutes from those Fed meetings for the first time.

7:47And that really actually sort of grounded the project. I became fascinated by John Raskob, who to me is like Elon Musk in the 1920s. He was everywhere all the time, philosopher king, helped run General Motors, really created credit at General Motors, which really changed America. That's actually when people started taking on credit for the first time. Goes on to play the market, goes on to get involved in politics. He actually tried to undermine Hoover's reputation in sort of a musky kind of way, if you will. and then goes to build what was then the equivalent of a spaceship in the Empire State Building.

8:30And meanwhile, I don't know if he gets credit for it, but he really did to some degree come up with the idea at least or became an advocate for a five-day work week in America. People forget there were six days back then, and he thought it would be an economic boon because people would have— Go and spend your money. They'll go spend money. They'll buy cars. They'll have time to go places, do all sorts. So I thought he was fascinating. And then the last person, Carter Glass. Carter Glass to me. Of Glass-Steagall fame. Of Glass-Steagall fame. He was a senator in Virginia. By the way, helped create the bill that led to the creation of the Federal Reserve.

9:05But he was the Elizabeth Warren of his time. And he used to rail for years about this thing called Mitchellism. And this idea that Charlie Mitchell and the creation of debt and leverage in the system was what was going to undo it. The Galbraith book talks a lot about the, I guess, what were they? It was before mutual funds. What were they called? The trust? Investment trust. The investment trust. But your book talks a lot about this idea of like retail leverage, basically, which is what you described. And you talk about they would say, OK, we've taught people that they can buy a car on margin or a car on credit or a dishwasher.

9:38sure why not a stock and it seems like they really trans a lot of people in industry really sort of transported this consumer notion that was nascent and just like yeah let's port it over i didn't appreciate that back then i mean brokerages were springing up on the corners of streets the way they're like starbucks yeah in new york it was really fun i always think about these physical or like the brokerage on a cruise it's like wouldn't it be fun to just walk in and play the market you mentioned lounges in like hotels women only stock trading lounges which you know I would go for those nowadays.

10:10They don't have to be women only, but just a place where you could watch the charts. The other thing that was nuts, though, is you would show up and you could give them a dollar and they would literally lend you 10. I mean, that's what we're talking about. And so when the market was going up, it really was like free money. And I think this was the first time this is ever really happening. And so people didn't fully appreciate all the things that were possible, let's just say. There's another parallel with today, which is a lot of the stock market being driven by AI, right? And when people talk about the market opportunity in AI, it's basically uncapped.

10:45It's the entire world. It's like all of business. And in the 1920s, people were saying stocks were going to go up because the entire world was buying into the U.S. I think that's very true. I would actually specifically point actually to a technology story back then, which was radio. Radio. The ticker symbol was radio. The company was RCA. They also, by the way, not only had the technology for radio, they had the patents for television. And that was the NVIDIA. I mean, that was the meme stock of that era because people were buying into this future that we were all going to experience. And they wouldn't have been wrong, by the way.

11:24The conundrum is I think the stock split adjusted at the peak was like got to five hundred and thirty some odd dollars. And by 1932 was like three dollars. So. So one thing I was, you know, obviously, when radio comes RCA, you're like, oh, it's the NVIDIA of the time. NVIDIA makes a ton of money and it makes more money every year. We don't know how sustainable that is because some of that is them investing in companies which come back and buy NVIDIA. But setting that aside. Vendor financing. Was RCA making a ton of money or was it mostly excitement about the future? Do we have radios, financials from the 20s?

12:00So the bad news is we don't. In fact, somebody said to me the other day, did you ever get a chance to look at the prospectuses of these stocks? And I said, prospectuses. They hardly had leaflets. I mean, and that's if they had anything, they literally would be leaflets that they would hand you. You don't know their P.E. ratio is going. The P.E. ratio is going. to get real information. Again, this is pre the creation of the SEC. The kind of rules and regulations and just disclosures just didn't exist in the same way that they do today. So would you just get like a check in the mail for a dividend every once in a while?

12:35Like, what access did you actually have? So my understanding is that you would get a check in the mail. In fact, oftentimes, they wouldn't come in the mail. You'd actually go to the brokerage house itself. And in some cases, they would keep that for you and sometimes either reinvest it or keep it on like a ledger, if you will. But I don't know the specifics exactly of how you would deal with your dividend when and if you got it. One thing I really like in the book is all these different characters from American, from world history, you telling the story of them getting really obsessed with the U.S.

13:08stock market. So Winston Churchill on an early trip to the United States gets really into margin trading. I think like you talk about Groucho Marx or something getting really into trading. To me, that was also like a great surprise. And that was also not something I had read about. I had no idea that Winston Churchill shows up in New York, actually shows up in the U.S. even before this, but in New York in October of 1929. And he was actually down on the floor of the stock exchange visiting while this was all happening. He was totally engrossed in trading. He was trying to make money. He ends up losing money, of course, like everybody else.

13:36He ends up going to a dinner with all the leading bankers the night that the market completely and utterly tanks. and similarly I didn't know about it either but you know Groucho Marx was living in Long Island and basically I shouldn't say he was living on line but he would it was according to his son he was really living at a brokerage house trying to re-tape every day and he ends up having to mortgage his home to pay for the margin calls when they called.

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16:16Crypto trading provided by Backed Crypto Solutions, LLC. Complete disclosures available at Public.com. Some people did make money. Going back to our intro, very few people managed to make money, but some of them did in spectacular amounts. Can you talk a little bit about Jesse Livermore? Oh, the great Jesse Livermore. There's been a lot written about Jesse Livermore. Jesse Livermore is a character in this book. Of course, I don't know if we should give away the ending for those who don't know. But Jesse Livermore ultimately shoots himself in the head in 1941 over at the Sherry Netherland. There's a lot of people shooting themselves in the head in this book.

16:49There's a lot of shooting, jumping out windows and other things. But, you know, Jesse was a short seller and he was spectacularly successful in the crash itself. The truth was, though, he had been super successful in parts of the 20s and then was actually quite a failure in most of 27 and 28 and 29 because the market kept going up and he was almost out of business. And then he goes back in in the fall of 29 and makes something like$100 million plus. But, of course, like I think any of these sort of super emotionally complicated people, he ultimately loses it, I mean, quickly. and then makes a little bit more, loses a little bit more, makes a little bit more and then loses, well, everything.

17:38You said that when you started this book, you started a decade ago, so it was not about some attempt to make a parallel today. Even though the timing may, things are very crazy these days, many people would say. I've always been curious about this because when I read history of any sort, the brain can't help but try to find parallels to the present. I think, at least for me, it's like, oh, this is just like this. This is just like this. When you're doing the process of writing history, do you have any mechanisms in place to avoid the temptation to sort of overdraw parallels? Because that must be incredibly tempting to find the details that feel salient and similar today.

18:16This is the NVIDIA of the time. This is the Cathie Wood of the time. This is the whatever. So yes and no. I think it wasn't until two years ago when I was getting closer to being finished. and also sort of recognizing what was happening in the moment today. And the parallels started to seem clearer and closer. So three and four years ago, actually, it didn't feel as similar, oddly enough. But all of a sudden, you're starting to see these debates that they're having in literally the spring of 1929 about whether to raise or lower interest rates and how they're going to try to end speculation within the New York Fed.

18:54and to some degree, the political pressures that are around them. And you start to say to yourself, well, that seems kind of, I've been hearing a lot about that. So I hesitated to sort of overdo it, but I also was cognizant that I imagined readers who were reading it might think about some of these things. And one of the decisions we made in particular, I remember having lots of debates with my editor about, That was nowhere in the book did we ever want to stop the reader and take you out of 1929 and say, hey, by the way, this is kind of like that or this is kind of like that. Some readers may see these parallels or different things themselves.

19:32Some may never see them. And some may come up with completely different parallels. And I would love that, frankly. I have a parallel. OK, something that happened slightly after the crash is Smoot-Hawley, right? The tariffs. And today we are in the Trump administration with very broad, widespread tariffs. Yeah, that wasn't on my bingo card when I was writing that originally. I'm curious, how much of the subsequent Great Depression would you attribute to those sorts of economic policies versus the stock market crash itself? So I actually think there was a lot of bad decisions and dominoes that came after the crash itself that really is what put us into the Great Depression.

20:18So I look at the crash and really only the first half of this book is about the crash itself as sort of the first domino of a series of things that were sort of the necessary ingredients to create the depression. So, you know, when you think about all of the bad decisions, the tariffs are one of those decisions. The idea that Andrew Mellon, who is our Treasury Secretary, who is effectively saying, let these capitalists eat it. They were speculating, let them suffer. You know, when you think about the fact that the Fed really did very little at the time and almost sat on their hands, in large part, I would argue, because the Fed was such a new institution, people forget it was born in 1913, that they were cognizant of the political pressures.

21:02If they were seen, they couldn't have pulled off a Volcker-like move. They knew there was speculation. But if they had said, OK, we're going to really just raise interest rates. By the way, it wasn't that we're going to lose their jobs. I think they actually feared that maybe there wouldn't be a Fed. So I think there was sort of the confluence of all of these different things. We talk about the gold standard. I mean, there's sort of a series of things that that take place that lead eventually to 9000 banks going out of business and unemployment at 25 percent. It's interesting, speaking of the Fed, because these days there's all this question of like we're looking at financial conditions, we're looking at real economy, etc.

21:37It's interesting how maybe the Fed didn't do enough to curb speculation or maybe at some point didn't do enough to counteract the downturn. But they were very keyed into the rate on margin lending as one of their main tools that they had in their toolkit. So that was their big tool or what they thought was their tool. However, they didn't really use it. And so you had this sort of fascinating debate happening in the spring of 1929 when they're sitting there saying there's too much speculation. We need to end the speculation. How do we do that? Well, the decision they came to effectively was to send out letters to banks saying, please stop lending to speculators.

22:19Moral suasion, right? To which the bankers said, what are you talking about? How are you defined what a speculator is? What isn't one? Some of the banks were so scared that they effectively stopped lending. That unto itself was a problem. And then you had people like Charlie Mitchell, who, by the way, in that moment, you would have compared to Donald Trump saying, actually, lower interest rates, please. So I think there was this sort of fascinating dynamic that you could sort of see play out. Again, these are some of the details. I don't think I understood the texture of what really led to all of this.

22:49There's another parallel, speaking of the Fed. This might be pressing it or stretching it a little bit, but I get the sense that nowadays people feel that the Fed can come up with any solution to any problem, right? We've seen them roll out tons and tons of different programs, whether it's for corporate credit or repo, treasuries, that sort of thing. In the 1920s, there was a sense that America had beaten the boom-bust cycle, right? Because there was another crash previously, which was 1907. Look, again, I think this is one of those things where because of the 1907 experience, which, by the way, was solved effectively by J.P.

23:30Morgan, taking a bunch of bankers and trapping them in a room until they could figure out what they were going to do, led to a sort of sense of overconfidence. and not just overconfidence, a sense among certain men, men of a certain group, if you will, that if you could just put the right people in a room together, we could solve anything. Thomas Lamont was effectively running J.P. Morgan during this period. J.P. Morgan himself had died. His son, Jack, was the CEO in name, but really Thomas was running things. And he was one of those kind of believers. But I think that 1929 and what happened in the markets just got so far away from them that they realized that there was nothing ultimately in the end they could do.

24:14And they didn't know that until it was too late. So 1907, literally 100 years before our crash, the great financial crisis, that leading to all of this overconfidence that there is just an endless series of tools that the government has to stop anything. And then we get to the 19th. You're making your own parallels now. How do you not? How do you? How can you not? That's what the brain does. And I don't even, like, I'm not even arguing there's a parallel. I just think that the brain naturally sees these things and we can't avoid it. By the way, we're in 25, so we still have four years. Okay, four more years.