Why 2026 Is Beginning to Look Like 1929 (with Andrew Ross Sorkin)

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1:38Bloomberg Audio Studios. Podcasts. Radio. News.

1:55Stephanie Flanders:I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaking up the global economy, and what on earth is going to happen next. This week, we have something a little different. A conversation with arguably the world's most famous business journalist about something big that happened nearly 100 years ago, but could very well be happening again.

2:27Stephanie Flanders:Thank you very much, Andrew Ross-Sorkin, for joining us. Thank you for having me. I'm excited to be here. It's quite unusual to have you, not least because you're a full-time journalist for not just one, but two of our leading competitors, the New York Times and CNBC, but we're big enough to take it. But it's also quite rare to have someone who's primarily a business journalist. We most often have economic policymakers or economists or political reporters for that matter, but you do, in your position, sit at the intersection of Wall Street and Washington and media, and that is where we're very interested in.

3:02Stephanie Flanders:We're there a lot. and I guess most important for this conversation, you have written two cracking books about two moments in economic history that I'm really interested in and I think many of our listeners are interested in. The global financial crisis, too big to fail and now most recently 1929. You know, obviously 1929 and what came after, people are drawing more and more parallels with now and we're recording this on Monday the 8th of June after what is, I think, now being referred to a healthy pullback of Friday in stocks, but obviously lots of discussion around how vulnerable this stock market might be.

3:42Stephanie Flanders:But I wanted to talk about the book and 1929 first, because I have to admit, when I heard you were writing this book, I did wonder, am I going to want to read another book on that topic? It's a fantastic moment in history, if you're interested in economic history, but there have been a lot of books. I think that when I love the J.K. Galbraith, The Great Crash, I think that's just like I've read that. Fabulous. I can't remember how many times. So why did you think there was room for another book, if I can ask you the obvious question? So no, I, like you, had read a lot of the other books as well.

4:13And for whatever reason, most of the books that have been written about this period, to me, were written by economists. They were written in a particular kind of style. And the kind of book that I always love to read more than any is the book that takes you inside the room with the characters that doesn't treat things as economic systems or economic cycles so much as really examines the people who make decisions that I would argue drive the economic systems and economic cycles and put you in a place where you can understand their motivations, their incentives. You can understand their morality, whether they were aligned or unaligned with reality.

5:02And so to me, I thought that was the opening. Could you write a character-driven story that really puts you there and so that the reader, the public can really understand what was going on, not just in this sort of economic story, but in the personal story of these people. And the truth is that the challenge was trying to figure out, could I find enough granular detail from diaries, from memos, from notes, from transcripts, so that you really could feel like you were inside of their head.

5:38Stephanie Flanders:And famously, that is what you did. You were kind kind of the first draft of that bit of history for the global financial crisis, or that particular period where the bailout tarp was being pulled together in 2008. You sort of think of the comparisons between those two books. I was talking to someone actually this weekend who happened to be quite a senior policymaker during the global financial crisis. And he had read 1929, and I said, what do you think of it? He was really impressed by the degree of detail, as you say, and the description of the characters. But he said the real lesson was that it was no one's fault.

6:11Stephanie Flanders:And he didn't think that was true of the global financial crisis. But what was the big thing that you took away from it once you got to know all these characters? Oh, goodness. Look, I'm a believer typically, and I probably believe this about 2008 as well, not that it's nobody's fault, but in fact that when you have a crisis of this kind of magnitude, it's everybody's fault. What is interesting, by the way, to me about 1929, oddly enough, when you get to this issue of fault or blame, if you read the diaries of people who lost a fortune in 1929, lost their home, had the margin call, most of the diaries suggest that they blame themselves.

6:55They actually were not pointing fingers. They were not blaming others. They were saying, I shouldn't have done this. I had, you know, the phrase FOMO didn't exist back then, but they all had FOMO. They all this fear of missing out. And that was a real pull for so many people who got into the market for the very first time. And some of them felt that they got suckered a little bit by a broker or two who had peddled them something. But they really thought it was their own doing, which is so very different than the feelings in 2008, which was to finger point at everybody but yourself. I should say just caveat in fairness, by the time we got to 1932 in the United States, if you read a lot of the same diaries, the finger pointing has now begun because we've now moved to a whole new level of unemployment, 25 % unemployment in the United States.

7:49and the economy had faltered to such a point where I think everybody was just grasping at straws. But in the immediate aftermath, in terms of faults, when you say who is to blame, people blame themselves.

8:01Stephanie Flanders:One of the things that people mean, I think, when they say it wasn't their fault was that the system, you know, the Federal Reserve had barely just begun to exist. The infrastructure that was there to some extent in 2008, and then they had to kind of build some of their own things. All of that had yet to be built, had yet to be in the mind of an economist or a regulator or anything else. There were literally no rules. Insider trading was legal. There was no SEC. The investment banks and commercial banks were attached at the hip. This was before Glass-Steagall. There were no capital requirement rules from the Bank Act, which came in 1940.

8:40None of it existed. And in fact, one of the things that fascinated me, and I went searching for it. But, you know, today we look at a lot of the things that happened in the 20s and you say, this is clearly wrong. This should be illegal, if not immoral. And I was searching for somebody, just one person who decided contemporaneously in the moment not to participate in some of the manipulation that was happening. And I couldn't find it. I thought there would be somebody who would be raising their hand saying, I cannot be part of this wildness, this immoral behavior. But it wasn't the case. You know, the markets are a funny thing.

9:20It's always been this battle of wits. And when you have no rules, to the extent that there was manipulation, it was really people who thought that they were just outwitting the other side.

9:30Stephanie Flanders:If it's not against the law, then people do feel, even if there's just something sort of iffy about it, they will often feel completely justified. I think the truth is they don't question what they're doing because it gets back to this idea of wits or trying to outsmart the other person. If you think about it long enough, whoever is buying a stock in that moment has to think that they're smarter than the person selling them the stock. And whoever's selling them the stock has to think that they are smarter in that moment than the person that happens to be buying the stock. And I think that's pretty much what the stock market is.

10:06And so when you think about how philosophically people think, they think they are in the business of outsmarting somebody else.

10:18Stephanie Flanders:And you write about in the book, there was quite a lot of discussion about should we clamp down on speculation and everything else. All the discussion now is about removing guardrails and reducing regulation, freeing up banks, particularly from the administration, but freeing up banks, not having crypto be subject to these regulations. Oh, we are dismantling the guardrails. I mean, it is happening right in front of us. You know, in the past week, I don't know if you saw Goldman Sachs and Morgan Stanley, which are underwriting the SpaceX IPO. Their analysts are now putting out research internally that's been used to sell the IPO that is bullish to the point that they're putting out projections about where this company could be in 2030 and 2040.

11:10But after the dot-com bust, we actually changed the law so that bank analysts who arguably were conflicted because of their relationship to the underwriter of a stock were limited in terms of what they could do, what they could say, how the bank could use their research and things like that. And yet we've now changed the rules again all over again. I think when you think about crypto or when you think about the idea that people are trying to tokenize different private investments or take private credit or private equity or venture capital and wrap it in a public wrapper that looks like a stock.

11:54I mean, all of these things are new innovations. And by the way, they may be good innovations to some degree, but they don't come with what I would imagine would be the requisite guardrails to prevent things from going over the cliff. And the other piece is you're bringing new investors in. And any time you bring new investors into the market, there should be a little bit of handholding. Maybe that sounds paternalistic, but I think that's the lesson of the last hundred years.

12:23Stephanie Flanders:That's such a parallel with the democratization of finance that you saw in the sort of late 20s. Late 20s. That phrase, by the way, democratization of finance, was used repeatedly in the late 20s. By the way, it was just used last week by Jamie Dimon when he was talking about the SpaceX IPO and the idea that that particular IPO is now going to allot a lot more shares for retail investors than just about any IPO in history. And when you look at that history, it does seem to be just when you open up everything, We saw that 401ks last year opened up to crypto and private equity is now more accessible, as you said, in various ways.

13:08Stephanie Flanders:And all of these IPOs coming down the track and the big debate about when they can get into the indices. You must have found it more and more uncanny looking at some of the detail of that. All of these component parts. I mean, the last year, I would even say the last five years. I remember when the GameStop scenario was happening, 2020, 2021, I was thinking, oh, my goodness, we are living in 1929. And there are so many elements to our market today that have these sort of eerie parallels. That's not to say that we're going to crash tomorrow, but it does suggest that memories are short. And if anything, the goal of this book, I always think to myself, I never wanted to write a sequel to Too Big to Fail.

13:55I always considered this the prequel. So if you can remind people of what actually happened in the past, maybe it will prevent people from tipping over in the future.

14:06Stephanie Flanders:The other big parallel, obviously, is the role of technology. We talk about speculative fever, but it was around, as now, a lot of it was around a real technological innovation. many technological innovations that were going to be pretty transformative for the economy. I mean, you had automobiles, you had radio, electrification. All of it. People, the Limburg boom, you know, people getting on planes. And yet, even with a transformative technology, you still had, as you described, the RCA stock, which rose enormously, ended up at, you know, 97%. It was the invidia of its time. So how did you see that sort of parallel?

14:45Stephanie Flanders:Because it seemed to me, I mean, one of the things I thought was very striking is that was a technology, and we can talk about now the concentration of how much of the returns in the stock market this year and how much of the economy has been driven by the AI boom. But electrification, with probably some exceptions, people, I assume, were pretty positive about this stuff. It was liberating them. Whereas this technology, people are getting more and more frightened of, maybe even angry about. Oh, look, there's all sorts of questions about AI. But I do think that every time we've gone through a technological revolution, there has been a shocking amount of speculation.

15:22The question is not whether you can prevent speculation. I would argue to you, by the way, that you need speculation in the system, that speculation to some degree built America. I mean, it really did. I was just talking to Jeff Bezos about two weeks ago. We were talking about whether we were in a bubble. And he was making the argument that when you think about sort of the progress, technological progress of humanity, it has almost invariably come with a bubble. Even if you go back and look at the biotech bubble, the most recent one. And anytime there's a bubble, there's lots of good investment and lots of bad investment.

16:02The question is, can you avoid it from becoming too much? but I think you almost have to embrace some semblance of it as sort of backward sounding as that may very well be.

16:18Stephanie Flanders:As an economist, you know, that was one of the big lessons, you know, this thing that's still debated about whether Alan Greenspan was right to say easier to clean up after a bubble has burst than to try and stop it going up. You basically still believe that even though we went through global financial crisis? I still believe it. I just think that the question is, can you prevent the bubble from getting too big? And can you actually prevent a bubble on the front end? So there's always two sort of big policy choices when a crisis comes. One is, can you prevent it from happening at all? And if you can't prevent it from happening at all, and it does pop, then what do you do about it?

16:59I think that we could do a better job on the front end, and I know we could do a better job on the back end. But the idea of eliminating these bubbles entirely, I think, is a misguided effort, ultimately.

17:14Stephanie Flanders:I think that's probably right. But I think that is not a politically popular thing to say. No, but I think it's more, again, with the sort of economics hat on, what you care about is not the speculation or even the bubble, but whether it infects the broader economy. And that's obviously what you saw in the 30s. And that was because of the failure of credit and all of these things. You know, if you look 1987, which was the kind of famously the first time sort of in modern times where you'd have that sort of spiral of selling that people experienced. By the end, there was no impact on the economy.

17:45Stephanie Flanders:The market was barely affected by the end of the year. Even the bursting of the tech bubble in lots of countries, there was no recession. There was a very mild recession in the US. So a lot of it is about leverage. And you can reduce the amount of leverage that is built into a bubble or that speculation. By the way, I'm going to argue against my own book for a moment. You could make the same 1987 argument to some degree about 1929. By the end of the year, if you had closed your eyes and didn't know what happened during the year, the stock market looked like it had only fallen 17%. And if you just looked at it that way, you'd say, oh, not a big deal.

18:23What a blip. The problem was that ordinary Americans had gone to their brokerage house and were giving, they were getting 10 to one leverage. And so when the 50 % decline happened between October and November, it wasn't that they could ride it out. It was that the banks were calling and taking their homes. So it is interesting sort of how you can ride out or not a crisis. And then that crisis, what it does to confidence, which to me is ultimately the first domino in a sequence of dominoes that leads to the Great Depression. It was not preordained in 1929 that you ultimately had to get to a 1932-style 25 % unemployment Great Depression.

19:18Stephanie Flanders:of course everybody's talking about how dependent the economy is on on the ai boom and or expectations around ai and the productivity associated with that and i think we just model to your point there's a 20 fall in the s &p which is kind of similar to the tech bubble but then that also affecting investment in the US, physical investment, which is obviously so much in AI now, and general confidence and credit. If you saw that kind of decline, do you worry about it infecting the economy? Oh, I worry. But I worry about two things in the context of AI. I worry about are we in an AI bubble and that everybody can't afford effectively all the infrastructure investment and everything else that comes along with that.

20:05And it somehow pops along the way. People don't find the productivity that they were hoping for, or there's some kind of technological shift that allows all these models to work without all of the chips and data centers on one end. But I also worry about what happens in success. And I don't know if you've modeled that out, because in success, it probably means that we have to have a shocking amount of unemployment. in. I would think to make up, to make those productivity gains that would be necessary to justify those valuations, a lot of people would have to lose their jobs. Now, if so many people lose their jobs, who is going to pay for all of this stuff?

20:47So to me, there's sort of a double-edged bubble in the AI world that is different than some of the previous ones we've lived through.

20:55Stephanie Flanders:And that was a little bit what I was trying to get to about the unpopularity, because I do think there's a possibility that you get the backlash before the productivity. I mean, one of the ways the bubbles might burst. You probably saw there was an NBC poll that's like, now AI is more unpopular than Donald Trump and ICE, but still just slightly, the only things that are more unpopular than AI now is Iran and the Democratic Party. I mean, look at all of those commencement speeches in the United States in the last couple of weeks. Every time the word AI was uttered, And, you know, the kids were booing and they were booing because they're demonstrably worried about their own future.

21:35And that is visceral. You can feel it when you talk to these young people.

21:38Stephanie Flanders:I mean, is that what could potentially be the trigger for the bubble bursting if it actually looks like it's not going to be politically tolerable to have the kind of productivity growth or at least on the time frame that's needed for these valuations? People start to question, you know, if you have regulation coming in, if it's just not going to be possible to realize all of these miracles. Is that the thing that people could say, oh, hang on, this isn't going to happen? Not because it couldn't happen, but because politically it's going to be impossible. If it's going to be politically impossible, I actually wonder whether technologically it's not going to happen as fast as people think.