In time for the autumn blues last year, Andrew Ross Sorkin delivered a riveting doorstopper-sized account of the fateful year 1929. What most people know about the 1920s revolves around endless optimism, dancing, underground bars, and speculative financial fevers. Sorkin—the co-anchor of CNBC’s Squawk Box and author of Too Big to Fail—captures this in a diary-style account of the days and months before Black Thursday and Black Tuesday—both days of double-digit stock market losses in late October 1929.
1929: Inside the Greatest Crash in Wall Street History—and How It Shattered a Nation is something of a Wall Street thriller, filled with drama and intrigue and quite a bit of murder, at least of the financial sort. The characters—speculators, short-sellers, bankers, and political incumbents, and newcomers—are vividly described and seemingly quite relatable. Via letters and diary entries, we get a unique glimpse into the daily goings-on of most key players in politics, finance, and business. Drawing on newspaper articles at the time, biographies of the people involved, and plenty of formal statements accompanied by personal letters, Sorkin—despite the very extensive archival research Sorkin doubtlessly engaged in—takes at least some poetic license, painting the environment and daily goings-on in ways the sources couldn’t possibly describe.
While not implausible, the account is definitely mesmerizing. With hefty callbacks and background histories to the main portrayal of the year, we get a golden piece of Wall Street history plus contemporary financial tactics—everything from boiler room scams to short squeezes, to insider battles over Fed policy and rugging by investment pools.
The crescendo arrives suddenly and with a whimper rather than the fireworks those of us from the comfort of a century of hindsight might imagine. It’s terrifying to relive the play-by-play moments of those fateful days of late October almost a century ago. With the benefit of hindsight and the comforts of modernity, like a horror movie, I keep waiting for the big disasters they have in front of them. On the upside, I know that capitalism ultimately survives—though only barely, after the Great Depression, another world war, and a much-enhanced state involvement for the rest of the century. I know that the world moves on, that the stock market recovers. Still, seeing the step-by-step actions by those involved is stressful. Knowing that these bankers and speculators and ordinary savers were leveraged to the hilt and had everything running on the main stocks of the time, seeing them fall in price by double digits, while not knowing where this eventually ends, must have been unbearable.
And it wasn’t just the financiers and the banking hotshots. Sorkin shows us that plenty of maids or shoeshines or dishwashers had unbelievable sums riding on US Steel or Radio Corporation of America—quite often on margin, i.e., financed by only a small “down payment,” effectively buying stocks with 5-10x leverage. When cheap money engulfs the economy, it swallows everyone.
The last third or so of the book takes place after October 1929, with plenty of spillover events lasting into the Great Depression of the 1930s. It would have been strange to omit this aftermath, I confess, but the author doesn’t treat that episode with nearly as much enthusiasm or detail, respect or competence as he does building up the main event.
One twist that most observers of the banking crises and depression of the 1930s overlook is that, when zoomed out, the stock market losses for 1929 weren’t particularly overwhelming; on their own, they couldn’t have unleashed the disasters of the ’30s for which they’re frequently blamed.
Sorkin reports as much: “The Dow Jones closed 1929 at 248, down just 17 percent for the year. Bankers and traders could look at that number and reasonably say to themselves, ‘Not so terrible. We’ve seen worse.’” He admits that “the crash may not have caused the larger business depression, but it certainly had a powerful effect.” (Aswath Damodaran’s S&P 500 series at New York University reports just -8 percent for 1929).
But then 1930 and 1931 slaughtered any trader, investor, or speculator left, with 20-50 percent declines annually. The massive declines across indices and individual stocks leave most stocks trading at fractions of their “permanently high plateau.” In fact, that infamous quote by star economist Irving Fisher, a week or so before the October 1929 troubles began, is in this account not even Fisher’s worst that year. Sorkin digs up another, even more disastrous statement, reproduced the month before by the Los Angeles Times: “stock prices are not too high and Wall Street will not experience anything in the nature of a crash” (emphasis added). Oops.
Nothing described the contemporary obsession better than the stock tickers put up in hotels, bank offices, and even cruise ships. The “optimism, ambition, and the belief that the future could be endlessly brighter” is at least somewhat understandable. People on both sides of the Atlantic were already accustomed to acquiring all the new manufactured products and inventions in installments. Why could stocks in the great American enterprises not also be similarly financed?
The most astonishing side story of the many intriguing characters is that of Winston Churchill—at the time a flaunting British politician, military, and former chancellor of the Exchequer—coming off an election loss in 1928. On his travels through America in 1929, he became a stand-in for the aspiring American public, easily impressed by the financial novelties and unstoppable exuberance. It’s clear that the future Prime Minister and British hero has no idea what he’s doing in financial markets: trading heavily on margin, on funds already advanced from his publisher for an unwritten book, acting recklessly in an already-frothy market, and dreaming of quick riches.
The book ultimately works its way up to a sweeping, general commentary on human nature and finance: We forget that things don’t always go on forever, and we’re easily possessed by powerful ideas.
And that’s that. The reader walks away from 1929 with a much more detailed understanding of the nuances and complications of this most iconic of America’s financial events, with plenty of insights into some of the speculators, bankers, and politicians running the ruse. Though the book never quite answers the “why” it all happened, at least we’re presented with a pretty great story for “how.”
The awkwardly-outsized epilogue, then, leaves us with a bitter taste from the total reversal of fortunes, with some cosmic rumination on economic justice. The hot-shot Wall Street traders and financiers all end up destitute, in jail, or committing suicide. (Good riddance?). The more fateful result for the world is that the largely-laughable Mr. Churchill, together with the outsider Roosevelt, end up two of the most powerful men in the world, running the two superpowers of note. That might be the real, underappreciated tragedy coming out of 1929.
