海角大神

What does the worst stock market crash in history have to tell us today?

During the roaring twenties, with the stock market continuing its seemingly unstoppable climb and more and more ordinary Americans investing in Wall Street, financiers became household names. In addition to movie stars like Charlie Chaplin and athletes like Babe Ruth, bankers like Charles Mitchell, president of National City Bank, were among the well-known personalities of the age.

In 鈥�1929: Inside the Greatest Crash in Wall Street History 鈥� and How It Shattered a Nation,鈥� Andrew Ross Sorkin describes a summer morning when throngs of tourists gathered at National City鈥檚 entrance to catch a glimpse of Mitchell, nicknamed 鈥淪unshine Charlie鈥� by the press. The New York Stock Exchange鈥檚 superintendent, William Crawford, noted that 鈥渢he whole world for some reason wanted to be here,鈥� and, in Sorkin鈥檚 words, 鈥渋t made him uneasy.鈥澛�

Crawford, of course, was correct. The stock market was soon to crash spectacularly, wiping out billions of dollars and helping to trigger the Great Depression. Sorkin鈥檚 immersive history of the crash and its aftermath focuses on what Mitchell and other power players 鈥� bankers, business leaders, politicians, and speculators 鈥� were doing in real time as the catastrophe unfolded.

The book benefits from the author鈥檚 meticulous archival research and his access to a number of documents that hadn鈥檛 been available to researchers before: letters, diaries, an insider鈥檚 unpublished memoir, and the minutes of the Federal Reserve Bank of New York鈥檚 board meetings.

Buying on credit was increasingly common in the early 20th-century consumer economy, which boasted exciting new products like radios and cars. Stocks had long been purchased on margin 鈥� that is, financed with credit 鈥� by the business class. But the practice had recently spread to the public, helped along by bankers like Mitchell. (National City was the forerunner to Citigroup.) The heavy borrowing artificially inflated the market, creating a bubble. 鈥淭he almost singular through line behind every major financial crisis is one thing: debt,鈥� writes Sorkin, a New York Times journalist and author of 2009鈥檚 鈥淭oo Big to Fail,鈥� a gripping account of the 2008 financial crisis.聽

The government had yet to assume any significant regulatory role over Wall Street, and the author describes unsavory insider-trading practices that contributed to the turbulence. For instance, powerful investors would create pools and simultaneously buy stock in a given company to inflate its value, luring ordinary investors who weren鈥檛 in on the scheme. Then, at an appointed time, the pool members would dump their shares. The conspirators netted substantial profits before the price dropped, while members of the public suffered considerable losses.

Still, even after the crash, President Herbert Hoover and Andrew Mellon, the industrialist who served as secretary of the Treasury under three presidents, resisted calls for reform. But as banks failed and unemployment soared, the pressure for government intervention mounted. It wouldn鈥檛 come until Franklin Delano Roosevelt鈥檚 first term, which saw the passage of 1933鈥檚 Glass-Steagall Act, which separated commercial and investment banking, and the creation of the Securities and Exchange Commission the following year.

Meanwhile, the nation鈥檚 financial titans, so admired during the boom years, were recast as villains and scoundrels. 鈥淭he only difference between a bank burglar and a bank president is that one works at night,鈥� sniped one newspaper commentator. Mitchell was summoned to Washington to testify before a Senate committee, and in 1933, not long after he resigned as president of National City Bank, he was arrested for tax evasion. He was acquitted, but Sorkin finds symbolism for the entire period in his stunning fall from grace.

鈥�1929鈥� is a dramatic read, and Sorkin鈥檚 you-are-there style leads to vivid scene-setting. Describing the stock exchange on Black Tuesday, Oct. 29, 1929, Sorkin captures the chaos: 鈥淭he haze grew thicker in the poorly ventilated room. Tickers were running an hour or more behind, and telephone lines were jammed. The pneumatic tube system that whisked stock orders, quotations, and messages across the trading floor was congested. ... Brokers, telephone operators, clerks and messenger boys had by now taken to sleeping on cots or in crowded hotel rooms. They hadn鈥檛 been home in days.鈥澛�

While conveying the high drama of the crash, Sorkin notes that its significance wasn鈥檛 fully grasped until later. He mentions that The New York Times didn鈥檛 even select the stock market crash as the most important news story of 1929. Richard Byrd鈥檚 pioneering round-trip flight to the South Pole was granted that honor.

Now, of course, the great crash looms large in the public imagination as a cautionary tale. Sorkin writes that 鈥渓engthy, uninterrupted booms, like the one in the 1920s, produce a collective delusion. ... [P]eople lose their ability to calculate risk and distinguish between good ideas and bad ones.鈥� He further points out 鈥渢he remarkable parallels between that era and today鈥檚 political and economic climate.鈥澛�

One wishes that Sorkin had more to say about the disquieting similarities between that time and our own, but the warning comes through nonetheless.