1929 vs 2025: Andrew Ross Sorkin on Crashes, Bubbles & Lessons Learned

Andrew Ross Sorkin offers an analysis of the socioeconomic factors and policy decisions that led to the infamous 1929 stock market crash, a pivotal moment in American history that heralded the Great Depression.

Easy Credit Culture and Speculative Investing in the 1920s

The 1920s saw a significant shift in American consumer culture, primarily influenced by the introduction of lending practices by large corporations.

Introduction of Consumer Lending in 1919 Spurs Borrowing Surge

Sorkin traces the origins of easy credit culture to 1919, when General Motors began offering credit to customers for car purchases. This marked a drastic transformation from prior attitudes that regarded borrowing as morally reprehensible. Following GM's innovative approach, Sears Roebuck also began providing credit for appliances, leading to a surge in consumer borrowing.

Stock Market Boomed: S&p 500 Up 48% in 1928, Promoting Wealth Belief

Further driving the euphoria of the era, the stock market witnessed a massive boom, with the S&P 500 index skyrocketing 48% in 1928. This remarkable growth fueled the public conviction that wealth creation was easily attainable for many Americans.

Media Amplified Era of Famous Business Leaders

The media's glorification of business leaders also played a crucial role in shaping the investment culture of the 1920s. Time magazine, launched in 1923, and Forbes, which began in 1917, featured CEOs like Charlie Mitchell on their covers. Comparable to the celebrity of figures like Babe Ruth and Charles Lindbergh, these business moguls were idolized, and their media portrayal led the public to aspire to their levels of success.

Role of Federal Reserve and Government Policy

The Federal Reserve's actions and government policies significantly contributed to the economic turmoil that culminated in the stock market ...

Andrew Ross Sorkin provides insights into two historical figures in American finance with contrasting visions on credit and regulation: Charlie Mitchell and Carter Glass.

Rivalry Between "Sunshine Charlie" Mitchell and Carter Glass

In the period leading up to significant financial reforms in the United States, a notable rivalry existed between two financial leaders: Charlie Mitchell and Carter Glass.

Charlie Mitchell, Head of National City Bank, Promoted Easy Credit and Lending to Speculators, Defying Federal Reserve Attempts to Rein In Lending

Sorkin introduces Charlie Mitchell, comparing him to prominent financial figures such as Jamie Dimon and Michael Milken to underline his significance in American finance history. Mitchell, as head of National City Bank, championed the availability of easy credit to the general public, particularly for stock market investments. This practice involved enabling people to borrow substantial amounts with minimal initial capital, resulting in widespread speculation. Mitchell was known for vocally advocating for lower interest rates and for his readiness to lend to speculators and brokerage houses, even when the Federal Reserve was taking measures to reduce such practices.

Mitchell defied the Federal Reserve by providing loans through National City Bank directly, after the Federal Reserve's request to banks to stop lending for speculative purposes led to a general reduction in lending activities. This defiance by Mitchell created turmoil among banks, as they became hesitant to provide credit, creating a situation Mitchell exploited by lending through his own institution.

Carter Glass: Key Role in Glass-Steagall Act, Opposed "Mitchellism"

Carter Glass, in stark contrast, is remembered for his vehement opposition to what he labeled "Mitchellism." Glass's views were consistent with modern figures known for their regulatory stance, like Senator Elizabeth Warren. Glass saw Mitchell's policies of easy credit and support for speculation as dangerous to the financial stability of the economy. This perspective became a corne ...

Discussions with Sorkin, Chamath Palihapitiya, and Friedberg reveal insights into the likenesses and disparities between the economic environment of the 1929 stock market crash and today's financial climate.

Speculative Bubble and Leverage Risks in Markets

Excessive Leverage and Speculation in AI, Private Credit, and Real Estate

Sorkin and Palihapitiya touch upon the speculative nature of the current markets and the presence of leverage, drawing a parallel to the 1929 market conditions. However, they note that the type of leverage existing now is different from what was witnessed before the Great Depression.

Downturn Impact and Timing Uncertain Amid More Safeguards and Regulations Than 1929

They highlight that unlike 1929, there are more regulations in place today, such as those enforced by the Securities and Exchange Commission (SEC), which could potentially dampen the effects of a similar downturn. This regulatory presence suggests a different environment that may shield the economy from a crash akin to that of 1929.

Government Policy and Its Impact on the Economy

Unlike the 1930s, When Hoover's Policies Worsened the Crisis, the Current Government Actively Supports the Economy

Sorkin contrasts the government's approach to economic crises in the 1930s with current policies. While Hoover's policies may have exacerbated the Great Depression, today's government actions appear to actively support and stimulate the economy.

Debate On Long-Term Sustainability and Potential Imbalances of Policies

Palihapitiya raises a point about the potential constraints of fear in government policy, which inhibits positive action, thereby initiating a debate on the long-term sustainability and potential imbalances brought ...

Andrew Ross Sorkin and Chamath Palihapitiya offer insights into the origins and evolution of the Glass-Steagall Act, as well as the challenges in balancing regulation with innovation and market forces in the financial sector.

Evolution of Glass-Steagall Act and Its Purpose

Glass-Steagall Act Driven by Financial Interests, Not Consumer Protection

The conversation delves into the historical context and the real intentions behind the Glass-Steagall Act. Chamath Palihapitiya suggests that the Act, which dates back to the late 1930s or 1940, was driven by financial interests rather than consumer protection. Sorkin cites the accredited investor rule as an example, which was created to protect the "little guy" from losing money in private company investments, yet indirectly it limited investment opportunities to wealthy individuals.

Separation of Commercial and Investment Banking Aimed to Undermine Dominant Players, Not Prevent Crises

Discussing the Glass-Steagall Act's impact on the structure of banking, Palihapitiya argues that the separation of commercial and investment banking was intended to curb the dominance of large financial institutions like JP Morgan rather than to prevent financial crises outright.

Challenges Of Balancing Regulation, Innovation, and Market Forces

Regulation Can Reduce Financial Risks, but too Much Can Hinder Innovation and Cause Unintended Effects

Palihapitiya and Sorkin discuss the challenge regulators face in managing financial risks without stifling innovation. They point out that while regulation can m ...