Long read: Lessons from the Wall Street crash of 1929

This is a timely book as more and more paranoid voices bring up the comparison of the current market exuberance with the ‘Roaring 20s’ referring to the stock market boom of the 1920s, culminating in the crash in 1929 leading to the Great Depression. Andrew Ross Sorkin, a journalist with the New York Times, known for his tome – ‘Too Big to Fail’ on the 2008 global financial crisis, which was also made into a movie, has just published his latest book 1929: Inside the Greatest Crash in Wall Street History–and How It Shattered a Nation. Here’s the Economist reviewing it:

“The American stockmarket roared in the 1920s, rising by almost 500% from a low in 1921 to its high in 1929, puffed up by economic optimism and dangerous, debt-driven trading. In October that year, leveraged bets combusted; the market conflagration lasted for more than two and a half years. The Depression that followed endured until America entered the second world war. The Dow Jones Industrial Average, an index of stocks, would not return to its previous high until 1954.”

If big tech and its larger than life leaders have immense influence on policy making today, it was America’s bankers back then: “Mr Sorkin wisely tells this sprawling story in a focused way, reconstructing how crucial figures experienced the ructions almost hour by hour. He concentrates on Thomas Lamont, the acting head of J.P. Morgan, and Charles “Sunshine Charlie” Mitchell, head of the National City Bank (which eventually became Citibank). The men were not just financiers but giants of public life, with easy access to the most senior officials in Washington.

America’s banks had extended enormous loans to stockbroking firms, which in turn lent huge sums to new and exuberant investors, a chain of credit that came apart as stock prices went into freefall. A gaggle of banks, led by Lamont, burned through hundreds of millions of dollars buying stocks in the depths of the sell-off in a futile attempt to rescue the market.

In the face of mass unemployment, men like Lamont and Mitchell were maligned in the press and dragged in front of legislators to testify about their businesses and incomes. (Some money men even found themselves in court.) America’s financial system was duly reshaped: in 1933 the Glass-Steagall Act separated the activities of commercial and investment banks.”

In terms of other parallels between 1929 and 2025: “There are some concerning ones. By the end of the 1920s, consumer credit in the form of instalment finance—the precursor to today’s “buy now, pay later”—was rampant. Investing in stocks had changed from a game for a monied elite to a national pastime, spreading the pain to a far broader group. Many had accumulated margin debt to invest, and were left nursing not just losses but hefty loan repayments. The exposure of American households reached a record high this year, with margin debt rising to near-record levels relative to the size of the economy.”

But the review leaves us on a sanguine note: “The exuberance during the boom, the panic that drove the sell-off and the delusion of policymakers that followed will be familiar to observers of more recent crises. But the pattern of hubris, disaster and regret offers an important reminder that the darkest moments pass. Churchill’s verdict on the unfurling crisis remains a useful one almost a century later. “The English critic would do well to acquaint himself with the inherent probity and strength of the American speculative machine,” he wrote as the market plunged. “It is not built to prevent crises, but to survive them.””