Andrew Ross Sorkin on Market Bubbles, Banking Rules, and the Real Lessons of 1929

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• The debate over the 1929 stock market prices centers on whether the high valuations were justified by the subsequent century of American growth, or if they were purely a bubble inflated by excessive leverage, with Andrew Ross Sorkin emphasizing the role of leverage in the crash's severity.  Copied to clipboard!
• The Federal Reserve in 1929 hesitated to raise interest rates aggressively to curb speculation due to fear of tipping the economy, a lesson Ben Bernanke later applied differently during the 2008 financial crisis.  Copied to clipboard!
• The structure of the 1933 Glass-Steagall Act was surprisingly influenced by internal banking rivalries (specifically the Rockefeller family/Chase against J.P. Morgan) rather than purely ideological separation of commercial and investment banking.  Copied to clipboard!

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1929 Bubble Justification Debate

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(00:01:12)

• Key Takeaway: While 1929 stock prices were inflated by leverage, long-term returns (30 years) suggest speculators were ultimately correct, though the short-to-medium term was disastrous.
• Summary: Tyler questions if 1929 prices were too low given America’s future, suggesting speculators were heroes. Andrew Ross Sorkin counters that while companies like RCA represented the future, the chasm between 1929 and the end of WWII was a long, tortured period. Buying at the 1929 peak still yielded a real return of about 6% by 1959, supporting the long-term optimist view.

Hoover’s Psychology vs. Policy

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(00:04:25)

• Key Takeaway: Herbert Hoover’s reputation is diminished partly because he relied too heavily on ‘jawboning’ the public about psychology while simultaneously enacting policy choices that worsened the Great Depression.
• Summary: Andrew expresses more empathy for Hoover but argues his policy choices hastened the Depression through a series of poor decisions. Hoover’s insistence that the downturn was purely psychological failed to persuade a public feeling the real economic pain. This mirrors recent political attempts to downplay high inflation despite public experience.

Leverage in 1929 and 2008

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(00:07:18)

• Key Takeaway: The 2008 crisis and the 1929 crash share a core mechanism: euphoria around new technologies or assets powered by excessive leverage (margin buying then, debt/subprime mortgages later) leading to forced liquidation.
• Summary: Andrew argues that high prices in both 1929 and 2008 were inflated by debt, not just long-term value expectations. In 1929, margin calls forced liquidation of stocks and often homes when prices fell 50%. Leverage plays a unique role in allowing prices to temporarily outrun reality, regardless of long-term accuracy.

Fed Policy and Depression Prevention

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(00:11:43)

• Key Takeaway: The Federal Reserve in 1929 avoided raising rates due to fear of political backlash and prior experience in 1920-21, failing to act decisively on the back end by staying on the gold standard.
• Summary: Fed board members were scarred by the 1920-21 rate hike and feared political ramifications, leading them to believe raising rates enough to stop speculation would automatically cause a recession. Tyler suggests that deposit insurance and quickly abandoning the gold standard would have mitigated the downturn significantly, lessons Ben Bernanke later applied in 2008.

Glass-Steagall Origins and Flaws

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(00:19:38)

• Key Takeaway: The Glass-Steagall Bill was significantly ‘corrupted’ during its drafting, with parts written by competitors (like the Rockefeller family/Chase) specifically to disadvantage J.P. Morgan.
• Summary: Andrew discovered archival evidence showing Carter Glass was not purely interested in breaking up banks but was influenced by rivals. Furthermore, the argument that Glass-Steagall prevented the 2008 crisis is flawed, as key early failures like Lehman and Bear Stearns were not commercial banks subject to the act.

Surprises of the Roaring Twenties

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(00:23:03)

• Key Takeaway: John Raskob, the ‘Elon Musk of his time’ who ran GM, secretly spent years undermining President Hoover’s reputation, contributing significantly to Hoover’s lasting negative historical image.
• Summary: Andrew was fascinated by the architecture boom in New York and the influence of John Raskob, who advocated for the five-day work week for economic reasons. Raskob also financed a secret campaign against Hoover starting in May 1929, which likely cemented Hoover’s poor reputation long after the crash.

Business Leaders: Then vs. Now

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(00:26:29)

• Key Takeaway: Modern and 1920s business leaders are shockingly similar in their core drivers (insecurity, FOMO, YOLO), though 1920s elites were far less ‘woke’ regarding race and gender.
• Summary: Andrew sees modern CEOs as driven by the same internal metrics of success as figures like Charlie Mitchell (Citigroup’s predecessor). Philanthropy in the 1920s was less established among the ’new money’ class, many of whom lost their fortunes before achieving the philanthropic scale of figures like Carnegie or Rockefeller.

Banking Consolidation and Shadow Lending

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(00:30:32)

• Key Takeaway: Andrew favors consolidating U.S. banks to resemble the Canadian system, which avoided bank failures in the Depression, but acknowledges this risks underserved communities.
• Summary: The biggest current worry is the explosion of private credit (shadow banking), which now accounts for 80% of lending, potentially creating systemic risks not covered by core bank regulations. Imposing more capital requirements on banks only pushes more activity into this less transparent shadow system.

Narrow Banks and Stablecoins

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(00:35:21)

• Key Takeaway: Requiring stablecoins to be backed by T-bills (narrow banking) is a safe first step but risks reducing overall credit availability in the system, highlighting the dilemma between safety and economic dynamism.
• Summary: The need for safe assets like T-bills for stablecoin backing competes with the need for those assets in the broader credit market. Andrew suggests standards will likely loosen over time as the market adjusts to the initial safety requirement. The New Deal banking regulation framework is seen as obsolete without a clear replacement.

Retail Access to Private Assets

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(00:37:29)

• Key Takeaway: The push to allow retail investors access to private equity and venture capital is inevitable because consumers demand access to ’lottery tickets,’ making disclosure laws less effective on the margin.
• Summary: Andrew compares this trend to the SPAC phenomenon, where paternalistic warnings about risk and fees were ignored by investors seeking high-upside plays. He argues that since people are allowed to gamble on sports, restricting access to complex financial instruments seems inconsistent, suggesting stronger social norms about risk are needed instead of more regulation.

Self-Regulation and Accountability

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(00:41:48)

• Key Takeaway: Unlike today’s culture of finger-pointing, victims of the 1929 crash, like Groucho Marx, often initially blamed themselves, indicating a higher degree of personal accountability existed then.
• Summary: Andrew believes humanity is poor at self-regulating, necessitating government safeguards like insured checking accounts (a public option). He notes that in 1929, people accepted financial risk as their own, contrasting sharply with the tendency to externalize blame in modern crises like 2008.

Central Bank Independence Context

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(00:44:09)

• Key Takeaway: The Federal Reserve has historically been sensitive to politics, but the current concern is less about presidential pressure and more about the potential for a lasting, politically motivated generational shift in economic policy via control of the Fed’s structure.
• Summary: The diaries of 1920s Fed members show they were always conscious of political implications when setting rates. While Andrew credits Bernanke and Paulson for making unpopular but necessary decisions in 2008, he worries about political majorities attempting to control the Fed’s composition. Ultimately, the massive national debt is the primary fiscal villain.

Personal Career and Future Plans

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(00:47:28)

• Key Takeaway: Andrew Ross Sorkin was admitted to the New York Times at age 18 due to naivete and the willingness of an editor who didn’t know his age to assign him work, and he plans to focus on family before his next book.
• Summary: His entry into journalism was driven by youthful ambition and a lack of awareness regarding professional barriers, leading to mentorship from Stuart Elliott. After finishing his book on 1929, he is obsessed with the tulip mania and has been mandated by his wife not to write another book until his children finish college.