Review of 1929: Inside the Greatest Crash in Wall Street History–and How It Shattered a Nation by Andrew Ross Sorkin Rating **** 1/2
While there is a lot to praise about this book, I do feel that there were some things that should have been included but were not, which I’ll save for the end of this review. The one thing that stood out to me after reading this book was the amount of concentrated wealth in such a small group of individuals. Who knew that there were companies handing out hundred-thousand-dollar bonuses in the 1920s? There was so much extravagant spending – mansions, multiple estates, yachts, butlers, maids, drivers, etc. A lot of that wealth came from self-dealing. The Wallstreet insiders would issue stocks at say $35 a share. They would then sell those shares among themselves and to friends at that price before offering the shares to the public for $45 a share or higher. It was instant profit.
So, what caused the crash? Author Andrew Sorkin rightly points out that it wasn’t one event, headline, or national calamity, it was the result of banks, and to some extent the U.S. Government, allowing stock buying on margin – meaning everyday consumers purchasing stock with mostly borrowed funds. That unregulated system pumped stocks to irrational heights. When the price of stocks started to fall, those same consumers were unable to cover the losses. That led to a domino effect where banks started to fail, followed by a run on the banks, which caused even more banks to fail and people losing what little money they had.
The book focuses on a handful of people who played a role in setting the stage for the crash including Wallstreet insiders, bankers, and government officials. There were warning signs before the crash. There were those who pushed for regulations that would have softened the blow, but the Wallstreet insiders won the day.
The crash was sudden. It started on October 24, 1929. By mid-November the DOW had dropped nearly 50%. By July 1932 the stock market had fallen 89% from its peak. Hoover, who was president at the time, tried to calm public fears by calling the downturn a “depression,” a term he preferred over the more alarming word “panic. A term the author called the worse branding in history.
While there were a few suicides in the aftermath of the crash, the author correctly notes that the popular image of financiers leaping from windows is mostly myth; in fact, suicide rates actually declined during this period. As for the individuals highlighted in the book — those who lived with unlimited wealth and profligate spending — many ended up burdened with debts they could never repay. Even Jesse Livermore, the legendary trader who reportedly made about $100 million by short‑selling the 1929 crash, ultimately lost most of his fortune through a series of disastrous investments and personal turmoil.
The author makes no effort to draw comparisons to today or to prior market downfalls. That was a missed opportunity, especially considering that we are currently in an environment with a long stretch without a significant downturn, and as Fed Chair Alan Greenspan once said, we are in a period of irrational exuberance, especially considering all things AI.
Can a similar crash happen today? The answer is yes, but the long-term effects will not be as dramatic. There are regulations in place to prevent an economic disaster. The stock market has built in triggers that will halt trading when trading levels reach a certain point. Banks and investment firms are no longer the same entity, and depositors have most of their money insured, which prevents bank runs. Additionally, a large percentage of people investing in the stock market do so through their employer’s 401K plans, which means that as soon as the stock market falls more money will be pumped back into stocks the next paycheck and the one after that.
But even with the safeguards now in place, there is one simple math problem that the author failed to mention. Let’s say you have a stock that sells for $100 a share. Let’s say that that stock suddenly falls by 50%, so the stock is now worth only $50. While it’s true that those 401K funds will start flowing back into the market, it will take a lot longer for that stock to recover. Even if that $100 stock has a dramatic comeback gaining say 50% back in a year – the stock is only worth $75 at that point. It needs to go up 100% just to regain its previous high.
The book covers a period of roughly four years from 1929 through 1933. There is no mention of another impending doom during this period, which was the dust bowl – a calamity brought on by persistent drought and over farming that was only exacerbated by the 1929 crash.