1929 by Andrew Ross Sorkin

One of the best nonfiction books I’ve read is Too Big to Fail, a moment-by-moment reconstruction of the 2008 financial crisis by New York Times reporter Andrew Ross Sorkin. I was also a journalist during those frenetic days and was frankly envious of Sorkin’s extraordinary access to key figures that gave him a fly-on-the-wall view of how the U.S. economy nearly collapsed.

I therefore had pretty high expectations for 1929: Inside the Greatest Crash in Wall Street History – And How It Shattered a Nation, even though the “greatest crash” phrasing in the subtitle struck me as clunky and I’m surprised it got past a copy editor. While this book lacks the zip of Too Big to Fail, it still features Sorkin’s engaging narrative style and talent for making complex information accessible.

The 1929 crash and subsequent Great Depression were pivotal events of the 20th century, yet as I picked up this book, I realized that I didn’t know much about who or what caused the catastrophe. It turns out that much like the 2008 crisis, you can point fingers in many different directions.

One key takeaway is that the crash was years in the making, a result of both out-of-control speculation and lax regulation. The New York Stock Exchange was rife with self-dealing and the country's banking system was weak, fragmented and undercapitalized. Meanwhile, the Federal Reserve – just 15 years old in 1929 – was ill-equipped to deal with a credit-fueled bubble.

Up until the 1920s, Sorkin writes, Wall Street’s opacity and a series of prior crashes had scared off most Americans, even the very rich, from the stock market. But all was forgotten when credit started flowing freely in the 1920s. An investor could buy a $100 blue chip stock by putting up as little as $10 of their own money and then borrowing the rest. Even with high interest rates, investors buying on margin could earn huge profits as stocks soared. Of course, this system only worked if everyone kept believing in the market’s inexorable rise.

Sorkin has a journalist’s eye for vivid detail, especially in his descriptions of the wild days of the 1920s in New York. He writes about an astrologer who made a fortune by advising people how to pick stocks based on the zodiac. Her clients included a roster of the rich and famous, from Charlie Chaplin to, astoundingly, the millionaire financier J. Pierpont Morgan. He describes the omnipresent ticker tapes found in hotel lobbies and wealthy people’s homes that allowed speculators of all stripes – from titans of industry to their scullery maids – to follow the market breathlessly.

The book has a huge cast of characters, and it can be hard to keep track of who's who. One of the central figures is Charles “Mr. Sunshine” Mitchell, the president of National City Bank, the forerunner of Citigroup. More than perhaps anyone, Mitchell fueled the stock craze by helping popularize risky financing among ordinary Americans. While he tried to stabilize the markets ahead of the October 1929 crash and ultimately lost most of his fortune, he was immediately blamed for the debacle. Mitchell was prosecuted in the 1930s, ostensibly for income‑tax evasion but more likely as part of a public reckoning over Wall Street’s excesses. He was ultimately acquitted.

Herbert Hoover, who was president during the crash, comes across a little better than I would have expected. When he became president, he was deeply distrustful of Wall Street and wanted to rein it in, though he got nowhere and gave up. Perhaps his biggest blunder was choosing the term “depression” for the economic collapse, seeking to avoid using what he considered a much scarier label: panic. But this was a huge mistake, as panics typically are fleeting, whereas a depression can go on and on. This rebranding arguably helped exacerbate the national malaise even as, by some measures, the country was starting to recover in the early 1930s.

To sum up the story of 1929, Sorkin quotes Ernest Hemingway’s famous line from The Sun Also Rises. When asked “How did you go bankrupt?” the caddish Mike replies, “Two ways. Gradually, then suddenly.” As Sorkin shows throughout this book, the stock market bubble burst exactly in this fashion – little by little, and then with a giant pop.

I learned quite a bit from reading this book and I recommend it to anyone who would like to better understand how the calamity of 1929 unfolded. And with every generation of investors convinced that this time is different, it provides a sober reminder of the perils of ignoring the lessons of the past.