The views presented here do not necessarily represent those of Advisor Perspectives.
Marine architects do not design ships for clear skies and calm seas. In the same vein, prudent investors design their portfolios — and the broader aspects of their financial life as well — to endure the worst of times. The magic of return compounding does the investor little good if their portfolio doesn’t survive capitalism’s inevitable hurricanes.
It thus pays to know what financial storms — and especially their underlying meteorology — look like. This reviewer has not come across a volume that accomplishes this as well — and as entertainingly — as Andrew Ross Sorkin’s 1929: Inside the Greatest Crash in Wall Street History — and How It Shattered a Nation.
Financial history buffs will inevitably compare Sorkin’s book with John Kenneth Galbraith’s The Great Crash 1929. The two books differ in many ways, not least because Sorkin’s doorstop, nearly three times the size of Galbraith’s slim volume, is far more comprehensive.
Despite the book’s heft, many will put it down only to eat, to sleep, and to avoid driving their spouse towards divorce. If one is to give Galbraith the upper hand, it’s only because almost no one — not even Sorkin — possesses the late Harvard professor’s gift for memorable dictums and turns of phrase, most famously “the bezzle,” the imaginary psychic wealth that accumulates during bubbles and vanishes when they burst.
Nonetheless, Sorkin manages some passages worth remembering: I’ve not seen a more vivid and concise description of investing’s intertemporal nature, which “draws the wealth of tomorrow into the present,” or of 1929’s—and today’s—speculative atmosphere, in which “propelled along by a culture of hot-tips, one-of-a-kind deals, killer sales pitches and irresistible slogans, people lose their ability to calculate risk and distinguish between good ideas and bad ones.” Perhaps I can interest you in a moat or a singularity?
The book’s aforementioned heft derives primarily from its lengthy biographical and anecdotal detours — for example, an eight-page chapter detailing Winston Churchill’s 1929 journey through Canada and the U.S., replete with descriptions of the various sleeping carriages that conveyed him across the continent. Was this detour required for an understanding of that year’s titanic financial events? Of course not, and I suspect that most editors would have left this chapter, along with half the book’s word count, on the cutting room floor. Did this digression enhance its readability? Absolutely.
Similar humorous anecdotes are woven into the text frequently. When informed by Charlie Chaplin at the Hearst castle that his next role was Jesus Christ, Churchill did not miss a beat: “Have you cleared the rights?” Then there’s Calvin Coolidge’s advice to Herbert Hoover on handling supplicants: “If you keep dead still, they will run down in three or four minutes. If you even cough or smile, they will start up all over again.” The book’s narrative-heavy/theory-light structure is no accident; Sorkin credits A Night to Remember, Walter Lord’s rendition of the Titanic sinking, as his inspiration. Nonfiction writers, take note.
And, indeed, the 1929 crash blessed Sorkin with no end of colorful characters: “Sunshine Charley” Mitchell, the hyperactive president of National City Bank; Thomas Lamont, the Morgan Bank’s aristocratic, consummate power broker; William Durant, former GM president and stock manipulator extraordinaire; and Carter Glass, the fire-breathing Virginia senator and arch enemy of the banking industry, to name but a few.
So much for color. The book does fall seriously short on many substantive issues. Among many lacunae, the book divides approximately in half between the crash itself and the Depression: So how exactly did the one lead to the other?
A Glaring Disconnection
Sorkin, by seamlessly dovetailing the two events, leads the casual reader to believe that there was such a link, but he does not identify it. Depressions, and sometimes even significant recessions, do not inevitably follow market crashes, as failed to occur after the bursting of the dot-com bubble in 2000–2002, which saw a greater market fall than in 1929. A good argument can be made, in fact, that the 1929 Crash, which was due to popular mania magnified by extreme leverage among the less than 10% of the adult population that owned equities (as opposed to more than half in the dot-com era), was unconnected to the Depression. During that period, about a third of banks failed, with tens of millions losing their deposits, which served to further terrify those who had not.
Remarkably, Sorkin doesn’t mention Friedman and Schwartz’s seminal work on the failure of monetary policy or Eichengreen’s on the damage wrought by the gold standard. Additionally, the book contains not a breath of the role played by the nested electrical utility trusts — in businessman Samuel Insull’s case up to eight layers deep — a house of cards that constituted nearly a quarter of the 1929 market cap, several times larger than the publicly traded banks such as Mitchell’s.
Today’s readers also certainly will want to know what Sorkin thinks of the similarities between 1929’s rampant stock speculation and today’s mania for AI, crypto, and venture capital excesses. Save for part of a single sentence at the end of the Prologue, they will be disappointed.
Finally, Sorkin deftly describes the depth of public hatred against 1929’s dramatis personae, as embodied by Mitchell, whose rogue National City Bank pawned worthless securities on its depositors, often without permission, and who fired employees who could not keep up the subscription payments on their employer’s under-water shares. (No less than the wife of the Federal Reserve chair opined that “If the general public realized the ignorance, smallness, futility, and greed of the average New York banker, I think they would certainly hang a few of them, starting with Charlie Mitchell.”)
Sorkin generously credits Michael Perino’s superb The Hellhound of Wall Street, which chronicled how one man — the senate Banking committee’s counsel, Ferdinand Pecora, the night-school law graduate from an impoverished Italian family, took down the mighty Mitchell during the committee’s hearings.
Which leaves another question hanging for today’s readers: If and when the current speculative manias collapse, who, among today’s speculative rogue’s gallery, will get scapegoated, who will do the scapegoating, and, most importantly, who will play them on Netflix?
Déjà vu All Over Again
All of these are excusable omissions: Teaching the broadest possible audience in the age of the defined contribution “pensions” about the storms that inevitably can toss about their retirement vessels is an admirable goal. In 1929, “By encouraging speculation and promising outsized returns to a new class of investors who had never before participated in markets they barely understood, the titans of Wall Street helped magnify the damage when the collapse finally came.”
Will it happen again? Absolutely: “No matter how many warnings are issued or how many laws are written, people will find new ways to believe that the good times can last forever. They will dress up hope as certainty. And in that collective fever, humanity will again and again lose its head.”
Sorkin’s eminently readable volume supplies that hard and sharp warning with a velvet narrative hand; a wonkier volume would not have been fit for purpose. Just as speculation draws the wealth of the future into the present, investment is an operation that conveys consumption in the opposite direction. 1929 should be read by anyone who wants to sail that ship of consumption across seas that can turn deadly in a heartbeat.
William J. Bernstein is a neurologist, the co-founder of Efficient Frontier Advisors, an investment management firm, and a writer with several titles on finance and economic history. He has contributed to the peer-reviewed finance literature and has written for several national publications, including Money Magazine and The Wall Street Journal. He has produced several finance titles, and four volumes of history, The Birth of Plenty, A Splendid Exchange, Masters of the Word, and The Delusions of Crowds about, respectively, the economic growth inflection of the early 19th century, the history of world trade, the effects of access to technology on human relations and politics, and financial and religious mass manias. He was also the 2017 winner of the James R. Vertin Award from the CFA Institute.
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The views presented here do not necessarily represent those of Advisor Perspectives.
