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- [00:03]
A
Bloomberg Audio Studios Podcasts, Radio news, Carol Massar along with Tim Stanvick live in our Bloomberg Interactive Broker studio. We all just listened to Jamie Dimon on Bloomberg. JP Morgan, by the way, featured very prominently in a new book out on the 1929 market crash. And this feels like kind of the right conversation to be having at this moment in time when certain investing narratives dominate US Financial markets, AI, private credit, transparency concerns, crypto, prediction markets and more questions about whether these narratives are the right ones that lead to longer term gains and prosperity for investors and for the country. There's a lot of questions out there.
- [00:40]
B
Yeah. Stuff about exuberance as well. Could it lead to a crisis or to a crash? It does lead us to 1929, a book that takes us inside the greatest crash in Wall street history and how it shattered a nation. The book by New York Times bestselling author of Too Big to Fail, who also happens to be an award winning journalist for the New York Times. He's the founder and editor at large of Dealbook. He's co anchor of Squawk Box on cnbc. Andrew Ross Sorkin joins us now. Welcome.
- [01:05]
C
Thanks for having me, guys.
- [01:06]
B
Yeah, thanks for joining me here. You know, it's funny, Jamie Dimon was asked about just now by David Rubenstein about the financial crisis and about whether or not we could have another big financial crisis. Our question for you is in this day and age, could we have another 1929, like stock market crash or is the structure just completely different? Are the protections now in place? Could it happen again?
- [01:29]
C
So yes and no. I can explain why. No. And then if you'd like, I can get you there. If you want to get, if you want to go there. Look, the good news is the world is very different today from a technology perspective. One of the reasons that 1929 ever even happened was literally the stock exchange was oftentimes off, meaning the numbers that you saw on the big board were three, four, five hours behind the actual numbers. And as a result, people were just selling indiscriminately because they just thought the whole thing didn't even work. I mean, one of the reasons you always see those famous pictures of people down the New York Stock Exchange, 1929, the reason they're there, the reason they're all in the street is these are people who've come from all over New York and the rest of the country to try to find out like what's happened to their money. So that piece of it you take off the table because you can get the numbers Right here and off of your terminal and everything else.
- [02:20]
A
Right.
- [02:21]
C
There's an sec. Insider trading is not legal. It was legal then, so that all the manipulation that was taking place, there was no fdic. So you had bank runs that took place in the aftermath of this crisis. You know, we could talk about Glass, Steagall and what that either represented or didn't, or whether you think it's come back or not. But here's a bigger one. Capital requirements for banks, there were none, zero back then. So there's a lot of reasons you'd like to believe that we can't have another crisis of the magnitude we did. And by the way, it's also worth noting, the crash in 1929 wasn't preordained. That when that happened, that we had to have the Great Depression. That was really the first domino of a series of dominoes and then a series of frankly terrible policy choices. The Federal Reserve basically doing nothing. The implementation of tariffs. We can discuss what that means today. You know, there was a gold standard, so there was a question about how much money you could throw into the system. Austerity, all of that that worked against things that led to 25% unemployment. Didn't have to happen, if you will.
- [03:29]
A
I have to say that was one of the things in reading your book that I was like, wait, I think there was just an assumption that it was the market crash that caused the Great Depression.
- [03:35]
C
Oh, yeah. Everybody thinks it's like, there's one bad day and then somehow there's a Great Depression. But there's so much in between.
- [03:41]
A
You know, listen, so many people on your book tours, like, Everybody's like, Can 1929 happen again? And I do wonder, is there a better, smarter question that we be asking you, having done all this research and taken us back there, making us feel like we were in the room when it happened, you know, that we should.
- [03:57]
C
Be asking you, well, look, it didn't.
- [03:59]
A
Happen rather than can 1929.
- [04:01]
C
But I'll tell you, I'll give you actually how you could get to 1932 today. And that sort of maybe speaks to this. So one of the lessons that came out of 1929 was actually the lesson that Ben Bernanke learned when he was doing his great. His thesis on the Great Depression at Princeton is when there's a crash or a crisis or a panic, the playbook is to throw money at the problem. Maybe politically unpopular, but that is the lesson. And he did it in 2008. And by the way, we did it again during the pandemic And I think we now think that there is a playbook. And by the way, there's also therefore a put on the market because we now have. We have the playbook. The one thing that's different this time is if you genuinely believe every financial crisis to some degree, is a function of debt. Too much debt in the system. So far, we're all talking about corporate debt. Really. Back then there was, in 1929, there was a budget surplus in America. Now we have $38 trillion. The question is, let's say we have a crash and the government says, you know, we're going to write a check for $5 trillion. That's the put. And whether you believe that there is some kind of invisible line that turns into a red line for the bond market where they say, you know what? We like you guys in America, we're happy to lend you money at three or four times the rate that we do today. And that's the interest rate you're going to pay. And then all of a sudden, you actually do get into some kind of austerity spiral, and then you're living at a 25% unemployment rate in the country. That's. I mean, when you really sort of try to get through the permutations, how do you get there in this day and age? That's one way. The one other thing that's interesting today is the technology, as bad as it was then, in some cases, could even be too good today. And I think we learned that with the Silicon Valley bank failure, where someone goes on Twitter and says, I'm pulling my account now. That information is accurate.
- [05:52]
B
Everybody does it over the weekend on their phone.
- [05:54]
C
Everybody does it. I used to think, oh, this device is so great, because if there was a bad piece of information, it could be corrected very quickly. But if there's an accurate piece of information that's not good.
- [06:05]
A
Right. People act on it quickly.
- [06:07]
B
Well, so, so let's talk more about the technology today and sort of parallels and the idea of maybe irrational exuberance and signs of irrational exuberance. Right now, in reading the book in the 1920s, there was certainly a lot of that, but it seemed like it was, you know, more on credit and people buying on margin nowadays. There's the idea of crypto. Some of that has been kind of pulled back. And in just a couple of months actually, since you, since you published the book, we've seen some.
- [06:31]
C
There is a lot of debt in the crypto market. I mean, shocking leverage.
- [06:35]
B
So there's, there's that side of thing, there's prediction markets and sort of the money that's going into those, the excitement around those private credit and concerns about private credit that we've seen in the last couple of months. Any signs of anything there?
- [06:48]
C
Look, the private credit business has always concerned me because of the transparency of it or frankly lack of transparency. I think if you were to talk to Jay Powell, he would tell you that, you know, even the Federal Reserve doesn't have a full grasp of, of how interlinked all of the debt and credit is in the private credit market. Having said that, depending on what numbers you're looking at, you could argue it's only $2 trillion. $2 trillion is a lot of money, but it's not, it's not the entire market.
- [07:13]
A
And so systemic.
- [07:14]
C
So I don't know if it's. I don't know if it's systemic. By the way, I might worry more today about short term treasuries. I mean, by the way, we, the United States have been trying to sell short term treasuries like crazy because we think that we can get a cheaper rate that way.
- [07:29]
A
Right.
- [07:29]
C
That's also a much more complicated place to be if in fact you actually have to pay it back more quickly.
- [07:36]
A
One of the questions we were kicking around when we're thinking about having our discussion with you is is Wall street greedier today?
- [07:44]
C
I don't know if it's greedy today, frankly. I would argue. Agree.
- [07:46]
A
Look, I think is greed bad necessarily?
- [07:49]
C
I think the lesson for me of writing this book in some ways was that they didn't use the phrase back then, but this idea of fomo.
- [07:56]
A
Yeah.
- [07:57]
C
Which by the way is driven in part by this phone and TikTok and people seeing all sorts of things. And by the way, I think makes inequality actually. I don't know if it makes it worse, but the perception of it and just the visibility of it.
- [08:08]
A
Right.
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C
But I do think the sort of fomo, greed, envy, I think that's what's driven. That is what's driven people for, you know, the test of time. And that's what it is. Is it worse today than it was before? I don't know. Except, and maybe this gets to the inequality piece. I think there are more people who think that they are effectively unable to actually make it and therefore more willing to take risk and more willing to sort of try to grab this lottery ticket as opposed to sort of make it over time slowly.
- [08:40]
B
So, so on that the ultra wealthy today versus the ultra wealthy back then and reading the book, there's a lot of, you know, people have their yachts and in some cases actually sailing to, to work in lower Manhattan on the yacht.
- [08:53]
C
Absolutely.
- [08:54]
B
Today, the wealthiest people today, how much different are their lives versus the ultra wealthy back then? And not with the technology, but I mean, what they were able to do versus what the normal person is able to do. I mean, you have, you know, billionaires going to space now.
- [09:08]
C
I think there's a. There is a distinction. But look, I think you go back and I think of J.P. morgan's son, he was building the biggest, the biggest yacht at the time. People would have thought that's like, you know, the Gates or Bezos yacht, whatever yacht you're thinking of. I think that there was a distinction. But I remember having an interesting conversation, oddly enough, to drop a name with President Obama, interesting, maybe 2015, about the idea that. And I think this is true in the 20s, but really true, even just 25 years ago, I think CEOs, people of means, were oftentimes living in the same neighborhoods with the people who worked on the factory floor of their companies. And as a result, their kids went to the same schools and they went to the same temples and churches and ran into each other at the same restaurants and markets. And I think that there's a cohesion there that's important for our culture. And I think that increasingly that has come apart.
- [10:12]
A
We are talking with Andrew Ross Sork in The book is 1929 Inside the Greatest Crash in Wall Street History and How It Shattered a Nation. You know, politics got in the way of regulating banks and markets back then. And I think it was kind of fascinating to see some of that. Is there a parallel to that today? When you look at the activities Andrew coming out of the White House on things like cryptocurrencies, regulatory oversight, like. I just wonder how you see that.
- [10:38]
C
Well, I'll give you actually a parallel that may seem not like a parallel, but to me is, which is we're all talking about right now the politicization, potentially and independence of the Federal Reserve. I actually remember as I was working on this book, looking at the diaries of a lot of the people who worked at the Federal Reserve on the board, and it was still such a new institution born in 1913, that they were concerned about the political implications of either raising or lowering interest rates at any given moment. They actually cared about the politics. Now, it wasn't that Hoover was telling them exactly what to do, but they were so scared, not that they were just going to get hauled up in front of Congress for making the wrong choice, but that the entire thing, which people still called back then, the experiment at that point, that Congress could effectively disband this very idea. And, and so I raise that only because it's clear to me that actually the independence of the Fed matters. In fact, one of the reasons I think, that they didn't act more forcefully in 1929 and in 1930 and after that was in part because there was their own concern about the politics. Putting aside whether the White House was telling them one thing to do or the other.
- [11:44]
A
Do we have that today?
- [11:47]
C
I think less so, or at least up until recently, less so. I think that maybe in the same way that clearly those governors of the Fed back then were cognizant and nervous about the politics. I mean, I don't think this Fed thinks they're going to be disbanded, but I think that they're cognizant. They are very aware, very aware of what the President's saying, what their reputations are going to be like as a result, what people are saying about them, whether they have to do certain things to demonstrate their independence. I mean, that's the thing. The idea of demonstrating your independence effectively means you might even make a decision that might not be the decision you'd otherwise make, but you're doing it for your own. So, yes, I think that all of that is not healthy.
- [12:34]
B
Does the Fed keep that in a few months when Jay Powell was no longer Fed chair? And look, we can't see the future. We don't know who will be nominated.
- [12:41]
C
I have a view that is maybe contrarian on this, in this space, which is there's a board and there's a number of people on that board. I've never believed that the entire Fed is controlled by one human being. It just isn't. And so I think it's very important who is running it. I'm not telling you it isn't, but I, I do think there will be people on that board, those who care also about their own independence.
- [13:09]
A
Right.
- [13:10]
C
Who will, by the way, another reason I think Jay Powell may ultimately stay on that board for that reason.
- [13:15]
A
I love that you went there, because I can. We're hearing that a lot because we keep waiting. We're going to, we expect to hear an announcement. It just keeps getting pushed off. And I just think there's.
- [13:23]
C
I love that, by the way. It's not that I think that Jay Powell is going to be in this role for forever. They're going to let him stay? No, but just that, you know, he can Stay for another two years after this.
- [13:31]
A
Yeah, yeah, on the board.
- [13:32]
C
On the board. And I think it is more likely that he will stay. And in fact, to the extent that this, the president would somehow like to use that spot for somebody that he'd like to nominate, I would argue this whole thing has backfired. In fact, I was talking to Harvey Schwartz at the New York Economic Club yesterday from Carlisle, and he made the point most people, most taxi drivers, people on the street didn't care about the idea of Fed independence at all. A week ago, they didn't even. I mean, this has been an academic conversation for the most part. Now it's like a thing. And people, constituents across the country all of a sudden care about this issue. They may start to call their Congress. And it's very interesting what's happening.
- [14:14]
B
Yeah, I was actually, I've shared this story before, but I was with a friend Sunday night who, he follows the news, but he's not in financial news or anything. And he picks up his phone, he's like, have you seen this video from Jay Powell? I was like, why are you. Why do you care about Jay Powell? And that's how big of a deal it was over the weekend.
- [14:28]
C
And so to me, that's why in some ways, I think Harvey Schwartz is probably right. The idea of Fed independence may have actually become more important and potentially even stronger, at least in the short term.
- [14:41]
A
Hey, I want to ask you about the process. I remember reading Too Big to Fail. Loved it and you know, reported through it and was able to, I think, like, you talk to some of the people who were in the room when it all happened. I remember talking to John Mack on a panel, of course, of formerly of Morgan Stanley and getting that actual physical check from Mitsubishi. It felt like, it felt like, excuse me, you were in the room, like the way I read it.
- [15:05]
C
Thank you.
- [15:06]
A
So tell me how you did that. What was the box of things that you got? And you're like, oh, my God.
- [15:11]
C
So unfortunately, all of these people were not alive.
- [15:13]
A
No. What Andrew, really?
- [15:16]
C
I spent about eight years really, you know, just combing through boxes and boxes of materials, some at libraries, some from families that were involved in this universities. I was able to convince, after a lot of knocking on doors, the Federal Reserve in New York to give me access to the board minutes. That was something that they haven't given out over the past hundred years. They, by the way, interesting. On their website today you can get, you know, last month's board minutes, you still can't get the 1929 board minutes. But that sort of became a treasure map for me. But a lot, you know, when you see two people talking to each other in a room, what's oftentimes happening is I'm finding a series of depositions, for example, where Charlie Mitchell, who's the main character of the book, ran National City, which becomes Citigroup. You know, he would be interviewed in the deposition or in a civil case. There were also criminal cases where they would ask him, you know, where were you when X happened? He said, well, I was walking down the street and I got to 65th street, and what did you say to so? And so? And I said such and such. And then they would interview his colleague and they'd say, well, you were standing on the corner. What did you say to him? And he would say, this is what I said. And then they'd interview his wife. And so all of those quotes are real. And then oftentimes I would go and try to find either the architecture plans or a photograph of the room so I could really try to put you in it. And I'd try to understand what the weather was that day and whether it was light out or not, all of these sort of little things. So that, again, if you're trying to, as a narrator, you can sort of feel like you're there, Right.
- [16:48]
B
Was there a time when you were in some sort of archive over the last 10 years doing this, where you got this sort of treasure trove of correspondence between two people and you were like, okay, this is. This is what I needed. This is the ticket. This is going to illuminate, you know, what it was.
- [17:03]
C
One of it was like. Or is it just so piecemeal? No, it was like it would either be raining like you're in the rainforest and it was fabulous, or just like the desert for months. And you'd, you know, because you'd go to these places looking for stuff, and then you'd go through all these boxes and there'd be nothing. And then you'd be so depressed, and then magically something would happen. I mean, I will say there was one moment for me still that I think was just like a true Aha. Which is. One of the main characters of the book is Carter Glass, of course, Glass Steagall. He was a senator in Virginia. And I think I had an impression going in today that Bill is often held up by Elizabeth Warren, other people, as this sort of pure effort to really break up the banks for all the right reasons. And I found a trove of correspondence that. That showed I think maybe for the first time that in fact, parts of that bill were actually written by another banker trying, frankly, to screw over JP Morgan. And you think to yourself about money in Washington and lobbying. And I thought, oh, the good old days, they didn't do things like that. And it's no different.
- [18:14]
A
Yeah, exactly.
- [18:16]
B
I want to talk about Evangeline Adams.
- [18:18]
C
Oh, I love Evangeline. I love Evangeline.
- [18:20]
B
She's the character that everybody wants to talk about. Well, we should explain who she is for people.
- [18:24]
C
Angeline Adams is an astrologer. She had an office up at Carnegie hall on 57th street, and every banker in town would go visit with her. She had a newsletter. I mean, I like to think DealBook is successful. She had a newsletter with 100,000 subscribers back then. People would go visit with her. They'd pay $50 an hour to sit with her. And they. She would ask her what's going on with the stock market, and she would tell them. They would go off and make their trades.
- [18:51]
B
And.
- [18:52]
C
And it was just. She's just an unbelievable character. To even believe that something like that existed and that serious people were, you know, really engaged with what she was saying and doing.
- [19:02]
B
It was almost like she was a confidant for some of these people, which was pretty surprising to me.
- [19:05]
C
I almost think of her as a psychiatrist, like a therapist for people back then.
- [19:10]
A
Yeah, yeah. I mean, just the similarity is like, I think about kind of the Wall street south that existed. Right. The folks in Florida, and we have that today and Palm Springs.
- [19:20]
C
I mean, when I learned that Mar A Lago happened to be owned by WHO, E.F. hutton, which was just such an indication of what was going on in America at that time. And by the way, E.F. hutton had also moved in, I don't know if you saw, to the Plaza Hotel, the famous Oak Room, which is a bar.
- [19:36]
A
Right.
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C
Where he, during Prohibition, had become a brokerage house.
- [19:42]
A
So do you feel like you have a better understanding of what would. Cause, like Jamie Dimon said, we may not get another great financial crisis, but there will be a problem.
- [19:51]
C
Right.
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A
Like, do you feel like. You know, I think because everybody keeps saying, could we get this again?
- [19:56]
C
Yeah.
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A
Like, is it likely? Or do you get a better indication of, like, what we should be watching out for in terms of what marks? Is it leveraging? Is it credit?
- [20:04]
C
It's always leverage. It's just. It's like one. It's like a one word answer. It's probably boring. Leverage is the match that lights the fire every single time. You could have all the bad actors you want on stage doing all the bad greedy things you could possibly imag. But there isn't the leverage piece. It's very hard to have a true systemic problem. You know, I was shocked to know that at the end of 1929, the stock market was only down 17%. And I actually think that was a head fake for a lot of politicians who were looking at the market and saying, oh, looks like things are better. But most people didn't appreciate that during the 50% downdraft that had happened prior to that. It wasn't just that equities had fallen. 50% is that people had taken out loans oftentimes 10 to 1, so they didn't just owe what the equity was that had fallen. They were getting margin calls saying, you gotta sell your house. And so it's that. And I think we saw that again in 2008 with the subprime crisis. And I mean, it repeats.
- [21:04]
A
Well, it's funny, you know, the Joe Kennedy thing about, like, when is it your shoeshine guy?
- [21:08]
C
Right.
- [21:08]
A
And I always think about before the GFC being on a yoga retreat in Mexico and everyone was talking about buying real estate. And I thought this is like. This is just weird. Like those little.
- [21:21]
C
Right.
- [21:21]
A
Snippets of things as an indicator that things are just exuberant, irrationally, perhaps. Is that fair?
- [21:28]
C
I think it's. I think, look, I think all of these are.
- [21:31]
A
With all the data that we have, right, to look at the market, all.
- [21:33]
C
Of these are red flags being thrown on the field. Yeah, but just because maybe I should say yellow flags being thrown on the field. And the question is, when do they turn red? And I think that's the hard part to know. You know, famously, here we are. Started the segment coming out of Jamie Dimon's interview. And in 2008, his daughter had come to him as this was all happening and said, dad, what's a financial crisis? And he said, it's something that happens every seven or eight years. And so I think the truth is, well, check your calendar. We might be due.
- [22:04]
B
We're speaking with Andrew Ross Sorkin, author of 1929 Inside the Greatest Crash in Wall Street History and How It Shattered a Nation. Does Herbert Hoover get a bad rap?
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C
So I have maybe more empathy for Herbert Hoover than others. It's not that I think he made the right decisions. In fact, he made a series of very poor decisions. It's just that I think, at least historically, the narrative that's been described about him is that he didn't even understand what was happening? I think he understood very well what was happening. I think he had some of the wrong people in his ear, including Andrew Mellon, who was his Treasury Secretary, who he had a terrible, unfortunately, relationship with early on. I think his decision on tariffs was completely misplaced. Why did he do that? He did that, by the way, for political reasons. Because in 1928, as he's running around the country desperate to get farmers to vote for him, he's pledging to them, vote for me. I'll help you.
- [23:01]
A
Wait, wait, wait. Are you talking about 20, 20, 20?
- [23:05]
C
And so. But when he hits, you know, and by the way, 1930 rolls around, every economist in America, all the bankers are saying, please don't do this, Mr. President. And he says, well, I have to do it because I pledged to these folks that I would. So you see these sort of repeat things. And it's not that he didn't know what he was doing. I think he just didn't understand it. He was also, unfortunately for him, a terrible, terrible communicator.
- [23:26]
A
Right.
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C
And I will say maybe this is true of all presidents. He had this view that he could somehow jawbone people into believing that things were better than they really were. And I think we're seeing that now, by the way, with Saudi in the last administration. That is a bipartisan tactic by the White House.
- [23:43]
A
What's your biggest takeaway from doing this? My understanding is you wanted to do this because people used to ask you, you know, 1929 versus 2008. But you tell me, what did you get out of doing this?
- [23:56]
C
I mean, selfishly, I felt like I now understood what actually happened. Just as a student of history, I actually just genuinely wanted to really get it. I wanted to know who the people were. I wanted to understand their incentives or what their motives were, why they were doing what they did. And I think ultimately the truth is that we are all human beings. Maybe it's fomo, maybe it's envy, maybe we all want more. And that's, for better or worse, what seems to drive people. And then the question is, when people get a little too confident, can you have the humility, effectively, to step back and realize that maybe that confidence could be misplaced?
- [24:34]
B
You write that the antidote to irrational exuberance is not regulation by itself nor skepticism, but humility. The humility to know that no system is foolproof, no market, fully rational, know, generation exempt. Do you see that humility out there today?
- [24:49]
C
I said it better in the book than I just said it now.
- [24:52]
B
And we have the full screen for it do.
- [24:53]
C
I see there's humility today. I see that humility among some. Look, I think, you know, we also talked about Warren Buffett, Jamie Dimon and David Rubenstein. We're talking about Warren Buffett. I think. I think Warren Buffett has a remarkable humility. And when it comes to sort of even his own confidence, he has humility about that. I think there are a number of business leaders and investors who absolutely do, and then there's a number of business leaders and operators and investors who clearly don't. And I think anybody who walks in the door and sits down at this table and can tell you exactly what. Or thinks they can tell you exactly what's going to happen, probably can't.