Solutions with Henry Blodget

Episode: Lessons from the Crash of 1929 for the AI Bubble
Date: January 5, 2026
Guests: Andrew Ross Sorkin (journalist & author)

Episode Overview

In this episode, Henry Blodget sits down with Andrew Ross Sorkin, acclaimed financial journalist and author of the bestseller "1929", to explore what the crash of 1929 can teach us about potential bubbles today—especially the burgeoning AI sector. They discuss the psychology of bubbles, the mechanics of financial crises, the role of policy responses, patterns that repeat throughout history, and what investors, companies, and regulators should heed to avoid catastrophic outcomes.

Key Discussion Points & Insights

Why People Are Interested in 1929 Again

• Parallels to Today:
  Sorkin notes the resurgence of interest in 1929 comes from anxieties around current economic conditions and the AI boom, as well as political and financial similarities like tariffs and debt.

  “I think there's a lot of concern about the parallels of what's happened in 29...” (02:41 — Sorkin)

• The Appeal of Bubbles:
  Blodget and Sorkin agree that periods of economic exuberance repeat and fascinate because “it looks like the 1920s again,” recalling both the dot-com era and today’s AI excitement.

Are We in Another Bubble?

• Where Are We Now?
  Sorkin suggests we could be somewhere like “1996 or 7 or 1998,” not at the end stage yet, but with significant risk ahead.

  “I think we are more maybe in 1996 or 7 or 1998 or something like that. And could we have a real pullback in the market, a massive correction? I think we could.” (04:22 — Sorkin)

• Policy Lessons:
  The main lesson from 1929 is the importance of aggressive policy response:

  “...you have to throw money at the problem. Typically, I mean, the Federal Reserve, US Government throws money at the problem.” (05:33 — Sorkin)
  But with today’s $40 trillion of debt, “is there some kind of red line” where policy can’t save us? (05:56 — Sorkin)

The Human Side: FOMO and Speculation

• Fear of Missing Out (FOMO):
  The “pain of daily missing out” drives irrational behavior. Blodget recalls a line from Sorkin’s book:

  “One of the most discombobulate things that can happen is having to watch your neighbor get rich.” (09:37 — Blodget)
  Sorkin elaborates:
  “I don't think they called it fomo, but that's what it was… when you see your neighbor doing well, especially in a day and age of inequality... one of the only ways out or to have that success may be the lottery ticket.” (10:23 — Sorkin)

• Speculation, Leverage, and Margin:
  In 1929, most investors bought stocks on 10:1 margin—a recipe for disaster when things turn.

  “Most ordinary investors for the first time have bought this stock on margin... a 10 to 1 scenario.” (12:34 — Sorkin)

Crash Mechanics & Policy Mistakes

• How Bad Was It?
  The market from peak (1929) to trough (1932) dropped 89%.

  “Stock market dropped 89% from peak to trough. So a dollar was suddenly worth 10 cents...” (14:18 — Blodget)

• Policy Blunders:
  Errors included raising taxes, introducing tariffs (Smoot-Hawley), and enforcing austerity just as the economy needed support.

  “Hoover’s decision to implement the Smoot hawley tariffs in 1930 ...every economist and banker in America... [said] this was going to be a giant mistake.” (26:11 — Sorkin)

  Sorkin also notes efforts to snuff out speculation often foundered on political and technical challenges—nobody wanted to “pull the plug on the bath when it’s filling up.” (18:04 — Blodget)

False Comforts and Hindsight

• Bubble Narratives:
  There are always “two kinds of people”: those who think “this time is different” and those who plan to get out in time—but most fail (19:44 — Blodget).

• Visibility of Risk:
  Even when everyone “knew” it was a bubble, timing the top is near impossible:

  “...it's very hard for the most part for almost any of these people to time it properly.” (09:01 — Sorkin)

Today’s Risks: Leverage, Shadow Credit, and Data Centers

• Where Is the Risk Now?
  Leverage is now hidden in private markets—private credit, real estate powering data centers—outside clear regulatory scrutiny:

  “...so much of the data center AI ecosystem is [no longer] transparent... there is a lot of leverage in the system.” (33:54 — Sorkin)

• New vs Old Infrastructure:
  Data centers degrade quickly, unlike the longer-lasting railroad/fiber buildouts in previous booms.

  “...it's not clear to me that data centers are like train tracks... once you put the tracks down ... the version of that that's happening today... it's [data centers] going to be old pretty quick.” (32:26 — Sorkin)

Regulation and Transparency

• Regulatory Blind Spots:
  With so much capital now in opaque corners, neither markets nor regulators fully know where risks and leverage are concentrated.

  “I don't think today ... Jay Powell ... would say he knows [where all leverage is].” (33:54 — Sorkin)

• Sunlight and Disclosure:
  The best solution is increasing transparency (“sunlight is critical always”).

  “If you could get a little sun on that, that could be a bit of a disinfectant.” (35:54 — Sorkin)

Are Booms and Busts Preventable?

• Cyclical Human Nature:
  Sorkin and Blodget agree: cycles of exuberance and crash are inherent to capitalism and human nature.

  “I think invariably we won't [stop them]. I think we will always have periods of excess, periods of indiscriminate spending that's powered in large part by debt.” (38:34 — Sorkin)

Investor, Company, and Policy Advice

• Diversification Not Enough:
  Sorkin is skeptical of “diversification” as a panacea but suggests prudence and taking some profits/cash off the table:

  “Maybe I should have a little bit of cash on the sideline because I know I may need it in the next couple years...” (44:26 — Sorkin)

• For Companies:
  Avoid betting the entire business; you don’t want to “bet most of the company on it so that if it doesn’t totally work, there’s still a shot” (46:42 — Sorkin).

• For Policymakers:
  Don’t take the guardrails off in the name of innovation or democratization; focus on aligning incentives and maintaining disclosure, especially as new, less-liquid financial products proliferate (47:03–47:48).

• On IPOs and Public Markets:
  More companies should go public sooner, with robust disclosure but reasonable hurdles.

  “I think you want more companies to be public rather than less.... I’m not against them being public early, again though, as long as all the disclosures are there.” (49:42 — Sorkin)

What Will Be the Next Scapegoat?

• If the AI Bubble Bursts:
  Practices like vendor financing, circular deals, and hidden leverage will be targeted:

  “If these things fail, ...the accountants will get in trouble again. The CEOs will, they'll say, you knew what was happening.” (53:04 — Sorkin)

Notable Quotes & Memorable Exchanges

• On FOMO and Risk:

  “One of the most discombobulate things that can happen is having to watch your neighbor get rich.”
  — Henry Blodget (09:37)

• On Leverage and Margin:

  “...most ordinary investors for the first time have bought this stock on margin ... ten to one scenario.”
  — Andrew Ross Sorkin (12:34)

• On Political Obstacles to Deflating Bubbles:

  “Nobody wants you to pull the plug on the bath when it’s filling up. Nobody.”
  — Henry Blodget (18:04)

• On Timing Bubbles:

  “...it's very hard for almost any of these people to time it properly.”
  — Andrew Ross Sorkin (09:01)

• On the Endurance of Bubbles:

  “I think invariably we won't [stop them].”
  — Andrew Ross Sorkin (38:34)

• On Policy Response Limits:

  “Is there some kind of red line that we could cross in trying to save the system if in fact we have another crisis?”
  — Andrew Ross Sorkin (05:56)

• On How Booms Fuel Progress:

  “Speculation unto itself should not be considered a dirty word. Whoever originally bet on Elon Musk ... it was an absurd idea at the time and that was a speculation and you need that.”
  — Andrew Ross Sorkin (29:42)

• On Private Market Dangers:

  “In the aftermath of 2008, really as a function of both capital requirements ... so much of the lending scheme in America moved towards private credit, which is a completely other world with no disclosure.”
  — Andrew Ross Sorkin (33:54)

Timestamps for Key Segments

• Parallels of 1929 and Today: 02:41 – 05:00
• Bubble Timing & Policy Responses: 06:09 – 09:37
• FOMO and Speculation Psychology: 09:37 – 11:42
• What Happened in 1929 (Peak to Trough): 12:34 – 14:18
• Policy Mistakes and Smoot-Hawley: 15:46 – 19:44, 26:11 – 28:26
• The Role of Regulation and Disclosure: 33:33 – 35:54
• Human Nature, Cycles, and Irresistibility of Bubbles: 36:30 – 40:44
• Protecting Yourself (Investors, Companies, Policy): 44:03 – 47:48
• The Shift to Private Markets and Risk Implications: 48:39 – 53:04

Final Takeaways

Sorkin’s Core Lessons:

• The crucial warning signs in every bubble are leverage, lack of transparency, and a sense that “everyone is doing it.”
• Bubbles can be productive, driving innovation, but when they burst, scapegoating and regulatory crackdowns follow.
• True prevention may be impossible because speculation and risk-taking are part of capitalism and human nature.

“You need that. And if you don't have some kind of speculative feeling in the air, you can't have the sort of great innovations of our time. So you do want to create an environment where people want to make big bets and big swings. You just don't want to let it get completely out of control.”
— Andrew Ross Sorkin (29:42)

In summary: The episode paints a nuanced picture: exuberant markets and technological revolutions run on hope, fear, and leverage. History suggests we can only mitigate, not eliminate, extreme cycles—so vigilance, transparency, humility, and a bit of prudent skepticism are the best defenses as the AI era gathers apace.