1929 vs 2025: Andrew Ross Sorkin on Crashes, Bubbles & Lessons Learned
🎯 Summary
Podcast Summary: 1929 vs 2025: Andrew Ross Sorkin on Crashes, Bubbles & Lessons Learned
This 50-minute episode features Andrew Ross Sorkin discussing his new book focused on the 1929 stock market crash, drawing parallels and distinctions with the current economic environment (circa 2025). The core narrative revolves around understanding the human element, incentives, and systemic leverage that fueled the 1929 frenzy, and whether modern financial structures have truly mitigated these risks.
1. Focus Area: The discussion centers on historical financial crises, specifically the 1929 Stock Market Crash, contrasting it with modern financial dynamics, including the role of technology (like AI mirroring the impact of radio in the 1920s), the democratization of finance, and systemic leverage.
2. Key Technical Insights:
- The Birth of Consumer Credit: The 1920s saw a massive inflection point where companies like GM began offering consumer credit, fundamentally changing American finance from a moral aversion to debt to widespread borrowing for consumption and speculation.
- Extreme Margin Leverage: In 1929, leverage was extreme, with brokerages lending $10 for every $1 deposited by the investor (10:1 margin), a level of systemic leverage far exceeding modern regulated ratios.
- Corporate Balance Sheet Misuse: Banks and corporations were actively using depositors’ funds and corporate balance sheets to go long the stock market, an effective equivalent of modern risky behavior that is now heavily restricted.
3. Market/Investment Angle:
- Speculation as Innovation’s Twin: Sorkin argues that speculation is necessary for innovation and price discovery; the fundamental challenge is managing it so it doesn’t spiral out of control, rather than eliminating it entirely.
- Modern Leverage Pockets: While the 1929-level 10:1 margin debt might not be replicated, significant leverage concerns exist today in areas like real estate and the opaque private credit world.
- Bubble Identification: The conversation suggests we are likely in some form of bubble (monetary, inflationary, or speculative, particularly around AI), but the nature and magnitude of the pop (1999 vs. 2008 vs. 1929) remain unknown.
4. Notable Companies/People:
- Charlie Mitchell (“Sunshine Charlie”): Head of National City Bank (precursor to Citigroup); the “Jamie Dimon” of his era, pioneering credit for the public and often defying the Federal Reserve’s attempts to curb speculation.
- Carter Glass: The contemporary equivalent of a progressive regulator (like Elizabeth Warren/AOC); he railed against “Mitchellism” and was instrumental in the subsequent regulatory response.
- John Raskob: GM executive who championed the democratization of finance, attempting to create an early mutual fund structure based on the belief that “Everyone Ought to Be Rich.”
- RCA: Described as the “Nvidia of its time,” representing the era’s transformative technology (radio).
5. Regulatory/Policy Discussion:
- Lack of Pre-1929 Regulation: There was virtually no regulatory oversight (no SEC) when the 1929 bubble inflated, meaning insider trading and manipulation were not illegal.
- The Misunderstood Glass-Steagall Act: Sorkin reveals that the creation of Glass-Steagall (separating commercial and investment banking) and the FDIC was not purely a consumer protection measure, but heavily influenced by bank lobbying aimed at politically marginalizing rivals like J.P. Morgan.
- The ‘40 Act Constraint: Modern financial dynamics (crypto, private credit) struggle against the Investment Company Act of 1940 because its definitions of securities are too brittle for today’s dynamic businesses, and there is insufficient legislative will to overhaul the outdated framework.
- Accredited Investor Rules: The concept, stemming from the 1930s/40s, restricted high-risk/high-reward private investment opportunities to the wealthy, a rule now being challenged by retail investors seeking access.
6. Future Implications: The human desire for “more” ensures that financial frenzies and exuberance will always recur, finding the path of least regulatory resistance. While modern regulations (like the SEC and the Fed under Powell) offer some protection absent in 1929, the fundamental human element driving speculative cycles remains unchanged.
7. Target Audience: Financial Professionals, Historians, Regulatory Analysts, and Senior Investors who need context on systemic risk, the evolution of financial regulation, and the cyclical nature of market bubbles.
🏢 Companies Mentioned
💬 Key Insights
"I remember those moments fondly and sadly because I should have listened [to Munger/Buffett about Bitcoin]. I should have listened."
"But then if that's the case, you think that we'd all have our money in Bitcoin and or gold? But we don't. Why is that?"
"look at the price of equities, look at the price of gold, look at the price of, you know, US Treasuries right now. It doesn't, at least classically, it shouldn't line up the way it's lining up right now."
"I want the access. I want the opportunity. Sometimes, I remember Timothy and I probably talked about this years ago. I remember I either talk about GameStop or some of these other companies and tell people, "You got to be careful, guys, this is going to go wrong." I said that a little bit about the SPAC stuff and some other things, and people were like, "Sorkin, stop it. You're not protecting me. You're protecting the man.""
"The entire crypto economy contorts itself around the '40 Act, right? All these BDCs contort themselves, private credit contorts itself, and why? And well, right now we don't have the regulatory will to just go and have a wholesale rip and replace of what is really old legislation."
"Speculation is the twin of innovation. There is... There is no... There is... It's price discovery. It's risk discovery. It is the hard underbelly of innovation."