Lessons from the Wall Street crash of 1929

A HANDFUL of years throughout history are synonymous with a single event. It is impossible to think of 1066, 1776 or 1914 without recalling the wars and revolutions that changed the world for ever. And two years are remembered for the worst financial crashes: 2008 and 1929.

Andrew Ross Sorkin, a journalist at the New York Times, chronicled the turmoil of 2008 in “Too Big to Fail”, which was published in 2009 and adapted into a film in 2011. Now, with “1929”, he has turned his attention to the seminal stockmarket and banking crash of modern history, to which all others are inevitably compared.

The American stockmarket roared in the 1920s, rising by almost 500% from a low in 1921 to its high in 1929, puffed up by economic optimism and dangerous, debt-driven trading. In October that year, leveraged bets combusted; the market conflagration lasted for more than two and a half years. The Depression that followed endured until America entered the second world war. The Dow Jones Industrial Average, an index of stocks, would not return to its previous high until 1954.

Mr Sorkin wisely tells this sprawling story in a focused way, reconstructing how crucial figures experienced the ructions almost hour by hour. He concentrates on Thomas Lamont, the acting head of J.P. Morgan, and Charles “Sunshine Charlie” Mitchell, head of the National City Bank (which eventually became Citibank). The men were not just financiers but giants of public life, with easy access to the most senior officials in Washington.

America’s banks had extended enormous loans to stockbroking firms, which in turn lent huge sums to new and exuberant investors, a chain of credit that came apart as stock prices went into freefall. A gaggle of banks, led by Lamont, burned through hundreds of millions of dollars buying stocks in the depths of the sell-off in a futile attempt to rescue the market.

In the face of mass unemployment, men like Lamont and Mitchell were maligned in the press and dragged in front of legislators to testify about their businesses and incomes. (Some money men even found themselves in court.) America’s financial system was duly reshaped: in 1933 the Glass-Steagall Act separated the activities of commercial and investment banks.

Mr Sorkin’s coverage of the crisis in 2008 was based on hundreds of interviews, but most of the people in this tale have been dead for decades. You would be forgiven for forgetting it. The combination of extensive research and a lively tone makes both the crash and the men involved feel more recent. Significant political figures have walk-on roles, including Hjalmar Schacht, the head of the Reichsbank, who had to deal with the Weimar Republic’s hyperinflation and reparations, and Winston Churchill. (He dabbled in speculation and was in New York on “Black Tuesday”.)

For the most part, readers are left to draw their own parallels between 1929 and 2025. There are some concerning ones. By the end of the 1920s, consumer credit in the form of instalment finance—the precursor to today’s “buy now, pay later”—was rampant. Investing in stocks had changed from a game for a monied elite to a national pastime, spreading the pain to a far broader group. Many had accumulated margin debt to invest, and were left nursing not just losses but hefty loan repayments. The exposure of American households reached a record high this year, with margin debt rising to near-record levels relative to the size of the economy.

The exuberance during the boom, the panic that drove the sell-off and the delusion of policymakers that followed will be familiar to observers of more recent crises. But the pattern of hubris, disaster and regret offers an important reminder that the darkest moments pass. Churchill’s verdict on the unfurling crisis remains a useful one almost a century later. “The English critic would do well to acquaint himself with the inherent probity and strength of the American speculative machine,” he wrote as the market plunged. “It is not built to prevent crises, but to survive them.” ■