Andrew Ross Sorkin's book, "1929: Inside the Greatest Crash in Wall Street History and How It Shattered a Nation," offers a comprehensive exploration of the Wall Street Crash of 1929. The book is the culmination of eight years of extensive research, drawing on a wealth of previously unpublished or unanalyzed notes and references. Sorkin's work provides a detailed narrative of the events, figures, and underlying conditions that led to one of the most
significant economic disasters in modern history. It delves into the widespread optimism that characterized the period, the intricate financial strategies employed by investors, and the eventual collapse that sent shockwaves through the nation.
Unpacking the Pre-Crash Environment
Sorkin's book meticulously describes the atmosphere of widespread optimism that permeated among investors, public figures, government officials, and particularly bankers in the lead-up to the crash. This optimism was fueled by rising stock prices, creating a sense of invincibility in the market. A critical element discussed is the extensive use of call money loans by banks, which played a pivotal role in enabling investors to purchase stocks on margins as low as ten percent. This practice allowed individuals to control large amounts of stock with minimal personal investment, amplifying both potential gains and, ultimately, potential losses.The book also highlights key warnings that were largely unheeded. Economist Roger Babson's stark warning on September 5, 1929, that "sooner or later a crash is coming, and it may be terrific," preceded a sharp market decline, serving as one of many contributing factors to the eventual collapse. Despite such warnings, the speculative fervor continued, driven by the allure of quick wealth.
Key Players and Financial Stratagems
Sorkin introduces readers to prominent figures and the financial tactics they employed during this tumultuous period. William Crapo Durant, a leading Wall Street insider, was at the forefront of a trendy financial stratagem known as the "stock pool." This involved wealthy investors pooling their assets to acquire stock in a target company, then artificially inflating its price through strategic trades within the group. Information would often be leaked to the press, suggesting a bullish operation was underway, enticing smaller investors to join. At the peak of this manufactured excitement, the pool operators would dump their shares at inflated prices, leaving later investors to bear the losses.In contrast to many speculators, Jesse Livermore stands out as a notable exception. Livermore, who had a keen understanding of market dynamics, stated to a reporter at The New York Times that the market was overpriced and stocks were at "ridiculously high prices." His assessment proved accurate, and by the end of October 1929, Livermore had amassed $100 million by betting on stock prices to fall, a strategy known as short selling.
Critical Reception and Economic Perspectives
"1929" has received both enthusiastic praise and critical reviews. While lauded for its depth of research, some critics have suggested that Sorkin dedicated a significant portion of the narrative to the lifestyles of the rich and famous. Furthermore, his thesis that the bifurcation of society into rich and poor was a causal factor in the crash has been questioned as unproven. A review from The New York Times critically suggested that Sorkin's "halfhearted defense" of the 1929 bankers inadvertently indicted the very system he seemed to admire, highlighting how ordinary individuals lost everything amidst what was described as a "festival of fraud and theft" for the financial titans.Economist James A. Dorn, writing for the Cato Institute, commended Sorkin's research but criticized the book for neglecting monetary policy in its explanation of the crash's causes. Dorn argued that Sorkin overlooked the Federal Reserve's role and the contraction of the money supply, instead favoring a narrative centered on speculation, human nature, and irrational exuberance. These varied perspectives underscore the complex and multifaceted nature of the 1929 crash and its interpretation.
