Originally submitted for an Economic Literacy independent research project with Professor Christopher Ragan at McGill University.
Starring: alive & dead men, my Bubbie & her beloved childhood pony named Princess, and bursting bubbles.
The Great Depression
I like to go straight to the source. Usually that entails quoting books. But to understand the Great Depression I called up my Bubbie, who lived through it.
I read John Kenneth Galbraith’s The Great Crash, 1929, as preparation for our interview.
When reviewing the transcript of our phone call I recognized that some of my Bubbie’s quotes were very similar…actually exactly like my notes of JKG’s book.
My Bubbie wanted no fuzzy facts, so she read from the book over the phone. Bubbie, like Bettie, goes to the source.
Here are the top takeaways from Galbraith’s The Great Crash, 1929 peppered with my Bubbie’s signature sass.
“My pony was named Princess. So yes, ‘the twenties in America were a very good time. Production and employment were high and rising. Wages were not going up much, but prices were stable.’”
“Yet, my father didn’t physically work, he was a voracious reader of the newspaper, always with a pad of paper calculating stock stuff, you could say he was ‘displaying an inordinate desire to get rich quickly with a minimum of physical effort.’”
“When not reading the newspaper my father was writing letters to his broker because he speculatively bought his stocks using leverage. As I’ve told you since you were a bubala, leverage is lame. ‘The purpose [of leverage] is to accommodate the speculator and facilitate speculation.’”
“It’s called the roaring twenties for a reason dear, a ‘roaring boom was in progress in the stock market, and like all booms, it had to end.’”
“One thing all of my years have taught me is that an important puzzle ‘of politics is who is to regulate the regulators.’”
“The most spectacular contributing factor to the Great Depression was the investment trust. ‘[it] did not promote new enterprises or enlarge old ones. It merely arranged that people could own stock in old companies through the medium of new ones.’”
“Summer of 1929 I met your grandfather, it was a memorable summer. It was a memorable time on Wall Street too, ‘Everyday prices rose; they almost never fell.’”
“Even a Yalie said, ‘Stock prices have reached what looks like a permanently high plateau.’”
“Black Thursday the market plunged. It was a chain reaction, as ‘stop-loss orders tripped more securities into the market and drove the prices down farther.’”
“People refused to accept the market’s fate, instead ‘the papers were full of the prospects for next week’s market….On Monday the real disaster began’”.
“When it rains, it pours and ‘the singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning.’”
“As usual, the Republicans were to blame, ‘The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable.’”
“Monday, October 28…was another terrible day…Once again a late ticker left everyone in ignorance of what was happening, save that it was bad.”
“Tuesday, October 29, was the most devastating day in the history of the New York stock market, and it may have been the most devastating day in the history of the markets. It combined all of the bad features of all of the bad days before. Volume was immensely greater than on Black Thursday; the drop in prices was almost as great as on Monday. Uncertainty and alarm were as great as on either.”
“FDR was such a fox, even in his wheelchair. He saved us, ‘with the advent of the New Deal the sins of Wall Street became the sins of the political enemy. What was bad for Wall Street was bad for the Republican Party.’”
“I sure did miss your grandfather when he enlisted for WWII. But, I was happy to get him out of the house, as he hadn’t worked in years. While we never forgot the feeling of hopelessness of the Great Depression, after we won the war everything was looking up!”
The Great Recession of 2008
Clueless about why 2008 made the rich and poor, poor alike? Reference the glossary to learn the 28 underlined key words and then repeat after me…
The buy side thought mortgages made invincible asset-backed securities. Mortgages were not created equally; they were not commodities. The bull market, lack of due diligence, and an aggressive investment style [eye-roll, mutter “Goldman”] clouded almost everyone’s view. Plus, lots of leverage with lack of worry about liability. The worst was the derivatives to cover the company’s, but not their client’s, asses. I mean assets….
Once the bear market began, boy did it roar with cyclical and defensive stocks alike taking a tumble. Default there. Bankruptcy here. Magnified by balance sheets that were not diversified.If only I had used my spare time for technical analysis of leading indicators, benchmarks, and bond ratings, decided to be contrarian and short sell REITs, my retirement (courtesy of my IRA) would have come early!
Now, with the market obviously inefficient, fundamental analysis will help me pick the winners, just like Warren Buffett!
John Kenneth Galbraith’s Common Denominators
Why does this keep happening?
The Great Depression and the Great Recession seem to be creepily alike. What is it about capitalism that makes it bipolar?
Great minds think alike, as John Kenneth Galbraith’s A Short History of Financial Euphoria lists common denominators of all speculative booms and busts (AKA Bubbles).
Watch for these flags that signal the inevitable speculative boom…and bust…
- I don’t know what you’re talking about…
“extreme brevity of the financial memory. In consequence, financial disaster is quickly forgotten.”
- $$= Smarts
“We compulsively associate unusual intelligence with the leadership of great financial institutions–the large banking, investment-banking, insurance, and brokerage houses.”
- Is this new?
“All financial innovation involves, in one form or another, the creation of debt secured in greater or lesser adequacy by real assets.”
- I blame…
“Many people and institutions have been involved, and whereas it is acceptable to attribute error, gullibility, and excess to a single individual or even to a practical corporation, it is not deemed fitting to attribute them to a whole community, and certainly not to the whole financial community.”
- This must never happen again!
“There will be talk of regulation and reform. What will not be discussed is the speculation itself or the aberrant optimism that lay behind it.”
Sorry to burst our bubbles, but it is bound to happen again. Better to know what to look for!