Latest / The Capitalism and Freedom in the Twenty-First Century Podcast / Andrew Ross Sorkin on Two Crises, Lasting Impact: How 1929 and 2008 Still Shape Finance | Hoover Institution

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Andrew Ross Sorkin on Two Crises, Lasting Impact: How 1929 and 2008 Still Shape Finance | Hoover Institution · The Capitalism and Freedom in the Twenty-First Century Podcast

• 0:09
  - This is the Capitalism and Freedom
• 0:10
  in the 21st Century Podcast, an official podcast
• 0:12
  of the Hoover Institution Economic Policy Working group,
• 0:14
  where we talk about economics, markets, and public policy.
• 0:16
  I'm Jon Hartley, your host Today.
• 0:18
  My guest is Andrew Ross Sorkin, who is a co-host
• 0:20
  of CNBC's Squawk Box, and the founder
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  and editor at Large of DealBook at The New York
• 0:25
  Times, where he is also a columnist.
• 0:26
  Thanks so much for joining us, Andrew,
• 0:27
  and welcome at the Capital and Freedom Podcast.
• 0:30
  - Thanks for having me. I really
• 0:31
  appreciate it. This is be fun.
• 0:33
  - Well, you know, I'm, I've been a huge fan of, of yours
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  for a long time, and like many others, you know,
• 0:37
  watch Squawk Box very routinely.
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  I just wanna, you know, start by asking a simple question.
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  I mean, how do you get up in the morning at, you know,
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  in time to, you know,
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  to do a 6:00 AM show on the East Coast every single day?
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  I mean, what time do you wake up?
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  What time do you go to bed? I mean, are you going
• 0:53
  - Bed?
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  Oh, boy. Oh boy. I try to be awake.
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  I call it (430) 420-5430, which by the way,
• 1:01
  is late in tv Morning land.
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  My colleague Becky Quick gets up, I believe,
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  maybe even an hour earlier than I do in three 30 maybe.
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  I live happily just about 15 minutes,
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  even last 10 minutes from the studio.
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  So I can, I can race there.
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  I do the makeup, like I'm an F1 driver or doing NASCAR
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  or something as quickly as humanly possible.
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  I try to go to sleep.
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  I'd say I wanna be asleep by nine or nine 30. Wow.
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  That would be ideal.
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  But I'd probably say, you know, once
• 1:35
  or twice a week, I, I sort of push 10 if I, if I go to sleep
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  after 10, it's not a good situation.
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  - It's, it's amazing.
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  I mean, it's such discipline, you know,
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  'cause I'm sure, you know, you have to
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  leave dinner parties early and, and
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  - Oh yeah, no, by the way, great excuse
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  to leave a dinner party or cocktail party.
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  If you just say, I, you know,
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  I always say it's a school night, guys, I gotta go.
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  And people seem,
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  because they, they can see that you're on TV the next day.
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  People seem to think that's socially an acceptable way
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  to, to walk out.
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  I do have to admit that definitely Sunday nights
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  and maybe sometimes during the week, I have
• 2:12
  to take melatonin to go to sleep at that hour,
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  meaning to like get to sleep.
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  'cause sometimes I, I mean, I'm not,
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  I don't take any anything else,
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  but sometimes it's hard, especially if you get off the,
• 2:24
  you know, if you end up staying up till 10
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  or 11 o'clock on a Friday
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  or Saturday night, I find Sunday night trying
• 2:29
  to get back in bed at the right time is a little, it's like,
• 2:32
  you know, little Jet Lish.
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  - That's amazing. And just, I mean, incredible discipline.
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  I mean, the one other story that I've heard that's sort
• 2:38
  of a bit like that is my understanding is
• 2:40
  that Tom Sol would, even without having a 6:00 AM TV show,
• 2:45
  he would just routinely basically get up at a dinner party
• 2:47
  at like nine or 10:00 PM or,
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  or sorry, at, at like nine, 9:00 PM I think it was,
• 2:52
  and would just go home.
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  You know, it could be in the middle of,
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  you know, some great conversation.
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  But he was very disciplined about going to bed, you know,
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  early every day.
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  And I mean, he'd written 40 books
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  and, you know, has incredible,
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  super influential career, you know, like yourself.
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  So may maybe that's the secret.
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  We just all need to be going to bed much earlier. And
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  - I know a, I'm not gonna out him, I know a,
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  a very famous CEO chairman of a, a publicly traded company
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  who I think literally, 'cause I've been at meals
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  and places at where like 8, 8 15 rolls round,
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  and this guy just gets up out of his chair and,
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  and walks out and almost just doesn't, doesn't care.
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  So maybe, you know, amazing. Maybe that's the secret.
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  I don't, I don't think anything interesting happens late at
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  night, but I know a lot of people tell me that a lot
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  of interesting things happen late at night
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  and clearly have sleeping.
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  So what do I know? Well, that,
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  - That's, that's too good.
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  Well, I, and just, you know,
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  you gained into your career a little bit,
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  you know, growing up.
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  I mean, did you see yourself,
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  you imagine yourself becoming a journalist?
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  I mean, was there a maybe a specific moment
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  where you realized that, that that was, you know,
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  gonna be the path for you?
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  And particularly also doing, you know,
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  covering finance and, and being
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  - So abs?
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  Absolutely not.
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  Like 1000% not,
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  I had no interest in being a journalist.
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  I find writing very hard.
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  Like even today, I still write books.
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  I do write articles every day.
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  I, I don't play the, the computer keyboard like a piano.
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  I sit there and I'm hunting and I'm pecking and I'm in pain
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  and all the things.
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  So I never thought I'd be a writer ever.
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  And I wanted to be in business.
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  I thought of myself a bit as an entrepreneur.
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  I still do in, in some respects,
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  but when I was 15 years old, I started a sports magazine,
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  not because I was interested in the journalistic aspect
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  of it, per se, but I was interested in sports.
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  And I thought, I, I thought there was an opportunity
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  to sell a lot of advertising actually,
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  around the magazine at the time.
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  And I went off
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  and tried to turn the magazine to a national magazine.
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  It ultimately actually failed by the time I was 18.
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  But it gave me an opportunity to get my foot in the door
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  as an intern, sort of a pseudo intern,
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  unofficial intern at the New York Times when
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  I was in high school.
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  And there was a woman there who was an editor
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  who had no idea how old I was.
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  I was in the building, I think I had my suit
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  on, I think I was wearing a tie.
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  She thought I was a college graduate who, you know,
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  was like a news clerk or something.
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  She overheard me talking about this thing called the
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  internet in 1995.
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  And she assigned me a story to write, and I went off
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  and I wrote the article.
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  And the truth is, I thought I would,
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  I thought it was like a one summer
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  that never again situation.
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  And then I just kept doing it and I fell in love with it
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  because I, I do, I do love business.
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  I always, I've been at, I really thought I'd ultimately,
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  you know, go to business school after college
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  or something like that, or maybe law school.
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  And I, but I always thought if you could follow the money,
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  it explained everything.
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  And, and I don't say that cynically, I mean,
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  but it explained not just business, it explained politics,
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  it explained sports, it explained parts of the worlds
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  of art, everything.
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  And so I just became enamored with it.
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  And I'm also just fascinated by the characters, the people,
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  and the motivations and incentives that people have
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  and why people do what they do.
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  And that's really has led, led so much of what's turned out
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  to be a career journalism.
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  - That's amazing. And, you know, just, I,
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  I guess the entrepreneurial mindset, I'm,
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  I'm very much impressed by, I mean, you started deal,
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  I mean, like, what, what was your, when, when did
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  that idea hit you that you know,
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  that there wasn't good enough business coverage out there
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  and that you could do this?
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  - Well, so I'll tell you what was going on.
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  I was, I was working at the New York Times.
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  I had graduated from Cornell University.
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  I had been at the London School Economics my junior year,
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  part of, part of my junior year.
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  And I had covered business
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  for the New York Times based in London.
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  So when I graduated, they sent me back to London.
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  This is the top of the m and a boom, it was late nineties.
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  Everything was booming. It was unbelievable.
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  I moved back to New York, this is now end of 2000, 2001.
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  And I'm thinking, oh,
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  this job should be a lot easier based in New York,
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  because the New York Times is based in New York.
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  And so all the bankers and lawyers
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  and people are gonna read the Times.
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  And a lot of them, I'd go around
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  and meet different people in the business
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  and they'd say, Sorkin, you know, you seem like a nice kid,
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  but the, you know, we get the Times at home,
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  we read the front page, we read the sports page,
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  and then I take the Wall Street Journal
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  with me on the subway to work Dagger to the Heart.
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  So this was, and I'm thinking, oh goodness,
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  how am I gonna get, get in front of these people?
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  It's super important that we, we have, you know,
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  super competitive coverage.
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  And I actually thought a lot of our coverage
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  was really competitive.
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  They just weren't seeing it.
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  And so I had this thought, well, what happens if we sort
• 7:40
  of just go straight to their inbox?
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  And this was way before, you know, Politico and Playbook
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  or Axios or SE before all of the, I mean, this is
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  before frankly, blogs, you know, the idea of even linking
• 7:53
  to somebody else's website,
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  to another news organization's website was almost
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  anathema at the time.
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  So, but I thought, I'm spending an extraordinary amount
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  of time running around the internet looking
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  for stuff, other people doing the same.
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  If I could put all in one place for people, you know,
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  that would be a, a valuable service
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  and we could try to get some advertisers to, to,
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  to advertise against it.
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  And ultimately, hopefully the audience would be,
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  you know, a valuable one.
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  And it was really built originally.
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  I remember the Times, I think told me they thought there was
• 8:21
  a really an audience of only maybe 30,000 people
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  for this product that was, they didn't use the phrase Tam,
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  but maybe today you'd say Tam.
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  And we had, I don't know, within maybe three months,
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  we had like 80,000 people reading.
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  People would be emailing me, trying to get on the list.
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  I remember used to get, CEOs would call me up, I,
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  CEOs secretary would call me up
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  and say, can you fax us a DealBook?
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  We, you know, we don't use email.
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  And I, so, and, and that's how it began. Wow.
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  20, 25 years later.
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  - That's amazing. So I so ahead of ahead of the curve and,
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  and it's still, you know, hitting in boxes every day
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  and multiple times every day.
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  And it's, it's amazing. It's a great newsletter. I read it.
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  - Thank you. - Many, many people read it
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  and I, I think it is very much the gold,
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  - Our, our Tam is a much bigger now, I think we, well,
• 9:13
  a million plus people read it every day.
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  So it's, it's, it's a lot different.
• 9:17
  - So I guess then from there, how did you also someone
• 9:21
  to doing, you know, video journalism, how,
• 9:23
  how did you someone to TV and, and CNBC?
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  - Oh, so I, the truth was I was writing lots
• 9:29
  of different articles, trying to break news
• 9:31
  of different mergers and deals.
• 9:32
  And, and there was a period of time where I was covering,
• 9:34
  actually a lot of the deal folks got into troubles.
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  I was covering white collar crime
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  and a lot of the articles I was writing,
• 9:41
  I would get calls from Bookers at the different TV shows.
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  They'd call me up and say, could you
• 9:45
  come talk about your article?
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  I used to go, you know,
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  I was covering the Martha Stewart trial.
• 9:49
  I'd go on the Today Show with, with Katie Kirk
• 9:52
  and Matt Lauer back in the day,
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  or on Charlie Rose or one of these programs.
• 9:55
  And, and then onto CNBC.
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  And I would, you know, come on as a, as a guest expert,
• 10:01
  if you will, about a particular
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  topic, deals or what have you.
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  And then in 2011, I, I was going on a TV probably more,
• 10:09
  especially around the financial crisis of,
• 10:11
  I had written this book Too Big To Fail.
• 10:13
  And then in 2011, they were reshifting a little bit around
• 10:20
  what Squawk Box looked like
• 10:21
  and what the show Squawk on the Street looked like.
• 10:25
  And they were Karl Nia, who's a great friend, who was one
• 10:29
  of the three hosts of Squawk Box.
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  They were gonna move to Squawk on the Street to try
• 10:33
  to create some continuity between the two shows.
• 10:36
  And they called me up
• 10:38
  and they said, Hey, would you want to host a TV show?
• 10:41
  And I said, are you crazy?
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  I mean, I didn't even know how to, you know,
• 10:44
  I still don't really know very well how
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  to read a teleprompter, but that's how it began.
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  So I, I, I added that to my, my list of activities.
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  And it's, it's been great in so many ways.
• 10:56
  - That's amazing. And also, you know, squat Box is, is,
• 10:59
  you know, certainly the gold standard for just the, the,
• 11:02
  the guests that you have and,
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  and the, the conversations that go on there.
• 11:06
  It, it's really amazing.
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  Just over the years, I, I can remember just so many,
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  you know, there's too many guests to, to e to be able
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  to remember, but just so many, you know, key moments that,
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  you know, that that key conversations that that,
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  that have happened just in,
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  in those few hours in the morning.
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  So, you know, now like, I wanna get into books.
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  And so like, yeah. You know,
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  obviously 2008 was a hugely formative event, I think for,
• 11:31
  for everyone who was around at that time
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  and certainly working in Wall Street.
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  And I mean, you know, even just mom
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  and Pops, you know, on Main Street, hugely affected,
• 11:41
  you know, those with those who lost their jobs, those,
• 11:44
  you know, who saw their 4 0 1 Ks get, get devastated.
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  What was the moment that told you
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  that you were gonna write the definitive account
• 11:52
  of the 2008 financial crisis?
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  - Well, first of all, I never knew
• 11:56
  that I was gonna write the account of the financial crisis.
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  You know, what happened was I was working,
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  as you might imagine, the weekend
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  that the Lehman Brothers was filing for bankruptcy
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  and Bank of America was buying Merrill Lynch.
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  And a IG was teetering. And I worked that weekend.
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  Every, you know, back then, by the way,
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  everyone was in the office all the time.
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  I mean, usually till midnight.
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  And I remember that Sunday night,
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  I worked the whole whole day, like crazy working the phones,
• 12:24
  writing like crazy.
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  We ended up writing, I wrote the front page article
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  for the paper with several of my, my colleagues.
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  And I remember going home must have been
• 12:34
  one, two in the morning.
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  And I remember waking up my wife
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  and telling her all of the things
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  that had happened 'cause I couldn't believe it.
• 12:41
  And I remember saying to her, it's like a movie.
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  I mean, I couldn't, it, it was almost like the world felt
• 12:46
  like it was gonna fall off its axis.
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  I mean, I couldn't even sort of
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  contemplate what was happening.
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  It was so, felt, so momentous.
• 12:52
  And she looked at me
• 12:53
  and she said, no, Andrew, it's like a book.
• 12:56
  And we ultimately got, got a movie out of it too.
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  But that's really what led me to write the book.
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  I'd been thinking of wanting to, I'd, I'd always wanted
• 13:04
  to try my hand at writing a book,
• 13:06
  but I never felt like I, I knew what the subject was
• 13:08
  that would really sort of captivate my own curiosity
• 13:11
  and interest and hold my interest for
• 13:13
  what I knew had to be a long period of time.
• 13:15
  Everybody I knew, whoever wrote a book said,
• 13:17
  you gotta fall in love with the, the story or the characters
• 13:20
  because otherwise you're gonna be doing this for a year
• 13:23
  or two, or whatever it is.
• 13:26
  And, and then I spent the, the next year, basically,
• 13:28
  in a race, because a lot
• 13:30
  of other journalists were also writing books about this.
• 13:33
  So it wasn't just, you know, I, I didn't, I didn't have,
• 13:35
  I didn't have my own lane
• 13:37
  and I just, I worked flat out
• 13:41
  for, for about a year. And then the book came out.
• 13:43
  - Right. What, and I guess, you know, through,
• 13:44
  through your other, you know, roles in CNBC
• 13:47
  and New York Times, you know, you had access to people,
• 13:49
  I'm sure, you know, you were able to talk to people that
• 13:52
  others who others couldn't.
• 13:54
  - So it's funny, I was not actually,
• 13:56
  I wasn't hosting on CN bbc.
• 13:57
  I was going on C-N-B-C-A little bit.
• 13:58
  I didn't know all of the main players before this began.
• 14:02
  I knew a lot of bankers and lawyers
• 14:04
  and people who were involved in it, but not everybody.
• 14:07
  And what I found though was that there was sort
• 14:10
  of an 80 20 rule to, to reporting if I could get 80%
• 14:14
  of the way there, meaning if I could get enough people
• 14:16
  to tell me certain things, I could then go to other people
• 14:19
  who didn't necessarily either know me or wanna talk to me,
• 14:22
  or, and by the way, there were people
• 14:23
  who either didn't wanna talk to me or for legal reasons.
• 14:26
  There was all sorts of, you know, civil cases taking place.
• 14:30
  There was, I think, anxiety about criminal cases at
• 14:33
  that time, if you recall.
• 14:34
  Absolutely. And so it oftentimes, it was sort
• 14:37
  of learning about certain pieces of information
• 14:39
  or sort of understanding a scene or a moment,
• 14:42
  and then being able to call somebody who maybe I didn't know
• 14:45
  and say, look, I know you don't wanna talk to me,
• 14:47
  or, I know we've never met, but here's what I have
• 14:50
  and I just wanna understand where I am.
• 14:53
  And I often found that they were,
• 14:54
  I don't know if I would say impressed enough by that,
• 14:56
  but some of them thought, okay, you know what?
• 14:58
  I should probably talk to this guy.
• 15:01
  You know, some of them did it for the right reasons.
• 15:03
  They, they really believed in the history
• 15:05
  and they, they wanted to be right.
• 15:06
  I, I know people who frankly did it for the wrong reasons.
• 15:09
  They won't, you know, they wanted to spin or rewrite history
• 15:13
  or they were trying to screw over somebody or the other.
• 15:17
  And then I think there was this other group
• 15:18
  that probably did it, even if they didn't want, you know,
• 15:21
  spoke to me ultimately, even if they didn't want to, in part
• 15:23
  because they felt, you know, that they needed to, given that
• 15:27
  so many other people are talking,
• 15:31
  - That's, that's amazing and really amazing.
• 15:34
  Just, you know, these narrative accounts just, you know,
• 15:36
  like just following people and what they say and,
• 15:39
  and you know, those sorts of, I think
• 15:41
  that narrative nonfiction I think is just so,
• 15:43
  so great in the sense that, you know, really takes you, you,
• 15:48
  you there and almost makes you feel like you're,
• 15:50
  you're in the room for, you know,
• 15:51
  for these huge events, you know? Well,
• 15:54
  - I was gonna say, my favorite books, I dunno About You.
• 15:56
  I always love, you know, barbarians at the Gate, you know,
• 16:00
  which was about the RJR Nabisco takeover in the eighties.
• 16:04
  Deni Thieves to me was one
• 16:06
  of the great business books that I always loved.
• 16:08
  I loved Liar's Poker. I love those books.
• 16:10
  - Why Genius Failed. I mean, why
• 16:12
  - Genius Failed by Roger, by by by Roger Lowenstein.
• 16:15
  You know, there were so many of these books
• 16:16
  that brought you in the room
• 16:18
  that made you feel like you were there
• 16:19
  and made you not just think about it in the sort
• 16:21
  of systemic, sort of, in, in fully economic terms,
• 16:25
  but in, in people terms.
• 16:26
  'cause to me, ultimately it's the people that make decisions
• 16:28
  that ultimately lead to some of these systems
• 16:30
  and economic cycles and things.
• 16:31
  So that sort of was always my North Star.
• 16:35
  - Absolutely. And so, you know,
• 16:37
  you wrote this first book in 2008,
• 16:40
  you've written a second book, 1929,
• 16:43
  and this takes, you know, readers back to, you know, the,
• 16:45
  the original, you know, massive financial collapse
• 16:47
  where the stock market fell by about 90% from 1929 to 1932.
• 16:52
  In, in 2008. We saw the, the market sell off by almost 50%,
• 16:57
  you know, by, by going by the s and p 500.
• 16:59
  I'm just curious, you know, what made you wanna return
• 17:01
  to that moment?
• 17:03
  You know, I'm sure you could write on all sorts of,
• 17:07
  you know, things happening now.
• 17:08
  I mean, AI COVID, you know, lots of things that are,
• 17:12
  that are happening that are very interesting.
• 17:13
  I I'm just, I'm very impressed that one, you know,
• 17:16
  you've written this great account of, of have history,
• 17:19
  you know, it's nearly a hundred years ago
• 17:20
  and it's at the top of the New York Times bestseller list.
• 17:23
  I, I can't remember a time where there's been a, a great,
• 17:27
  you know, history book that that's had some same power in
• 17:29
  the New York Times bestseller list.
• 17:30
  I, I think nowadays, you know, memoirs are very popular,
• 17:32
  self-help books are very popular,
• 17:35
  but like true, you know, history sort of written well, it,
• 17:37
  it's fantastic to see it doing well.
• 17:39
  But what made you wanna write
• 17:40
  another book in particular about,
• 17:41
  - Well, thank - 29?
• 17:42
  - Well, first of all, I had no idea whether it would,
• 17:44
  it would do as well in as it has.
• 17:46
  And it's, you know, knock on wood,
• 17:47
  it's been, it's just extraordinary.
• 17:49
  But maybe I, I need to thank my wife again.
• 17:52
  We went on vacation probably about a decade ago,
• 17:55
  and so many people had actually asked me, you know,
• 17:59
  about 1929 comparing it to 2008.
• 18:02
  And after reading too, after,
• 18:04
  after writing Too Big to Fail,
• 18:05
  they thought I would probably know a lot about 1929.
• 18:08
  And the truth is that I didn't.
• 18:11
  And so, I mean, I, you know, I, I'd read the old
• 18:15
  Gbra book, you know, years ago in college, I think,
• 18:18
  but I, I didn't feel steeped in that period.
• 18:20
  And so I went on this vacation
• 18:22
  and I brought all these books with me
• 18:23
  and downloaded books to my Kindle to try
• 18:25
  to read about this period.
• 18:27
  And there's some extraordinary
• 18:28
  and very, very interesting books about this period.
• 18:30
  But I remember saying to my wife, kind of,
• 18:33
  I think on the flight home, you know,
• 18:35
  for some reason there's not one of these kind
• 18:37
  of like barbarians at the gate version books.
• 18:40
  There's not a too big to fail version of 1929
• 18:42
  that really makes you feel like you understand
• 18:44
  who these people are and what they're
• 18:45
  actually saying to each other.
• 18:46
  A lot of them were written by economists or, or,
• 18:50
  or sort of a different writing style back then.
• 18:52
  And I thought, well, is there enough information?
• 18:56
  It may be that there's not, you know, the detail, the sort
• 18:58
  of granular detail that you need to be able to, you know,
• 19:01
  capture a conversation.
• 19:02
  Where are you gonna get the quotes?
• 19:03
  How are you gonna, how could you make a book like this?
• 19:06
  Could it even be possible?
• 19:08
  And I happened maybe about six months later
• 19:10
  to be up at Harvard University.
• 19:12
  I was supposed to give a lecture, and I got there early
• 19:14
  and I happened to walk into Baker Library
• 19:17
  and I asked the archivist there if I could look at some
• 19:20
  of the boxes of Thomas Lamont's papers.
• 19:23
  And Thomas Lamont was the fellow
• 19:25
  who effectively was running JP Morgan during this period.
• 19:28
  And I, I'd asked for some of the boxes from 29
• 19:32
  and I think in 30.
• 19:34
  And as I'm going through these papers, I realized
• 19:37
  that he was keeping this extraordinary diaries, he's,
• 19:41
  his secretary would, would keep notes
• 19:44
  and sometimes even transcripts from these meetings
• 19:46
  and phone calls he was having with Hoover and Roosevelt.
• 19:49
  And it was, I thought to myself,
• 19:51
  oh my goodness, this is amazing.
• 19:53
  This is how you could actually craft a book like this.
• 19:56
  And I remember going back to the archivist
• 19:58
  and I was explained to her what I wanted to do,
• 20:00
  and she looked at me and she said, ah,
• 20:02
  I don't think you can do that.
• 20:04
  And I said, what do you mean? She said, well, there's,
• 20:07
  you know, Thomas Lamont kept great, kept great records.
• 20:11
  Most of the other people probably didn't,
• 20:13
  and there's not one or two or three archives
• 20:15
  that you're gonna just be able to go find to go do this.
• 20:19
  And I sort of took that as a, as a personal challenge,
• 20:23
  and then spent the next basically eight years
• 20:28
  finding, and she was right.
• 20:29
  You, I mean there were, this is required ultimately dozens
• 20:32
  of archives, meeting family members, certain people
• 20:36
  getting de depositions and diaries and notes
• 20:40
  and letters from all sorts of very, you know, places
• 20:43
  that I never really imagined I'd have to go.
• 20:45
  And then I got very lucky, which is, I, I had been realized
• 20:50
  that the New York Federal Reserve Board had never released
• 20:54
  the board minutes from those meetings for whatever reason,
• 20:57
  a hundred years later, the current meeting,
• 20:58
  current board minutes, by the way,
• 21:00
  they're released on the website, you can go 1929.
• 21:03
  The board minutes never existed.
• 21:05
  I mean, they, they, they'd never made them public. And so
• 21:07
  - This is like George Harrison, Ben Strong
• 21:09
  that those folks were exactly, exactly
• 21:11
  - That period.
• 21:12
  And I thought, but also so many
• 21:14
  of my main characters were on the board of the New York Fed.
• 21:18
  So Thomas Lamont, Charles Mitchell,
• 21:21
  - Hmm, head of City National Bank at the time,
• 21:23
  - WW was head of the Nashville City,
• 21:25
  which becomes Citigroup.
• 21:27
  He was really the sort of the leader of the largest bank in,
• 21:30
  in the country at that moment.
• 21:32
  And so I got the New York Fed to release these minutes
• 21:36
  to me, and once I had those minutes,
• 21:40
  and you don't really necessarily hope,
• 21:41
  hopefully don't actually feel them in the book,
• 21:43
  but it became a sort of treasure map for me in terms of
• 21:46
  where else to go to go figure out, you know,
• 21:48
  who they might have been talking to then and,
• 21:50
  and sort of to put timestamps on things.
• 21:53
  And it really was extraordinary in terms of just the,
• 21:56
  what it did to the research process.
• 21:58
  In fact, interestingly, when I, they first sent me the,
• 22:01
  the minutes they had actually had a lawyer go back
• 22:04
  and redact all sorts of information.
• 22:06
  I thought, what redact what are you redacting?
• 22:08
  It's a hundred years later.
• 22:10
  So anyway, that was sort of the research process,
• 22:12
  but ultimately it was really about reconstructing these,
• 22:16
  these scenes, you know, using these, these notes and letters
• 22:19
  and things and oftentimes pictures, descriptions of rooms,
• 22:23
  architecture plans, all sorts of things like that.
• 22:27
  - That's amazing. So I'm just curious, like what,
• 22:29
  what were some of the favorite stories or,
• 22:31
  or people that you learned about, you know, working on 1929
• 22:34
  and writing it in into the book?
• 22:37
  - Oh goodness. I am so enamored by one person in particular,
• 22:41
  John Rasco, who I think may be the Elon Musk
• 22:46
  of his era, John Rasco ran General Motors in the
• 22:51
  early 19 hundreds and uniquely,
• 22:54
  and maybe importantly, really changed the culture
• 22:59
  around credit and debt in America.
• 23:01
  So in 19, so prior to basically 1919, it was sort
• 23:05
  of considered a moral sin to take on a loan.
• 23:08
  People didn't even wanna take on a mortgage.
• 23:09
  It was just something people, proper people did not do.
• 23:12
  And John Rasco 1919 is thinking to himself,
• 23:15
  he's running General Motors at the time.
• 23:17
  He thinks, how am I gonna sell more cars people?
• 23:19
  And I don't, there's not enough people who have enough money
• 23:22
  to buy cars from us.
• 23:24
  So he says, we're gonna loan them the money to buy the cars.
• 23:27
  This was the, the original sort of vendor financing,
• 23:32
  customer financing kind of vehicle that GM starts.
• 23:35
  And it was that shift and,
• 23:38
  and that thinking actually that changed everything
• 23:40
  because then you had Sears Roebuck start
• 23:42
  to loan people money to buy appliances.
• 23:44
  And then you had Wall Street, Charlie Mitchell from National
• 23:46
  City start to do the same so
• 23:48
  that people could buy stock using margin.
• 23:51
  But then John Rasco becomes an extraordinarily wealthy
• 23:56
  and successful investor.
• 23:58
  Then, like Elon, he gets involved in politics,
• 24:01
  ends up actually choosing the wrong candidate.
• 24:03
  He supported Al Smith.
• 24:04
  He, by the way, he, Al Smith was a Democrat.
• 24:08
  He was really a Republican.
• 24:09
  He sort of switches just to, just to get, get in
• 24:13
  with him to some degree.
• 24:15
  And then when he loses, he goes on a sort of secret campaign
• 24:19
  to really try to change the reputation,
• 24:20
  undermine the reputation of Hoover.
• 24:23
  I mean, I can't imagine what John Rasco
• 24:24
  would've been like with Twitter.
• 24:26
  It would've been unbelievable.
• 24:27
  But then John Rasco builds what is the equivalent
• 24:31
  of probably SpaceX back then.
• 24:33
  He builds the Empire State Building with his own money,
• 24:36
  no debt, interestingly enough.
• 24:38
  Wow. At one point he creates
• 24:41
  what might have been considered one
• 24:42
  of the first mutual funds in history.
• 24:44
  And then most uniquely, he writes an essay in the fall
• 24:48
  of 1929, long forgotten.
• 24:51
  'cause he was considered a little bit of a philosopher king.
• 24:53
  Everybody, journalists would listen
• 24:55
  to every word they'd hang on every word
• 24:57
  of his that he would talk about.
• 24:59
  He wrote this essay suggesting that America needed
• 25:03
  to have a five day work week instead of a six day work week.
• 25:06
  So back then there was, we all worked on,
• 25:09
  on most people worked on Saturdays,
• 25:10
  the stock market was open on Saturdays, but it wasn't,
• 25:13
  'cause he was a nice guy.
• 25:15
  He view was that he wanted
• 25:16
  to create a bigger consumer economy.
• 25:18
  And that if you had two weekend days,
• 25:21
  more people would buy cars.
• 25:22
  'cause they had time to go places.
• 25:24
  They'd buy different outfits, they would, you know,
• 25:27
  do things to their home, all sorts of things like that.
• 25:29
  And he suggested at the time
• 25:32
  that all federal holidays should fall on a Monday except
• 25:36
  for Christmas, so that you could get a three day weekend
• 25:40
  to create even more consumerism.
• 25:42
  And so I always thought that John RAs up was just this sort
• 25:46
  of strangely interesting, uniquely fascinating character
• 25:51
  that a lot of people don't talk about today,
• 25:53
  but I think had a profound impact on America.
• 25:57
  - We we should be thanking him for three day weekends,
• 26:00
  I guess at some level.
• 26:02
  I mean, that, that, that's amazing.
• 26:03
  And yeah, I I didn't even realize
• 26:05
  that the stock market was open on Saturdays.
• 26:07
  I mean, it's, yeah, it's such a fascinating time.
• 26:11
  I wanna, I guess, walk through a little bit, I guess some
• 26:14
  of the, the narrative at the time
• 26:16
  and o obviously my, my understanding is, you know,
• 26:19
  and having read the book, you know, a lot
• 26:21
  of these stock market losses, you know, black Monday,
• 26:23
  black Tuesday I Thursday, you know, all Yes.
• 26:26
  That's all happening in October of, of,
• 26:28
  seems like all these financial crises always happen in,
• 26:31
  in the Autumn for some reason.
• 26:32
  But that was a really a key point, a huge breaking point.
• 26:38
  But I'm just curious, you know, sort of in the lead up
• 26:40
  to all this, you know, we have, you know,
• 26:42
  there was the panic of 1907 where, you know,
• 26:45
  the stock market crashed and,
• 26:46
  and JP Morgan bailed out Wall Street.
• 26:49
  But then in, in, you know, we had the creation
• 26:52
  of the Federal Reserve in, in part, in response to that,
• 26:54
  to sort of fill the, the, the role that JP Morgan had played
• 26:57
  as a lender of last resort.
• 27:00
  But at some level, you know, the, there, you know,
• 27:01
  the New York Fed, you know, they,
• 27:02
  I think they did use the discount
• 27:04
  window a bit during this time.
• 27:05
  But, you know, at some level this, you know,
• 27:07
  we didn't have deposit insurance, right?
• 27:10
  We didn't have, you know, the whole concept
• 27:12
  of government stimulus wasn't even in coined or invented.
• 27:15
  It was really in response to the events of 1929
• 27:18
  that John Maynard King's wrote treaties on, on money,
• 27:21
  I think, and then yes,
• 27:22
  and then wrote the general theory much later in 1936.
• 27:26
  But at some level, a lot of the sort of things
• 27:28
  that we're talking about today, you know, in terms
• 27:31
  of policy responses or,
• 27:32
  or you know, deposit insurance didn't exist at all,
• 27:35
  but were created sort of in response to that.
• 27:37
  So I'm just curious, like, you know, reading the book,
• 27:39
  what did you learn sort of about policy and,
• 27:42
  and how it's been shaped by these events as well?
• 27:44
  - Well, well, so just for, for those folks who are listening
• 27:47
  to this, the book is not just about the crash of 1929.
• 27:50
  It really is the period of, call it the beginning of 1929
• 27:53
  through 1933, which to me is the real sort of, the sort
• 27:58
  of full arc of the story.
• 28:01
  The crash of 29 was really just the first domino in a series
• 28:04
  of dominoes that ultimately were
• 28:06
  oftentimes political policy choices that led
• 28:11
  to the Great Depression.
• 28:12
  It wasn't preordained that what happened in 1989 had to lead
• 28:17
  to 25% unemployment.
• 28:18
  By the time we got to, to 1932.
• 28:21
  It's that we had a crash in, in October of 1929.
• 28:25
  By the way, by the end of 1929, by the end
• 28:27
  of the year market was only down 17%.
• 28:30
  People forget that it had gone down,
• 28:33
  basically it was down 50% by November 13th,
• 28:36
  and then actually started to go up again.
• 28:38
  The problem was so many people had bought on margin.
• 28:40
  People were, were going into these brokerages putting down a
• 28:43
  dollar, they were getting loans for $10.
• 28:46
  It is 10 to one.
• 28:47
  And so all of a sudden the downdraft, you know, just,
• 28:51
  there were so many margin calls
• 28:52
  and people were, were losing their homes.
• 28:54
  And that was really the first domino of just the confidence
• 28:56
  that got sucked outta the system.
• 28:58
  But then it was the series of policy choices
• 29:00
  after that, everything from the tariffs,
• 29:03
  Smoot-Hawley tariffs in 1930.
• 29:05
  I mean, go back and think about Hoover.
• 29:07
  Hoover wanted to win over America, you know,
• 29:11
  the election 19, in 1928, he was trying to tell farmers,
• 29:14
  if you elect me, I'll, you know,
• 29:16
  I'll put these tariffs in place.
• 29:18
  And so he wanted to make good on his pledge,
• 29:19
  even though everybody was telling him 1930, the economy's,
• 29:22
  you know, teetering, and this is a terrible idea.
• 29:24
  He does it anyway. You know, the Federal Reserve
• 29:28
  basically doesn't do anything.
• 29:29
  They sit on their hands for most of the time.
• 29:31
  At one point, Hoover's trying to raise taxes,
• 29:34
  which is probably not a great idea in, in,
• 29:36
  during all of this.
• 29:38
  So there were a couple of things that were happening,
• 29:40
  and you're right, there were no, you know,
• 29:42
  there were no insider trading laws, there was no SEC,
• 29:45
  there was no deposit insurance.
• 29:46
  There was a big debate about, you know,
• 29:48
  how do you backstop the banks when, when they started to,
• 29:51
  to tumble, you know,
• 29:53
  do you wanna throw money at the problem?
• 29:54
  I think that's one of the lessons we actually learned at
• 29:56
  Keynes 1930, you know, that, that you have
• 29:59
  to throw money at the problem, but guess what,
• 30:00
  we had a gold standard back then,
• 30:02
  so it wasn't like we could print money
• 30:04
  willy nilly left and right.
• 30:05
  And so there was a big debate about that,
• 30:07
  that was taking place during that period.
• 30:09
  By the way, there was no capital requirements
• 30:12
  for the banks during any of this.
• 30:13
  I mean, the Bank Act 1940.
• 30:15
  So there was so many pieces of the puzzle
• 30:18
  that really did come afterwards.
• 30:20
  And I think we, we learned from that.
• 30:23
  And for the most part, even though I know we've had other
• 30:26
  crises including 2008, I think the lesson,
• 30:30
  there have been a lot of lessons.
• 30:31
  And I, I like to believe, you know,
• 30:33
  people always say we have another 1929, I would say,
• 30:35
  could we, we could.
• 30:37
  But by the way, 1929 doesn't have to result in 1932.
• 30:42
  - Yeah, I mean it's, it's fascinating, you know,
• 30:44
  when you're talking about putting $1 down
• 30:46
  and taking $10, a lot of, I'm starting
• 30:47
  to think about the zero day options
• 30:49
  and some of the things that, that are going on now. And
• 30:52
  - Well, there are, by the way, some of
• 30:53
  that does exist both in the options market
• 30:55
  that some in the crypto, some
• 30:56
  of the unregulated crypto space.
• 30:58
  I mean, there are some of this does, does parallel.
• 31:02
  - Yeah, I mean, it's, it's fascinating. I mean, in, in just,
• 31:06
  you know, in, in going through I guess some of these topics,
• 31:08
  you know, it's like we had, you know,
• 31:10
  obviously Carter Glass, glass Siegel, you know,
• 31:14
  that was another thing, you know, separation,
• 31:16
  investment banking and, and commercial banking.
• 31:20
  I, I, I, I guess, you know,
• 31:21
  and it wasn't, you know, o obviously, you know,
• 31:23
  RO Roosevelt coming in, in, in 1932, sort
• 31:26
  of is is a watershed moment.
• 31:28
  I'm just curious about that election in particular.
• 31:32
  Like what were the things that you sort of learned in, in
• 31:34
  that period about the, the policies and,
• 31:36
  and sort of the push I guess for, you know,
• 31:38
  what became the New Deal?
• 31:39
  - Well, - What were the things
• 31:40
  that you learned about that? I think the
• 31:42
  - Big, the biggest thing I learned, I had an impression,
• 31:46
  as I imagine many Americans do,
• 31:48
  that Hoover lost the election to Roosevelt
• 31:51
  because of the economy.
• 31:52
  That people believed that this depression was terrible
• 31:55
  and they hated Hoover, and you'd blame Hoover for it.
• 31:57
  We always say that, that the electorate,
• 32:00
  you know, votes with their wallet.
• 32:02
  If you go back and look at the polling at the
• 32:04
  time, two things are happening.
• 32:07
  Once the market was actually going up, it appeared
• 32:09
  to people they thought the economy was getting better
• 32:13
  during the election of 1928, I, I'm sorry, of 1932.
• 32:17
  And uniquely the, the pivotal sort
• 32:22
  of voting issue at that moment was actually prohibition.
• 32:27
  - Wow. - And it appears that Hoover lost in large part
• 32:31
  because he supported Prohibition more than anything else.
• 32:35
  So he loses,
• 32:37
  and really within a month of him losing a lot
• 32:41
  of the banks start to get into a lot of trouble.
• 32:43
  And he sees that, and he is starting to think, okay,
• 32:46
  we really need to backstop these banks somehow.
• 32:50
  And he talked about trying to use presidential powers to do
• 32:53
  that, but he thought that he couldn't do
• 32:55
  that without the support of Roosevelt who had now just won.
• 32:58
  And because he's a lame duck, he's thinking,
• 33:00
  you know, I can't do this.
• 33:01
  And if, and if I announce some plan to,
• 33:04
  to support the banks without Roosevelt also supporting the
• 33:07
  banks, or at least his, some kind of, you know, acceptances,
• 33:12
  this is the sort of long-term plan.
• 33:14
  People won't buy it. And so Hoover secretly goes
• 33:18
  to Roosevelt and says, Hey man, we gotta do this together
• 33:21
  because otherwise we're gonna have a problem.
• 33:24
  And Roosevelt basically says, talk to the hand, like,
• 33:27
  I'm not taking this on and I'm not saying yes to this,
• 33:30
  because he didn't wanna get tagged.
• 33:32
  If it didn't work, he didn't wanna get tagged with it.
• 33:34
  He wanted to start afresh.
• 33:36
  And in fact, he kind of lied to Hoover
• 33:38
  and said he would never do anything like that.
• 33:40
  And of course, two days later, after,
• 33:41
  after winning, he does exactly that
• 33:44
  and closes down the banks and then supports them
• 33:46
  and, and everything else.
• 33:47
  So, you know, it was very just sort of interesting moment
• 33:51
  to sort of watch the transition.
• 33:53
  The transition of presidential power in this particular case
• 33:56
  was very important.
• 33:58
  And actually, I oftentimes in my mind,
• 34:01
  go back and think about too big to fail.
• 34:02
  And I juxtapose the transition between Bush
• 34:05
  and Obama actually, and tarp
• 34:08
  and all the things that were taking place in the fall
• 34:10
  of 2008, and actually how well they worked together.
• 34:13
  And I think that's one of the reasons that we got
• 34:16
  to the other side as quickly as we did.
• 34:19
  - Yeah, I I remember watching, I think it was some
• 34:23
  financial crisis anniversary type event
• 34:26
  where they interviewed George W. Bush and, and he, and,
• 34:30
  and reflecting on, you know, the events
• 34:32
  of the 2008 Global financial crisis basically said
• 34:34
  that going through his mind and,
• 34:36
  and himself being a student of history,
• 34:39
  that he didn't want to be a Herbert Hoover.
• 34:41
  That they didn't want to sort of commit the same mistakes.
• 34:43
  And so I, I think,
• 34:46
  and I, I think he, he know, he, he very much, you know,
• 34:48
  leaned on making sure that they were you with tarp and,
• 34:51
  and I mean, later, you know, they, they,
• 34:54
  the Obama administration passed the, the, the stimulus bill
• 34:57
  and that, that, you know,
• 35:00
  they were very much on, on the same team.
• 35:01
  So yeah, you, it's amazing how, I think it's some level you,
• 35:06
  that moment there in, in 19, you know, 32, 33 really,
• 35:10
  you know, set the course for all these things and,
• 35:12
  and that, that we have today.
• 35:14
  And, and obviously they, there was a lot more that came
• 35:16
  after that Social security, I think 1935 and,
• 35:21
  and then the, and you know, sort of the, the rest
• 35:23
  of the sort of new deal.
• 35:26
  But, you know, it's a fascinating period
• 35:28
  and I, I, I guess I'm curious, like you,
• 35:30
  and we also, you know, certainly when we're going
• 35:32
  through the goal financial crisis, you know,
• 35:34
  we heard a lot about, you know, glass Eagle and,
• 35:37
  and separation of, you know, commercial banking,
• 35:40
  investment banking, I feel like for a long time, one sort
• 35:44
  of thing that's been pitched and still pitched, I think
• 35:46
  by Senator Elizabeth Warren when,
• 35:49
  when she's on Squawk Box and elsewhere Yeah.
• 35:51
  Is that we need to bring back Glass Sal.
• 35:53
  But you know, these, these were Glass
• 35:54
  and Segal were characters in, in,
• 35:56
  in some of their characters in your book.
• 35:57
  I, I'm just curious what, you know, what did you learn about
• 35:59
  them and Congress and the, the role
• 36:00
  that they played in all this?
• 36:02
  - Well, so one of the, the main reasons I actually wanted
• 36:04
  to write this book was
• 36:05
  because of Carter Glass, the character of Carter Glass,
• 36:07
  which I, I had never really spent extraordinary amounts
• 36:09
  of time trying to understand or examine.
• 36:12
  And it wasn't until I really went back
• 36:17
  and understood his own story.
• 36:19
  And by the way, he really was sort
• 36:21
  of the Elizabeth Warren of his time.
• 36:23
  And it, during much of the twenties, late twenties, he used
• 36:27
  to rail about this thing called Mitchell,
• 36:29
  as in Charlie Mitchell, the guy
• 36:31
  who was running National City.
• 36:32
  He believed that by Charlie Mitchell loaning all this money
• 36:36
  to folks that it was gonna cause the speculative fervor
• 36:40
  and it was gonna upend America.
• 36:41
  And I, what I remember thinking was, oh goodness,
• 36:44
  now there's a spine of a story
• 36:45
  because there's two characters that are sort
• 36:47
  of going at each other.
• 36:48
  Charlie Mitchell on one side, Carter Glass on the other,
• 36:51
  and this goes on for years.
• 36:54
  And of course, without giving it away, you know,
• 36:57
  Charlie Mitchell gets in all sorts of trouble, including
• 37:00
  by the way, getting arrested at his own home.
• 37:02
  And Carter Glass ends up obviously
• 37:04
  creating the Glass Eagle Bill.
• 37:06
  But the other thing that was really a fascinating lesson
• 37:09
  to me is Elizabeth Warren
• 37:11
  and others today, you know, I think all point to,
• 37:14
  to Glass Stegel as this sort of, I
• 37:17
  significant historical bill that's pure, that was,
• 37:20
  that was based on really this idea of, you know,
• 37:24
  breaking up the banks because they needed to be broken up.
• 37:26
  And because, you know, this was done, done for, you know,
• 37:31
  all the right reasons.
• 37:33
  But when you get behind the story, you realize actually
• 37:36
  that part of the bill wasn't even written by Carter Glass.
• 37:39
  It was actually written, I mean literally physically written
• 37:43
  by a banker who was trying to screw over
• 37:47
  another banker at JP Morgan.
• 37:50
  And that all of the sort of lobbying
• 37:52
  and things that go on in Washington today were going on
• 37:55
  then, you know, I used to have this sort of, you know,
• 37:57
  you think, oh, the good old days, there was no, you know,
• 38:00
  there was no money or, or influence back then.
• 38:03
  It was all the same.
• 38:04
  In fact, if you really read Glass Stegel
• 38:06
  and understand how Glass Tegel was created, part
• 38:09
  of it was created by the Rockefellers effectively
• 38:12
  to screw over JP Morgan.
• 38:15
  That's what it was, by the way, w with the,
• 38:17
  not just implicit with the explicit help of Roosevelt.
• 38:22
  - Wow, that's fascinating.
• 38:24
  I mean, today, I, I feel like, you know, something like
• 38:28
  that almost couldn't happen in the sense that, like,
• 38:30
  that you've got lobbies.
• 38:31
  There's, I mean obviously there is activity that like that
• 38:34
  that goes on, but I feel like the, the lobbying from,
• 38:37
  you know, the banks is so much more organized.
• 38:39
  I mean, what, I mean, what was exactly the JP Morgan
• 38:42
  or James PP Morgan's response to, to all this?
• 38:45
  I mean, I, I guess, you know, the Rockefellers, you know,
• 38:47
  they had their own oil, you know, dynasty and,
• 38:50
  and they, they had standard oil, I mean,
• 38:51
  which obviously got broken up later too, or,
• 38:54
  or had already been broken up.
• 38:56
  I mean, what, what was the response from, from the house
• 38:59
  of JP Morgan at that point?
• 39:00
  - Well, so what was happening was the son-in-law
• 39:04
  of the Rockefellers was running Chase the, the bank Chase,
• 39:08
  which was owned by the Rockefellers.
• 39:10
  And they really wanted JP Morgan to get broken up
• 39:15
  more than anything so
• 39:16
  that they wouldn't have the investment banking
• 39:18
  and the commercial banking piece together.
• 39:20
  'cause they thought that was competitively gonna hurt Chase.
• 39:23
  I mean, that's what was going on.
• 39:24
  And so you had Aldrich who was, who was one
• 39:28
  of the Rockefellers effectively going to, to Roosevelt
• 39:33
  and saying, we need to do this and this is why.
• 39:35
  And, and he gave, you know, reasons
• 39:37
  that weren't about screwing up JP Morgan,
• 39:40
  but that was behind the scenes what was really happening.
• 39:42
  And then you had Thomas Lamont who would get meetings
• 39:45
  with Roosevelt and who'd be in the Oval Office saying to to,
• 39:49
  to Roosevelt, you know, we don't need this.
• 39:51
  This is too much. You're going too far.
• 39:53
  It's gonna mess things up.
• 39:54
  And he would, you know, you, you could see both
• 39:55
  of them literally lobbying the president.
• 39:58
  I mean, it's interesting today people think that it, that,
• 40:02
  you know, CEOs spending time in the Oval Office is unique
• 40:05
  under Trump, but not that different than what was happening
• 40:09
  back in in the 1930s.
• 40:12
  - Absolutely. I guess like, you know, a lot
• 40:15
  of other investment banks, you know,
• 40:16
  Goldman Sachs was still nascent,
• 40:18
  maybe a commercial paper company in,
• 40:19
  but I remember, you know,
• 40:20
  when I was working at Goldman Sachs, you know, hearing a lot
• 40:22
  of these stories about Sidney Weinberg
• 40:24
  and his relationship with, with Roosevelt.
• 40:29
  But yeah, I mean, at the time too, I, I'm sure just the,
• 40:31
  the power in across industries was so different, you know,
• 40:35
  in the, as of 1950
• 40:36
  and it's like the richest metropolitan area in
• 40:39
  America was Detroit.
• 40:40
  And, you know, this was very much at the, you know,
• 40:42
  at this time, certainly in the, you know, 1930s, you know,
• 40:45
  the, the auto industry was just starting to take off really.
• 40:48
  And, and I'm sure you know, at some level, you know, the,
• 40:50
  the banks weren't maybe even as totally powerful,
• 40:55
  you know, certain banks, you know, might not have been
• 40:57
  as powerful at, at the time.
• 40:58
  So you could imagine, you know, like an oil dynasty and,
• 41:01
  and, and also banking, you know, I mean,
• 41:03
  some banking interest might, you know, have some power
• 41:06
  and be able to, you know, fight against the banks.
• 41:09
  I mean, it's ama I mean, even now I feel like, you know,
• 41:11
  maybe in around the time the global financial crisis,
• 41:13
  you know, the banking lobby felt very strong.
• 41:15
  But just even today, in, in sort of 15 years later,
• 41:19
  I feel like the tech industry, their lobbying, you know,
• 41:22
  the crypto industry, you know, they're lobbying
• 41:24
  and you can see this right now, like playing out with like,
• 41:26
  you know, stablecoin regulation.
• 41:28
  - Totally. - Whether stablecoin not offer the yield
• 41:30
  or not, the, you know, the banks obviously don't want
• 41:32
  stablecoin to yield for obviously the stable coins
• 41:35
  and the crypto industry does.
• 41:37
  And so I mean, that, that's going on right now in terms of,
• 41:39
  you know, the banking industry,
• 41:40
  like wrote the line in the Genius Act, you know,
• 41:43
  pre preventing the, you know, stable coins
• 41:45
  for offering any kind of yield that the, you know,
• 41:47
  for regulated stable coins.
• 41:49
  But I mean, these dynamics are, are,
• 41:50
  are super fascinating to the least.
• 41:54
  - It's, it, it, it's all repeating in its own way.
• 41:58
  That's the, the fun part about life is it,
• 42:01
  if it doesn't repeat, it rhymes. So.
• 42:04
  - Absolutely. So I, I'm just curious like in, in terms of
• 42:08
  other, you know, particular players that,
• 42:10
  that you think were, were interesting
• 42:12
  and what like, I I,
• 42:14
  I guess like in terms of,
• 42:18
  - Well, do you wanna laugh? If you wanna laugh,
• 42:19
  - I'll give - You one of my would love that.
• 42:21
  My, my, one of my favorites is a,
• 42:24
  a character named Evangeline Adams.
• 42:26
  Evangeline Adams was an astrologer based in New York
• 42:32
  who had an office in Carnegie Hall.
• 42:35
  And every banker, including j Pierpont Morgan was a client
• 42:40
  and they would go visit her to figure out
• 42:42
  what she thought was gonna happen to the stock market.
• 42:45
  Literally, she had a newsletter back then
• 42:48
  with a hundred thousand subscribers.
• 42:50
  I mean, it was bigger than DealBook on a, on a,
• 42:52
  if you think about what it was at that time.
• 42:55
  And she, people would pay her $50 an hour to come visit
• 42:59
  with her, like she was a, a psychiatrist to tell you
• 43:02
  what was in the stars.
• 43:04
  And, and that's what was happening.
• 43:06
  I mean, it was such a, she was such an extraordinary sort
• 43:08
  of character, I mean a true character
• 43:10
  of characters during that period.
• 43:12
  And I couldn't believe it.
• 43:13
  I, when I remember somebody told me about her
• 43:15
  and I, I sort of laughed.
• 43:16
  I thought, oh, that's gotta be like a side side thing.
• 43:20
  And then I find out that like all these real people are
• 43:22
  going to ask her what's happening to the stock market,
• 43:25
  and then by the way, they're trading based on
• 43:27
  what she's telling them. That's wild.
• 43:30
  - My goodness. Crazy least, I mean, lots
• 43:35
  of people, you know, I guess are, are, you know,
• 43:37
  there's lots of all sorts of crazy, you know, stock tips
• 43:41
  that I think of over the years, you know,
• 43:44
  and all these folks, but I mean an astrologer that that,
• 43:46
  that, that's their first, I guess I, I wanna just, you know,
• 43:49
  maybe get into a little bit on, on sort of the bank run side
• 43:52
  of things because, you know, in 2008 we hadn't really seen
• 43:55
  bank runs in a long time in the US
• 43:57
  and arguably, you know, 2008 was a a, a run on money markets
• 44:01
  and, you know, those are not the kind of run that you're,
• 44:04
  you're used to seeing.
• 44:05
  But even just a few years ago with Silicon Valley Bank,
• 44:08
  you know, it was very much a, a, a run conducted by,
• 44:11
  you know, people withdrawing funds, you know,
• 44:13
  through their phone overnight.
• 44:15
  And so, you know what,
• 44:16
  but what, what makes this, I think, you know, some
• 44:18
  of these photographs just so memorable is that, you know,
• 44:21
  you had people waiting in line to, you know,
• 44:24
  to get their money out of the bank.
• 44:25
  You know, for those that are watching, you know,
• 44:27
  it's a wonderful life, you know, which isn't I,
• 44:30
  I don't think it's a bank, I think it's like an SNL
• 44:32
  or something like that, right?
• 44:34
  But you know, that, that George Bailey kind of, you know,
• 44:37
  bank run kind of scenario.
• 44:40
  I'm just curious about some of the stories that you read,
• 44:42
  you know, about that.
• 44:43
  I mean, obviously, you know, if you're a, a household,
• 44:46
  you know, mom and pop household
• 44:47
  and you kept money get, get money to the bank, that's, it's,
• 44:49
  you know, pretty frightening.
• 44:51
  But I'm just curious about like the psychology that, that
• 44:53
  that created at the time.
• 44:55
  You know, the, the bank runs themselves as well
• 44:58
  as obviously the, the massive stock market decline.
• 45:01
  Like, I don't think at that time, you know,
• 45:03
  you didn't have tons of savings, you know, in the way
• 45:07
  that you do in a robust way with 4 0 1 ks
• 45:09
  and IRAs and stuff like that.
• 45:10
  So I, I imagine that like the fraction
• 45:12
  of Americans at the time that actually owned stocks was
• 45:15
  probably somewhat, it was much
• 45:17
  smaller than, than it's today.
• 45:18
  - Oh, meaningfully smaller.
• 45:20
  But in terms of the psychological impact,
• 45:22
  I think it was extraordinary.
• 45:23
  And, you know, I was struck, you know,
• 45:25
  you famously always see these,
• 45:26
  you were talking about the pictures of, of people you know,
• 45:29
  around a bank and, and of course one of the first bank runs
• 45:32
  during this period was, was, was the United States, the,
• 45:36
  the Bank of the United States, which of course unrelated
• 45:38
  to the government, but that was the name of the bank.
• 45:40
  It was in New York where it happened and happened
• 45:41
  because of a, a bad rumor.
• 45:42
  But I was struck the famous pictures
• 45:45
  that we all see down at the New York Stock Exchange in 1929.
• 45:48
  You know, we, we see all these pictures of like thousands
• 45:51
  of people standing outside the exchange.
• 45:55
  I don't think I ever really understood
• 45:57
  what they were doing there until I worked on this book,
• 46:01
  which was, they'd all, you know, so many people,
• 46:04
  not just from New York but around the world,
• 46:05
  around the country, were coming down to the exchange
• 46:07
  during those, those terrible days to try to find out
• 46:12
  what was happening to their money.
• 46:13
  I mean, like, literally, and this goes to, this is sort
• 46:15
  of a technology story in a way
• 46:17
  because the stock market itself was so off in terms
• 46:22
  of the prices that you'd see even on the big board compared
• 46:26
  to what was actually happening in reality,
• 46:27
  sometimes they were 3, 4, 5, 7 hours behind
• 46:30
  and it, it would be like, you know,
• 46:32
  a server today glitching out basically.
• 46:36
  But back then, you know, so much,
• 46:37
  so much trading volume was, was pouring through the system
• 46:40
  and it literally, the system couldn't keep up.
• 46:42
  And so people were hearing rumors, parts of the city, part
• 46:46
  of the country about where,
• 46:48
  what the stock prices were, they didn't know.
• 46:50
  So they literally physically came there, like to stand
• 46:53
  outside and try to talk to people to find out, you know,
• 46:55
  could they sell their stocks and what were they gonna do?
• 46:57
  And da da, I mean, talk about a run on the bank.
• 46:59
  It was, it was actually the
• 47:00
  sort of ultimate run on the bank.
• 47:01
  And I've always thought that the technology issue
• 47:04
  in part actually really helped the,
• 47:09
  the crisis get, you know, so much worse
• 47:13
  because people just almost decided, you know what,
• 47:15
  I'm just gonna sell indiscriminately.
• 47:16
  I don't care. 'cause I just don't really understand what's
• 47:18
  even happening anymore.
• 47:21
  The other thing I was gonna mention about the sort
• 47:22
  of psychological impact of all this is,
• 47:26
  and I don't say this in the book my grant,
• 47:28
  'cause it's not really a personal story in the book,
• 47:30
  but my grandfather was a messenger boy
• 47:32
  with his brother down there during this period of time.
• 47:36
  And he was, I think his brother was a 16,
• 47:39
  he was like 11 or 12 years old.
• 47:41
  And he used to tell a story about watching somebody jump out
• 47:43
  of a window after all this happened.
• 47:45
  And as a result, my grandfather, he lived
• 47:49
  till he was 91, 92 years old, he never bought one share
• 47:52
  of stock his whole life.
• 47:55
  He bought bonds, bought real estate, never stock.
• 47:57
  And so I do think there was a whole, it that whole period
• 48:00
  of time for a generation of people, they were worried about,
• 48:04
  you know, whether the money they were keeping at the bank
• 48:06
  was actually gonna really be there when it was all over.
• 48:08
  They were worried about whether the stock market was rigged
• 48:10
  against them, by the way.
• 48:11
  And by the back in 1929, there was no insider trading rules.
• 48:15
  In some cases it was being rigged against them.
• 48:17
  And so there was so many sort of psychological impacts
• 48:20
  that I think impacted Americans that didn't,
• 48:23
  it wasn't just about 1930 or 32
• 48:25
  or three that lasted, you know, in the fifties, sixties,
• 48:27
  seventies, in my case, my grandfather, you know, into,
• 48:30
  into the nineties and aughts.
• 48:32
  - Yeah, it's amazing. I I mean some of these, you know, jobs
• 48:36
  that existed, you know, that don't exist anymore.
• 48:39
  And I met,
• 48:40
  there's this guy named Al Feld who's a private wealth
• 48:42
  advisor at, at Goldman Sachs
• 48:43
  for I think like 75 years or something like that.
• 48:45
  He got his first job at Goldman in like the thirties.
• 48:48
  I think his first job was like, he was like a wheelbarrow
• 48:50
  boy for the paper stock certificates or something.
• 48:53
  You know something like that. And it's, it's amazing.
• 48:54
  Like you now, today, obviously, you know,
• 48:56
  we have instantaneous information,
• 48:58
  but you know, back then, you know, it is like
• 49:02
  you stock was an actual stock certificate
• 49:05
  and you know, prices were delayed
• 49:07
  and, you know, there was all these, you know, it,
• 49:09
  it took time to actually figure out what was going on.
• 49:11
  It, it just, you know, technologically
• 49:12
  things were so different.
• 49:14
  - And that's, by the way, one, one reason why I like
• 49:16
  to believe that things are better today
• 49:19
  is actually the technology so much better
• 49:21
  that you can actually look at it
• 49:22
  by the millisecond on the telephone.
• 49:24
  Now, at the same time, you could argue
• 49:25
  that a bad rumor can spread much more quickly,
• 49:29
  even more broadly, but I also would think
• 49:32
  that a bad rumor could be squashed
• 49:35
  that much more quickly too, in terms
• 49:37
  of just the efficiency of it.
• 49:39
  But, you know, I remember I, when I was writing this book,
• 49:42
  there was a moment 2021 where the whole GameStop phenomenon
• 49:46
  and a MC was happening,
• 49:48
  and I was thinking, oh my goodness, this,
• 49:50
  this also was like 1929 in certain ways.
• 49:53
  And people are, you know, talking up stocks golden,
• 49:55
  you know, diamond hands and this and that,
• 49:58
  and no, I mean that's yeah, really what was happening.
• 50:02
  And I, I wonder whether the technology,
• 50:05
  while the technology is better,
• 50:07
  I also wonder whether it could make a crisis better in the
• 50:10
  future or, or worse in the future.
• 50:12
  And I just, I'm not sure I know the
• 50:15
  - Answer.
• 50:16
  Yeah, I I mean, I feel like at some level, you know,
• 50:17
  you still got psychology, you know, behind these things.
• 50:21
  I, I don't think, you know, it's not like every trader is an
• 50:24
  algorithmic trader
• 50:26
  and even the algorithms, you know, sometimes are,
• 50:28
  are not programmed appropriately to deal with, you know,
• 50:31
  certain sorts of stock market swings.
• 50:33
  And, and I think that's, you know, part of
• 50:35
  what happened are, you know, I don't think they were
• 50:37
  expecting some sort of a short squeeze, you know,
• 50:39
  retail event to happen.
• 50:40
  And, you know, maybe the, the algorithms are, are now,
• 50:44
  you know, better equipped to deal with that
• 50:45
  and why we haven't seen, you know, much too much since the,
• 50:49
  the A MC and the, the GameStop pumps.
• 50:53
  But, but yeah, I mean, it, it's, it, it's,
• 50:56
  it's super fascinating to, to say the least.
• 50:59
  And, you know, I think, you know, 1987 sort of gets,
• 51:02
  I guess a similar sort of, people are still trying
• 51:05
  to figure out what exactly happened then, right?
• 51:06
  You know, when the stock market fell by 25% a single day.
• 51:09
  And I, I know people even to this day, you know,
• 51:12
  who were working, you know, at, at Goldman Sachs, you know,
• 51:15
  for an example, one person
• 51:17
  who I know like doesn't wanna manage money
• 51:19
  because, you know,
• 51:21
  they saw someone jump off a building in 1987,
• 51:23
  and then, you know, they, they are doing other things in
• 51:25
  finance, but they, they, they, you know, didn't want
• 51:27
  to invest because of that event in particular.
• 51:30
  So I mean, the, I mean, the psychological effects
• 51:32
  of these things, you know, have very, very long,
• 51:34
  long lasting effects.
• 51:35
  And so it's, but
• 51:37
  - Look, one, one of the main characters
• 51:39
  of the book is a short seller, famous short seller.
• 51:41
  A lot of people in Wall Street know him,
• 51:42
  Jesse Livermore during that period.
• 51:44
  But Le Jesse Livermore was an emotional wreck of a guy.
• 51:47
  He was very successful in 1929, made a fortune
• 51:49
  and made about a hundred million dollars.
• 51:51
  But he was so obsessed with trading that he, you know,
• 51:55
  he made the fortune, he lost the fortune,
• 51:56
  he made it back, he lost it.
• 51:58
  He ultimately, literally shoots himself in the head in 1940.
• 52:02
  And so I think it cannot, the, the emotional,
• 52:04
  psychological impact of this market is a real,
• 52:07
  a real thing for some people.
• 52:08
  - Yeah. Again, just came back to the, you know, policy angle
• 52:13
  and, and you know, looking across both, you know, two big
• 52:16
  to fail 1929, I mean, is there a, a, a lesson
• 52:20
  or a set of lessons that you think policy makers and,
• 52:23
  and people in financial markets still haven't like,
• 52:26
  fully absorbed from, from these, these events?
• 52:29
  - Well, well, I think they've absorbed some of them,
• 52:32
  and then we forget some of them.
• 52:33
  I think the, the biggest is that debt really is the match
• 52:36
  that lights the fire of every crisis, every systemic crisis
• 52:39
  that, that just is, is a truth.
• 52:42
  And we should just stipulate that at the top.
• 52:46
  I think people do forget that also,
• 52:49
  every single time it was margin dead in 2000, in 1989,
• 52:53
  obviously it was subprime dead in 2008.
• 52:56
  And, and I think, so we always have
• 52:57
  to watch the debt levels.
• 52:58
  That to me is a huge, huge piece of it.
• 53:01
  The other thing is you need transparency.
• 53:04
  You need disclosure.
• 53:06
  I think in a lot of the cases back in 1929, there was a lot
• 53:08
  of manipulation and other things going on.
• 53:10
  I think 2008 there was,
• 53:12
  I think there was some manipulation going on,
• 53:14
  and people didn't understand exactly what was happening.
• 53:16
  And so every time new financial products sort of come
• 53:18
  to the fore, we need to be careful about
• 53:20
  what the guardrails are around them.
• 53:23
  And then the, the last thing I'd say is,
• 53:27
  and those things are basically to try to avoid a crash
• 53:29
  or crisis on the front end.
• 53:31
  I think the last thing we, and I think we have learned our
• 53:33
  lesson, Ben Bernanke, I think demonstrated the lesson
• 53:36
  because he did his PhD on this period
• 53:39
  of 1929 in the Great Depression, is
• 53:41
  that when you have a crash and you have a crisis, you need
• 53:43
  to throw money at the problem.
• 53:44
  Like that is the lesson that is the playbook.
• 53:47
  And I think we've shown that that playbook works.
• 53:50
  2008, it worked, by the way, we, we did the same thing
• 53:54
  for a hot minute during the pandemic,
• 53:56
  and that worked as well.
• 53:58
  Having said that, the one piece of this that I,
• 54:01
  I worry about is we've, we've told ourselves
• 54:04
  that when there's a crash
• 54:05
  or a crisis, we throw money at the problem to create sort
• 54:07
  of a put on the market.
• 54:10
  And that works. But, you know, back in 1929,
• 54:14
  there was a budget surplus in America.
• 54:17
  Today we're living with, you know,
• 54:19
  $38 trillion of debt in America.
• 54:21
  And I've always thought there'd be some invisible line
• 54:24
  that we just can't go over that would turn into a red line.
• 54:27
  And that actually could bring you back to a 1929
• 54:31
  or 1932 like moment, where at some point, you know,
• 54:36
  Congress and the Fed
• 54:38
  and everybody else says, you know, we're gonna spend another
• 54:39
  5 trillion or 10 trillion, the things have gotten so bad,
• 54:41
  we, we need to, to deal with it.
• 54:43
  And, and we've done in the past, we'll do it again.
• 54:45
  But at some point, the bond market raises their hand
• 54:47
  and says, we can't do it this way anymore.
• 54:49
  And then you get into some kind of austerity trap,
• 54:51
  and then you really get in trouble.
• 54:53
  I don't know. And that's, that to me is, that
• 54:55
  to me is the big question.
• 54:58
  - Yeah, I, you know, I think 10 years ago or 15 years ago
• 55:01
  or so, you know, Reiner, Roff had this sort of 90% debt
• 55:04
  to GP threshold that they found.
• 55:07
  And, you know, it's descriptive data
• 55:08
  and you know, there there's only so,
• 55:10
  you know, so much you can do with it.
• 55:12
  But you know, the idea is that you, after,
• 55:14
  after you pass 90% of debt to GP
• 55:16
  or so that, you know, economic growth is,
• 55:19
  is usually much lower.
• 55:22
  And so yeah, we will, we'll see, I mean, given
• 55:24
  that we've passed that, that threshold,
• 55:26
  but, you know, I, I think I'm in complete agreement with you
• 55:28
  that the, the lender of last resort powers, I think,
• 55:31
  you know, are, are super important.
• 55:34
  Much more so than, you know, I think quantitative easing,
• 55:37
  you know, I think it's sort of had a mixed track record
• 55:39
  as a growth strategy.
• 55:40
  You know, think, think of, you know, Europe and Japan
• 55:44
  and the Bank of England, you know, they've all done as much
• 55:46
  or more QE as the US as as a fraction of GDP.
• 55:50
  And yet, you know, their GDP per capita has been pretty flat
• 55:52
  and their stock markets have been comparatively
• 55:54
  flat compared to the us.
• 55:55
  And I think the, you know, the, the US story is really that
• 55:58
  of, you know, technology and,
• 56:00
  and it's something that's been very unique and,
• 56:03
  and it's been driving a lot of stock market returns in the
• 56:05
  past, you know, 15 years or so.
• 56:06
  But, but when it comes to those crises, you know, following,
• 56:09
  you know, bachelor's dictum, you know, you know,
• 56:12
  lending freely at a penalty rate, you know,
• 56:14
  against good collateral, that, that's,
• 56:15
  that, that's kind of the key.
• 56:17
  And I think that's the, The lesson that, the key lesson
• 56:20
  that I think we, we've learned from, from 1929 that I,
• 56:23
  that I think we're, we're, we're now
• 56:24
  following in, in good stead.
• 56:26
  So I think maybe that's one of the, the great lessons that,
• 56:29
  that, that policymakers seem to seem to have absorbed here.
• 56:34
  You know, Andrew, it's, it's been a real honor
• 56:35
  to have you on and talking about your amazing career in,
• 56:38
  in journalism New York Times and CNBC
• 56:40
  and your two fantastic books.
• 56:42
  Definitely recommend to our listeners to,
• 56:44
  to read both 1929 and Too Big To Fail.
• 56:47
  They, they truly are, I think, the two definitive accounts
• 56:49
  of the two worst, you know,
• 56:52
  financial crises in, in American history.
• 56:53
  So it's a real honor to have you on thank you
• 56:55
  and talk to you about these books.
• 56:56
  - This was a privilege to be with you and what,
• 56:58
  and what a great conversation. Thank you.
• 57:00
  - This is the Capitalism and Freedom in the 21st Century podcast,
• 57:02
  official podcast of the Hoover Institution Economic Policy
• 57:05
  Working Group, where we talk about economics,
• 57:07
  markets, and public policy.
• 57:08
  I'm Jon Hartley, your host. Thanks so much for joining us.