My Review of Andrew Ross Sorkin's "1929"

 The Great Crash and its Aftermath

Andrew Ross Sorkin of CNBC, DealBook, and “Too Big to Fail” fame has written a riveting history the 1929 stock market crash and its aftermath through the eyes of many of its key participants. His writing style puts you in the room with the leading players of the day as they experience the exuberance of the boom and then grapple with grinding bear market that followed. It would have helped if there were an annotated chart of the Dow Jones Industrial average from 1929-1933.

His leading players are “Sunshine” Charlie Mitchell, president the National City Bank and its securities affiliate the leading underwriter of new issues in the 1920’s; Thomas Lamont, the de facto head of J.P. Morgan; Jack Morgan, J.P.’s son and nominal head of the bank; Russell Leffingwell,  a Morgan partner and a founder of the Council on Foreign Relations; Albert Wiggins, president of the Chase National Bank; Jesse Livermore, legendary trader who made $100 million in the crash; Owen Young, president of General Electric and author of the Young Plan for German reparations; John Jacob Raskob, General Motors director, chairman of the Democratic National Committee and developer of the Empire State Building; William Crapo Durant, General Motors founder and leading speculator; Senator  Carter Glass, coauthor of the Federal Reserve Act of 1913 and the Glass-Steagall Act of 1933 and a leading critic of Wall Street speculation;  and Ferdinand Pecora, counsel to the Senate Banking Committee taking on the WASP establishment by investigating Wall Street. We also have cameo appearances of the financier and advisor to presidents Bernard Baruch, and Winston Churchill who was out of government and was speculating in the U.S. stock market, and David Sarnoff, president of RCA, the NVIDIA of its day.

 

The stock market of the 1920’s was the wild west where “pump and dump” pools operated, and insider trading was legal. It was not unheard of for insiders and their friends to receive newly issued stock at a discount from the official offering price. All the while margin was freely available where stocks could be purchased with only 10% of the cash payable upfront. The availability of margin was funded by the call money market at interest rates of up to 20%. It was the call money market that sucked in funds from all over the country, and for that matter the world, to earn high returns. However, this form of leverage could be withdrawn on moment’s notice thereby triggering a liquidity squeeze.

 

I learned a few interesting factoids to comment on. I didn’t know that David Sarnoff was actively involved in the Young Plan negotiations. Perhaps more interesting, I didn’t know that Mitchell of National City and Wiggins of Chase actively lobbied Carter Glass to include J.P. Morgan, as a private bank, in the separation of commercial banking from investment banking. It seems that Glass was close to Morgan partners Lamont and Leffingwell. Thus, any allusion to Glass being the Elizabeth Warren of his day hardly rings true.

 

As someone who has read every front page of The New York Times from August 1929 to March 1933 and has read widely on the subject of the crash and its aftermath, I have a few issues to raise with Sorkin. The first is that the depression was not an inevitable result of the crash. It occurred against the backdrop of inept monetary policy followed by the Fed and more important it was caused by the imbalances caused by World War One rubbing against the rigidities of the gold standard. Thus, the root causes were not domestic in origin as Roosevelt argued, but rather international in origin as Hoover argued. Thus it was no coincidence that the Dow Jones Industrial Average bottomed in June 1932 just when the Lausanne Conference was agreeing to drastic cuts in German reparations payments and the suspension of payments on inter-allied debts. 

 

Sorkin should have read Tobias Straumann’s “1931” where he quoted the 1932 Annual Report from the Bank of International Settlements as follows: “In the circumstance of the German problem- which is largely responsible for the growing financial paralysis of the world – call for concerted action Governments alone can take.”  (See: https://shulmaven.blogspot.com/2019/07/my-amazon-review-of-tobias-straumanns.html ) It was the very Young Plan that Lamont helped to negotiate that made Hitler. His attacks on the Young Plan which stretched out the German reparations to schedule to 1989 and made the payments more rigid, was one of Hitler’s leading campaign issues that gave his Nazi Party 19% of the vote. The prospect of future Nazi victories led to a capital flight from Germany and Austria.

 

I wish Sorkin would have spent more time on what his players were doing in June 1930 when Hoover signed the Smoot-Hawley Tariff Act. The day after Hoover announced that he would sign the bill the Dow Jones Industrial Average plunged 8%, its worst day of 1930.  ( See: https://shulmaven.blogspot.com/2025/04/a-broken-stock-market-and-broken-trust.html ) The Times highlighted the new tariff regime would make it harder for Germany to make it reparations payments and for Britain and France to pay its war debt to America.

 

I also wish that Sorkin were in the room when Britain devalued the Pound and left the gold standard in September 1931, the worst month in stock market history. In response to the fears of a gold outflow, the Fed raised its discount rate from 1.5% to 3.5%. That action was a dagger into the heart of the economy.

 

Thus, in my opinion, the triggers of the Great Depression came in the form of a three-act play. The first was the stock market crash of October 1929, and the second was the signing of the Smoot -Hawley Tariff Act in June 1930. The third and final act occurred when the Fed raised the discount rate in September 1931.

 

My last quibble is that Sorkin used the wrong source for his comments on the interregnum period between the Hoover and Roosevelt administrations. He cites  Eric Rauchway’s “Winter War” which is way too biased against Hoover. (See: Shulmaven: My Amazon Review of Eric Rauchway's "Winter War: "Hoover, Roosevelt and the First Clash Over The New Deal" ) A more balanced account by  Jonathan Alter, a serious liberal, in his “Defining Moment” noted that it was  Hoover treasury department officials, namely Ogden Mills and Arthur Ballentine whose drafts ultimately became  the Emergency Banking Act in March 1933 thereby ending the third banking crisis of the depression.

 

All quibbles aside, Andrew Ross Sorkin has given us a new take on the elements and personalities involved in the crash and its aftermath. Can it happen again? In my opinion, yes. All it takes is human greed combined with lots of leverage accompanied by institutional rigidities and incompetent regulators.

My Amazon Review of Frank McDonough's "The Weimar Years: Rise and Fall 1918-1933"

 On the Road to Perdition

 

Third Reich historian Frank McDonough has written a year-by-year tick tock history of the Weimar Republic from its founding in 1918 to its demise on January 30, 1933. It is largely a political history where he sometimes goes into excruciating detail about the various cabinet changes over the years. His hero is Gustav Stresemann, prime minister and for many years foreign minister. He was perhaps Germany’s most influential politician from 1925 -1929 where he negotiated a détente with the West though the Locarno Treaty. Unfortunately, deliberate, or not there was not Locarno for the East where Stresemann had designs on the eastern territories taken away from Germany at Versailles.

 

McDonough rightly notes that the premature deaths of Foreign Minister Walter Rathenau by assassination in 1922 and the deaths by disease of President Friedrich Ebert and Stresemann severely eroded the talent of the regime. I have written elsewhere that Stresemann’s death in 1929 removed the last politician of stature who could have stood up to Hitler.

 

Weimar was plagued from the beginning by a flawed constitution and its lack of legitimacy among the German Right. The two fundamental flaws in the constitution were proportional representation that allowed for the smallest of parties to have a voice in Reichstag and Article 48 which enabled the president to rule by decree. That would haunt the government as the economic crisis of the 1930’s hit.

 

Further, it was this government that signed the Versailles Treaty that established Germany’s sole guilt in starting World War I and placed a severe reparations burden on the economy. It was a tough start and that along with crippling inflation almost brought the government down. However, as Robert Gerwath noted in “November 1918: The Great Revolution” Weimar survived and with Dawes Plan loans in 1925 actually prospered.

 

So why did Weimar collapse? To McDonough the faults lie with the lack of responsible parties on the Right and with President Paul von Hindenburg, the hero of World War I, who in the late 1920’s was supportive of the government, returned to his monarchal roots as a Prussian land baron. It was he, along with the intrigues of Franz von Papen and Kurt von Schleicher who brought down the hapless Heinrich Bruning government in 1932. Bruning’s government was imposed on the Reichstag by Hindenburg. He never had a parliamentary majority and with the lack of foreign currency reserves he was forced to impose a draconian austerity policy on an economy already in depression. To me Bruning did not have much of a choice. By the way, the best tick-tock on the end of Weimar is in Rudiger Barth’s and Hauke Friedrichs’ “The Last Winter of the Weimar Republic.”

 

Indeed, the decay was evident in December 1930 when Nazi goons disrupted the German premier of the anti-war film, “All Quiet on the Western Front.” So great were their disruptions that the film was banned a week after the failed premier. This has a familiar ring today in America where pro-Palestine mobs are canceling Jewish performers and Israeli officials.

 

 

Away from politics McDonough discusses the flowering of culture in art (abstract expressionism), architecture (Bauhaus), and film (Metropolis). Indeed, Berlin was second only to Hollywood in film production in the 1920’s. There was also the very free and licentious culture of Berlin’s nightclub scene. It was not for nothing that the recent German TV series was called “Babylon Berlin.” What McDonough does not mention is that this Avant Garde culture just might have turned off small city and rural Germany who overwhelmingly voted for Hitler in 1932.

 

However, my two primary concerns with McDonough’s otherwise excellent work is that he down plays economics. He should have taken seriously the works of Frederick Taylor’s “The Downfall of Money,” and Tobias Straumann’s “1931: Debt Crisis and the Rise of Hitler.” Simply put, Weimar was not up to the task. However, to his credit, McDonough does not that Hitler’s opposition to the Young Plan in 1930 made him respectable.

 

My second concern is that he failed to emphasize the long-standing division in the Left between the Socialists and the Communists. The split started during World War I and was exacerbated by the Socialist government with the support of the Army and the Free Corps in putting down the communist Spartacist Revolt in early 1920. Later in 1929 a different socialist government put down the “Bloody May” communist demonstration in 1929. McDonough doesn’t even mention this and with the communists calling the socialists “social fascists” it less of a surprise seeing them join forces with the Nazis in bringing down the Bruning government and in supporting a transit strike in Berlin in late 1932. Thus, part of the blame for the rise of Hitler has to fall on the disunity of the Left. As I have written previously the global impact of the Russian Revolution was to split the Left and harden the Right. It certainly played out in 1930 Germany.

 

With my concerns aside, McDonough’s book is important. I learned much from it and there are certainly lessons for today.

For the full amazon URL see: On the Road to Perdition (amazon.com)

My Amazon Review of Tobias Straumann's "1931:Debt, Crisis and the Rise of Hitler"

Annus Horribilis

Although most scholars put the focus of the Great Depression on events in the United States, Swiss historian Tobias Straumann turns his keen eye on the role Germany had in making the Great Depression “Great.” In fact the 1932 annual report of the Bank for International Settlements noted “In the circumstance of the German problem- which is largely responsible for the growing financial paralysis of the world – call for concerted action Governments alone can take.” To Straumann there is a straight line from the May 1931 failure of the Credit Anstaltt, to Germany suspending convertibility in the wake of bank runs in July, to Britain abandoning the gold standard in September which was followed in September and October by the Federal Reserve raising its discount rate for 1.5% to 3.5% in the teeth of the depression.

He tells part of his story through the eyes of Viennese economist and Swiss banker Felix Somary. As early as 1926 Somary was warning about the unsustainability of the reparations regime establish after the Dawes Plan and as the 1920s roared on he became even more bearish. Unfortunately to be right early is sometimes viewed as being wrong. Trust me, I have experience with this. As a result his warnings went unheeded, even from Keynes.

Although the title of this book is 1931, it really starts in 1930 with the adoption of the Young Plan which modestly reduced German reparations, but made the payment structure more rigid. The plan was predicated on a growing world economy that was quickly turning into a tailspin. From the outset both Hitler and the Communists became severe critics of the plan.

The man caught in the middle was German Chancellor Heinrich Bruning, a centrist. Straumann is more sympathetic to Bruning than many historians. Simply put he had limited options and was hemmed in by the gold standard which left him only one choice, austerity. As a result in the September 1930 elections the Nazi Party received 19% of the vote and becomes the second largest party in Germany. Although we now think of Hitler with his militaristic racist screeds, in 1930 he was offering very serious criticism of the Young Plan in his speeches. Hitler’s electoral gains terrify foreign investors leading to a run on Germany’s gold reserves. Put bluntly, Bruning was in a box and the countdown began.

By 1931 the downward spiral continued with even more austerity coming from Bruning. To maintain domestic popularity Bruning plays the nationalist card in returning the Rhineland to German control and proposing a customs treaty with Austria. Of course the French go crazy and that limits the availability of banking credits from France. Hence both German and French politicians were prisoners of their own electorates. The lesson here is that international agreements must have domestic support in order to work.

After the July 1931 banking collapse the way was open for Hitler. In the October election the Nazis receive 37% of the vote and become the largest party in Germany. With the Communists achieving 15% of the vote, the two extremist parties work hand in glove to bring down Bruning. And the rest as they say is history.

Straumann has written an important history that should be required reading in the capitals of Europe. Although the EU succeeded in Greece, at least for now, it might not be so lucky with Italy. It should heed the lessons of “1931.”

For the full amazon URL see: https://www.amazon.com/review/R3CO3LP16KVA4M/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv