While the 1929 crisis was exacerbated by technological limitations, a lack of regulation, and poor policy choices, the modern financial system, despite its advancements, faces new systemic risks stemming from massive debt, rapid information spread, and psychological drivers like FOMO.
Mind Map
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The good news is the world is very different today.
From a technology perspective, one of the reasons that 1929 ever even happened
was literally the stock exchange was oftentimes off, meaning the numbers that
you saw on the big board were three or four or 5 hours behind the actual the
actual numbers. And as a result, people were just
selling indiscriminately because they just thought the whole thing didn't even
work. I mean, one of the reasons you see this
famous pictures of people down the New York Stock Exchange next minute, the
reason they're there, the reason they're all in the street, is these are people
have come from all over New York and the rest of the country to try to find out
what's happened to their money. So that piece of it, you take off the
table because you can get the numbers right here and off of your terminal and
everything else. Right.
There's an SEC. Insider trading is not legal.
It was legal then. So the all the manipulation that was
taking place. There was no FDIC.
So you had bank runs that took place in the aftermath of this crisis.
You know, we could talk about Glass-Steagall and and what that either
represented did in or whether you think it's come back or not.
But here's a bigger one. Capital requirements for banks.
There were none zero back then. So there's a lot of reasons you'd like
to believe that we can't have another crisis of the magnitude we did.
And by the way, it's also worth noting the crash in 1929 wasn't preordained
that when that happened that we had to have the Great Depression.
That was really the first domino of a series of dominoes and then a series of,
frankly, terrible policy choices. The Federal Reserve basically doing
nothing. The implementation of tariffs.
We can discuss what that means today. Right.
You know, there was a gold standard. So there was a question about how much
money you could throw into the system, austerity, all of that that worked
against things that led to 25% unemployment.
Didn't have to happen, if you will. I have to say that was one of the things
in reading your book that I was like, wait, I think there was just an
assumption that it was the market crash that caused the Great Depression.
So, yeah, everybody thinks it's like there's one bad day and then somehow
there's a Great Depression, but there's so much in between, you know, listen, so
many people on your book tours, like everybody's like, it's 1929 happen
again. And I do wonder, is there a better,
smarter question that we should be asking you, having done all this
research and taken us back, They're making us feel like we were in the room
when it happened. You know, that we should be asking you.
Well, look, it didn't happen in 1929. I'll tell you.
I'll give you actually how you could get to 1932 today.
And that that sort of maybe speaks to this.
So one of the lessons that came out of 1929
was actually the lesson that Ben Bernanke learned when he was doing his
great is thesis on the Great Depression at Princeton is when there's a crash or
crisis or a panic, the playbook is to throw money at the problem may be
politically unpopular but that is the lesson and he did it in 2008.
And by the way, we did it again during the pandemic.
And I think we now think that there is a playbook.
And by the way, there's also, therefore a put on the market, because we now have
we have the playbook. The one thing that's different this time
is if you genuinely believe every financial crisis to some degree is a
function of debt, too much debt in the system so far we're all talking about
corporate debt. Really.
Back then there was in 1989, there was a budget surplus in America.
Now we have $38 trillion. The question is, let's say we have a
crash and the government says, you know, we're going to write a check for $5
trillion. That's that's the put.
And whether you believe that there is some kind of invisible line that turns
into a red line for the bond market where they say, you know what, we like
you guys in America, we'll happy to loan you, lend you money at three or four
times the rate that we do today, and that's the interest rate pay.
And then all of a sudden you actually do get into some kind of austerity spiral
and then you're living at a 25% unemployment rate in the country.
That's when you really start to try to get through the permutations.
How do you get there in this day and age?
That's one way. But one other thing that's interesting
today is the technology, as bad as it was then, in some cases could even be
too good today. And I think we learned that with the
Silicon Valley bank failure, where someone goes on Twitter
and says, I'm pulling my account now, that information's accurate.
Everybody does it over the weekend on there.
Everybody does it right. I used to think, Oh, this device is so
great, because if there was a bad piece of information, it could be corrected
very quickly. But if there's a accurate piece of
information, that's not good, right? People act on it quickly.
Well, so so let's talk more about the technology today and sort of parallels
and the idea of maybe irrational exuberance and signs of irrational
exuberance. Right now, in reading the book in the
1920s, there was certainly a lot of that, but it seemed like it was, you
know, more on credit and people buying on margin.
Nowadays there's the idea of crypto. Some of that has been kind of pulled
back. And in just a couple of months,
actually, since you write, since you published the book, we've seen some
there is a lot of debt in the crypto market.
I mean, shocking lack of leverage. So there's there's that side of thing.
There's. Addiction markets and sort of the money
that's going into those the excitement around those
private credit and concerns about private credit that we've seen in the
last couple of months. Any signs of anything there?
Well, look, the private credit businesses always concern me because of
the transparency of it or frankly, lack of transparency.
I think if you were to talk to Jay Powell, he would tell you that, you
know, even the Federal Reserve doesn't have a full grasp of how interlinked all
of the debt and credit is in the private credit market.
Having said that, depending on what numbers you're looking at, you could
argue it's only $2 trillion. $2 trillion is a lot of money, but it's
not it's not the entire market. It's systemic.
So I don't know if it's I don't know if it's systemic, by the way.
I might worry more today about short term treasuries.
I mean, by the way, we the United States have been trying to sell short term
treasuries like crazy because we think that we can get a cheaper rate that way.
Right. That's also a much more complicated
place to be if in fact, you actually have to pay back more quickly.
One of the questions we were kicking around when we're thinking about having
our discussion with you is, is Wall Street greedy or today?
I don't know if it's greedy today, frankly.
I agree. Look, I think it was greed bad
necessarily. I think the lesson for me of writing
this book in some ways was that they didn't use the phrase back then.
But this idea of FOMO. Yeah, which, by the way, is driven in
part by this phone and TOK and people seeing all sorts of things that, by the
way, I think makes inequality. Actually, I don't know if it makes it
worse, but the perception of it and just the visibility of it.
Right. But I do think the sort of FOMO, greed,
envy, I think that's what's drift, that is which driven people
for, you know, the test of time. And that's what it is.
Is it is it worse today than it was before?
I don't know, except maybe this gets to the inequality piece.
I think there are more people who think that they're effectively unable to
actually make it and therefore more willing to take risk and more willing to
sort of try to grab this lottery ticket as opposed to sort of make it over time,
slowly.
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