Andrew Ross Sorkin on Two Crises, Lasting Impact: How 1929 and 2008 Still Shape Finance

- This is the Capitalism and Freedom in the 21st Century Podcast, an official podcast of the Hoover Institution Economic Policy Working group, where we talk about economics, markets, and public policy. I'm Jon Hartley, your host Today. My guest is Andrew Ross Sorkin, who is a co-host of CNBC's Squawk Box, and the founder and editor at Large of DealBook at The New York Times, where he is also a columnist. Thanks so much for joining us, Andrew, and welcome at the Capital and Freedom Podcast.

- Thanks for having me. I really appreciate it. This is be fun.

- Well, you know, I'm, I've been a huge fan of, of yours for a long time, and like many others, you know, watch Squawk Box very routinely. I just wanna, you know, start by asking a simple question. I mean, how do you get up in the morning at, you know, in time to, you know, to do a 6:00 AM show on the East Coast every single day? I mean, what time do you wake up? What time do you go to bed? I mean, are you going

- Bed? Oh, boy. Oh boy. I try to be awake. I call it 420-5430, which by the way, is late in tv Morning land. My colleague Becky Quick gets up, I believe, maybe even an hour earlier than I do in three 30 maybe. I live happily just about 15 minutes, even last 10 minutes from the studio. So I can, I can race there. I do the makeup, like I'm an F1 driver or doing NASCAR or something as quickly as humanly possible. I try to go to sleep. I'd say I wanna be asleep by nine or nine 30. Wow. That would be ideal. But I'd probably say, you know, once or twice a week, I, I sort of push 10 if I, if I go to sleep after 10, it's not a good situation.

- It's, it's amazing. I mean, it's such discipline, you know, 'cause I'm sure, you know, you have to leave dinner parties early and, and

- Oh yeah, no, by the way, great excuse to leave a dinner party or cocktail party. If you just say, I, you know, I always say it's a school night, guys, I gotta go. And people seem, because they, they can see that you're on TV the next day. People seem to think that's socially an acceptable way to, to walk out. I do have to admit that definitely Sunday nights and maybe sometimes during the week, I have to take melatonin to go to sleep at that hour, meaning to like get to sleep. 'cause sometimes I, I mean, I'm not, I don't take any anything else, but sometimes it's hard, especially if you get off the, you know, if you end up staying up till 10 or 11 o'clock on a Friday or Saturday night, I find Sunday night trying to get back in bed at the right time is a little, it's like, you know, little Jet Lish.

- That's amazing. And just, I mean, incredible discipline. I mean, the one other story that I've heard that's sort of a bit like that is my understanding is that Tom Sol would, even without having a 6:00 AM TV show, he would just routinely basically get up at a dinner party at like nine or 10:00 PM or, or sorry, at, at like nine, 9:00 PM I think it was, and would just go home. You know, it could be in the middle of, you know, some great conversation. But he was very disciplined about going to bed, you know, early every day. And I mean, he'd written 40 books and, you know, has incredible, super influential career, you know, like yourself. So may maybe that's the secret. We just all need to be going to bed much earlier. And

- I know a, I'm not gonna out him, I know a, a very famous CEO chairman of a, a publicly traded company who I think literally, 'cause I've been at meals and places at where like 8, 8 15 rolls round, and this guy just gets up out of his chair and, and walks out and almost just doesn't, doesn't care. So maybe, you know, amazing. Maybe that's the secret. I don't, I don't think anything interesting happens late at night, but I know a lot of people tell me that a lot of interesting things happen late at night and clearly have sleeping. So what do I know? Well, that,

- That's, that's too good. Well, I, and just, you know, you gained into your career a little bit, you know, growing up. I mean, did you see yourself, you imagine yourself becoming a journalist? I mean, was there a maybe a specific moment where you realized that, that that was, you know, gonna be the path for you? And particularly also doing, you know, covering finance and, and being

- So abs? Absolutely not. Like 1000% not, I had no interest in being a journalist. I find writing very hard. Like even today, I still write books. I do write articles every day. I, I don't play the, the computer keyboard like a piano. I sit there and I'm hunting and I'm pecking and I'm in pain and all the things. So I never thought I'd be a writer ever. And I wanted to be in business. I thought of myself a bit as an entrepreneur. I still do in, in some respects, but when I was 15 years old, I started a sports magazine, not because I was interested in the journalistic aspect of it, per se, but I was interested in sports. And I thought, I, I thought there was an opportunity to sell a lot of advertising actually, around the magazine at the time. And I went off and tried to turn the magazine to a national magazine. It ultimately actually failed by the time I was 18. But it gave me an opportunity to get my foot in the door as an intern, sort of a pseudo intern, unofficial intern at the New York Times when I was in high school. And there was a woman there who was an editor who had no idea how old I was. I was in the building, I think I had my suit on, I think I was wearing a tie. She thought I was a college graduate who, you know, was like a news clerk or something. She overheard me talking about this thing called the internet in 1995. And she assigned me a story to write, and I went off and I wrote the article. And the truth is, I thought I would, I thought it was like a one summer that never again situation. And then I just kept doing it and I fell in love with it because I, I do, I do love business. I always, I've been at, I really thought I'd ultimately, you know, go to business school after college or something like that, or maybe law school. And I, but I always thought if you could follow the money, it explained everything. And, and I don't say that cynically, I mean, but it explained not just business, it explained politics, it explained sports, it explained parts of the worlds of art, everything. And so I just became enamored with it. And I'm also just fascinated by the characters, the people, and the motivations and incentives that people have and why people do what they do. And that's really has led, led so much of what's turned out to be a career journalism.

- That's amazing. And, you know, just, I, I guess the entrepreneurial mindset, I'm, I'm very much impressed by, I mean, you started deal, I mean, like, what, what was your, when, when did that idea hit you that you know, that there wasn't good enough business coverage out there and that you could do this?

- Well, so I'll tell you what was going on. I was, I was working at the New York Times. I had graduated from Cornell University. I had been at the London School Economics my junior year, part of, part of my junior year. And I had covered business for the New York Times based in London. So when I graduated, they sent me back to London. This is the top of the m and a boom, it was late nineties. Everything was booming. It was unbelievable. I moved back to New York, this is now end of 2000, 2001. And I'm thinking, oh, this job should be a lot easier based in New York, because the New York Times is based in New York. And so all the bankers and lawyers and people are gonna read the Times. And a lot of them, I'd go around and meet different people in the business and they'd say, Sorkin, you know, you seem like a nice kid, but the, you know, we get the Times at home, we read the front page, we read the sports page, and then I take the Wall Street Journal with me on the subway to work Dagger to the Heart. So this was, and I'm thinking, oh goodness, how am I gonna get, get in front of these people? It's super important that we, we have, you know, super competitive coverage. And I actually thought a lot of our coverage was really competitive. They just weren't seeing it. And so I had this thought, well, what happens if we sort of just go straight to their inbox? And this was way before, you know, Politico and Playbook or Axios or SE before all of the, I mean, this is before frankly, blogs, you know, the idea of even linking to somebody else's website, to another news organization's website was almost anathema at the time. So, but I thought, I'm spending an extraordinary amount of time running around the internet looking for stuff, other people doing the same. If I could put all in one place for people, you know, that would be a, a valuable service and we could try to get some advertisers to, to, to advertise against it. And ultimately, hopefully the audience would be, you know, a valuable one. And it was really built originally. I remember the Times, I think told me they thought there was a really an audience of only maybe 30,000 people for this product that was, they didn't use the phrase Tam, but maybe today you'd say Tam. And we had, I don't know, within maybe three months, we had like 80,000 people reading. People would be emailing me, trying to get on the list. I remember used to get, CEOs would call me up, I, CEOs secretary would call me up and say, can you fax us a DealBook? We, you know, we don't use email. And I, so, and, and that's how it began. Wow. 20, 25 years later.

- That's amazing. So I so ahead of ahead of the curve and, and it's still, you know, hitting in boxes every day and multiple times every day. And it's, it's amazing. It's a great newsletter. I read it.

- Thank you.

- Many, many people read it and I, I think it is very much the gold,

- Our, our Tam is a much bigger now, I think we, well, a million plus people read it every day. So it's, it's, it's a lot different.

- So I guess then from there, how did you also someone to doing, you know, video journalism, how, how did you someone to TV and, and CNBC?

- Oh, so I, the truth was I was writing lots of different articles, trying to break news of different mergers and deals. And, and there was a period of time where I was covering, actually a lot of the deal folks got into troubles. I was covering white collar crime and a lot of the articles I was writing, I would get calls from Bookers at the different TV shows. They'd call me up and say, could you come talk about your article? I used to go, you know, I was covering the Martha Stewart trial. I'd go on the Today Show with, with Katie Kirk and Matt Lauer back in the day, or on Charlie Rose or one of these programs. And, and then onto CNBC. And I would, you know, come on as a, as a guest expert, if you will, about a particular topic, deals or what have you. And then in 2011, I, I was going on a TV probably more, especially around the financial crisis of, I had written this book Too Big To Fail. And then in 2011, they were reshifting a little bit around what Squawk Box looked like and what the show Squawk on the Street looked like. And they were Karl Nia, who's a great friend, who was one of the three hosts of Squawk Box. They were gonna move to Squawk on the Street to try to create some continuity between the two shows. And they called me up and they said, Hey, would you want to host a TV show? And I said, are you crazy? I mean, I didn't even know how to, you know, I still don't really know very well how to read a teleprompter, but that's how it began. So I, I, I added that to my, my list of activities. And it's, it's been great in so many ways.

- That's amazing. And also, you know, squat Box is, is, you know, certainly the gold standard for just the, the, the guests that you have and, and the, the conversations that go on there. It, it's really amazing. Just over the years, I, I can remember just so many, you know, there's too many guests to, to e to be able to remember, but just so many, you know, key moments that, you know, that that key conversations that that, that have happened just in, in those few hours in the morning. So, you know, now like, I wanna get into books. And so like, yeah. You know, obviously 2008 was a hugely formative event, I think for, for everyone who was around at that time and certainly working in Wall Street. And I mean, you know, even just mom and Pops, you know, on Main Street, hugely affected, you know, those with those who lost their jobs, those, you know, who saw their 4 0 1 Ks get, get devastated. What was the moment that told you that you were gonna write the definitive account of the 2008 financial crisis?

- Well, first of all, I never knew that I was gonna write the account of the financial crisis. You know, what happened was I was working, as you might imagine, the weekend that the Lehman Brothers was filing for bankruptcy and Bank of America was buying Merrill Lynch. And a IG was teetering. And I worked that weekend. Every, you know, back then, by the way, everyone was in the office all the time. I mean, usually till midnight. And I remember that Sunday night, I worked the whole whole day, like crazy working the phones, writing like crazy. We ended up writing, I wrote the front page article for the paper with several of my, my colleagues. And I remember going home must have been one, two in the morning. And I remember waking up my wife and telling her all of the things that had happened 'cause I couldn't believe it. And I remember saying to her, it's like a movie. I mean, I couldn't, it, it was almost like the world felt like it was gonna fall off its axis. I mean, I couldn't even sort of contemplate what was happening. It was so, felt, so momentous. And she looked at me and she said, no, Andrew, it's like a book. And we ultimately got, got a movie out of it too. But that's really what led me to write the book. I'd been thinking of wanting to, I'd, I'd always wanted to try my hand at writing a book, but I never felt like I, I knew what the subject was that would really sort of captivate my own curiosity and interest and hold my interest for what I knew had to be a long period of time. Everybody I knew, whoever wrote a book said, you gotta fall in love with the, the story or the characters because otherwise you're gonna be doing this for a year or two, or whatever it is. And, and then I spent the, the next year, basically, in a race, because a lot of other journalists were also writing books about this. So it wasn't just, you know, I, I didn't, I didn't have, I didn't have my own lane and I just, I worked flat out for, for about a year. And then the book came out.

- Right. What, and I guess, you know, through, through your other, you know, roles in CNBC and New York Times, you know, you had access to people, I'm sure, you know, you were able to talk to people that others who others couldn't.

- So it's funny, I was not actually, I wasn't hosting on CN bbc. I was going on C-N-B-C-A little bit. I didn't know all of the main players before this began. I knew a lot of bankers and lawyers and people who were involved in it, but not everybody. And what I found though was that there was sort of an 80 20 rule to, to reporting if I could get 80% of the way there, meaning if I could get enough people to tell me certain things, I could then go to other people who didn't necessarily either know me or wanna talk to me, or, and by the way, there were people who either didn't wanna talk to me or for legal reasons. There was all sorts of, you know, civil cases taking place. There was, I think, anxiety about criminal cases at that time, if you recall. Absolutely. And so it oftentimes, it was sort of learning about certain pieces of information or sort of understanding a scene or a moment, and then being able to call somebody who maybe I didn't know and say, look, I know you don't wanna talk to me, or, I know we've never met, but here's what I have and I just wanna understand where I am. And I often found that they were, I don't know if I would say impressed enough by that, but some of them thought, okay, you know what? I should probably talk to this guy. You know, some of them did it for the right reasons. They, they really believed in the history and they, they wanted to be right. I, I know people who frankly did it for the wrong reasons. They won't, you know, they wanted to spin or rewrite history or they were trying to screw over somebody or the other. And then I think there was this other group that probably did it, even if they didn't want, you know, spoke to me ultimately, even if they didn't want to, in part because they felt, you know, that they needed to, given that so many other people are talking,

- That's, that's amazing and really amazing. Just, you know, these narrative accounts just, you know, like just following people and what they say and, and you know, those sorts of, I think that narrative nonfiction I think is just so, so great in the sense that, you know, really takes you, you, you there and almost makes you feel like you're, you're in the room for, you know, for these huge events, you know? Well,

- I was gonna say, my favorite books, I dunno About You. I always love, you know, barbarians at the Gate, you know, which was about the RJR Nabisco takeover in the eighties. Deni Thieves to me was one of the great business books that I always loved. I loved Liar's Poker. I love those books.

- Why Genius Failed. I mean, why

- Genius Failed by Roger, by by by Roger Lowenstein. You know, there were so many of these books that brought you in the room that made you feel like you were there and made you not just think about it in the sort of systemic, sort of, in, in fully economic terms, but in, in people terms. 'cause to me, ultimately it's the people that make decisions that ultimately lead to some of these systems and economic cycles and things. So that sort of was always my North Star.

- Absolutely. And so, you know, you wrote this first book in 2008, you've written a second book, 1929, and this takes, you know, readers back to, you know, the, the original, you know, massive financial collapse where the stock market fell by about 90% from 1929 to 1932. In, in 2008. We saw the, the market sell off by almost 50%, you know, by, by going by the s and p 500. I'm just curious, you know, what made you wanna return to that moment? You know, I'm sure you could write on all sorts of, you know, things happening now. I mean, AI COVID, you know, lots of things that are, that are happening that are very interesting. I I'm just, I'm very impressed that one, you know, you've written this great account of, of have history, you know, it's nearly a hundred years ago and it's at the top of the New York Times bestseller list. I, I can't remember a time where there's been a, a great, you know, history book that that's had some same power in the New York Times bestseller list. I, I think nowadays, you know, memoirs are very popular, self-help books are very popular, but like true, you know, history sort of written well, it, it's fantastic to see it doing well. But what made you wanna write another book in particular about,

- Well, thank

- 29?

- Well, first of all, I had no idea whether it would, it would do as well in as it has. And it's, you know, knock on wood, it's been, it's just extraordinary. But maybe I, I need to thank my wife again. We went on vacation probably about a decade ago, and so many people had actually asked me, you know, about 1929 comparing it to 2008. And after reading too, after, after writing Too Big to Fail, they thought I would probably know a lot about 1929. And the truth is that I didn't. And so, I mean, I, you know, I, I'd read the old Gbra book, you know, years ago in college, I think, but I, I didn't feel steeped in that period. And so I went on this vacation and I brought all these books with me and downloaded books to my Kindle to try to read about this period. And there's some extraordinary and very, very interesting books about this period. But I remember saying to my wife, kind of, I think on the flight home, you know, for some reason there's not one of these kind of like barbarians at the gate version books. There's not a too big to fail version of 1929 that really makes you feel like you understand who these people are and what they're actually saying to each other. A lot of them were written by economists or, or, or sort of a different writing style back then. And I thought, well, is there enough information? It may be that there's not, you know, the detail, the sort of granular detail that you need to be able to, you know, capture a conversation. Where are you gonna get the quotes? How are you gonna, how could you make a book like this? Could it even be possible? And I happened maybe about six months later to be up at Harvard University. I was supposed to give a lecture, and I got there early and I happened to walk into Baker Library and I asked the archivist there if I could look at some of the boxes of Thomas Lamont's papers. And Thomas Lamont was the fellow who effectively was running JP Morgan during this period. And I, I'd asked for some of the boxes from 29 and I think in 30. And as I'm going through these papers, I realized that he was keeping this extraordinary diaries, he's, his secretary would, would keep notes and sometimes even transcripts from these meetings and phone calls he was having with Hoover and Roosevelt. And it was, I thought to myself, oh my goodness, this is amazing. This is how you could actually craft a book like this. And I remember going back to the archivist and I was explained to her what I wanted to do, and she looked at me and she said, ah, I don't think you can do that. And I said, what do you mean? She said, well, there's, you know, Thomas Lamont kept great, kept great records. Most of the other people probably didn't, and there's not one or two or three archives that you're gonna just be able to go find to go do this. And I sort of took that as a, as a personal challenge, and then spent the next basically eight years finding, and she was right. You, I mean there were, this is required ultimately dozens of archives, meeting family members, certain people getting de depositions and diaries and notes and letters from all sorts of very, you know, places that I never really imagined I'd have to go. And then I got very lucky, which is, I, I had been realized that the New York Federal Reserve Board had never released the board minutes from those meetings for whatever reason, a hundred years later, the current meeting, current board minutes, by the way, they're released on the website, you can go 1929. The board minutes never existed. I mean, they, they, they'd never made them public. And so

- This is like George Harrison, Ben Strong that those folks were exactly, exactly

- That period. And I thought, but also so many of my main characters were on the board of the New York Fed. So Thomas Lamont, Charles Mitchell,

- Hmm, head of City National Bank at the time,

- WW was head of the Nashville City, which becomes Citigroup. He was really the sort of the leader of the largest bank in, in the country at that moment. And so I got the New York Fed to release these minutes to me, and once I had those minutes, and you don't really necessarily hope, hopefully don't actually feel them in the book, but it became a sort of treasure map for me in terms of where else to go to go figure out, you know, who they might have been talking to then and, and sort of to put timestamps on things. And it really was extraordinary in terms of just the, what it did to the research process. In fact, interestingly, when I, they first sent me the, the minutes they had actually had a lawyer go back and redact all sorts of information. I thought, what redact what are you redacting? It's a hundred years later. So anyway, that was sort of the research process, but ultimately it was really about reconstructing these, these scenes, you know, using these, these notes and letters and things and oftentimes pictures, descriptions of rooms, architecture plans, all sorts of things like that.

- That's amazing. So I'm just curious, like what, what were some of the favorite stories or, or people that you learned about, you know, working on 1929 and writing it in into the book?

- Oh goodness. I am so enamored by one person in particular, John Rasco, who I think may be the Elon Musk of his era, John Rasco ran General Motors in the early 19 hundreds and uniquely, and maybe importantly, really changed the culture around credit and debt in America. So in 19, so prior to basically 1919, it was sort of considered a moral sin to take on a loan. People didn't even wanna take on a mortgage. It was just something people, proper people did not do. And John Rasco 1919 is thinking to himself, he's running General Motors at the time. He thinks, how am I gonna sell more cars people? And I don't, there's not enough people who have enough money to buy cars from us. So he says, we're gonna loan them the money to buy the cars. This was the, the original sort of vendor financing, customer financing kind of vehicle that GM starts. And it was that shift and, and that thinking actually that changed everything because then you had Sears Roebuck start to loan people money to buy appliances. And then you had Wall Street, Charlie Mitchell from National City start to do the same so that people could buy stock using margin. But then John Rasco becomes an extraordinarily wealthy and successful investor. Then, like Elon, he gets involved in politics, ends up actually choosing the wrong candidate. He supported Al Smith. He, by the way, he, Al Smith was a Democrat. He was really a Republican. He sort of switches just to, just to get, get in with him to some degree. And then when he loses, he goes on a sort of secret campaign to really try to change the reputation, undermine the reputation of Hoover. I mean, I can't imagine what John Rasco would've been like with Twitter. It would've been unbelievable. But then John Rasco builds what is the equivalent of probably SpaceX back then. He builds the Empire State Building with his own money, no debt, interestingly enough. Wow. At one point he creates what might have been considered one of the first mutual funds in history. And then most uniquely, he writes an essay in the fall of 1929, long forgotten. 'cause he was considered a little bit of a philosopher king. Everybody, journalists would listen to every word they'd hang on every word of his that he would talk about. He wrote this essay suggesting that America needed to have a five day work week instead of a six day work week. So back then there was, we all worked on, on most people worked on Saturdays, the stock market was open on Saturdays, but it wasn't, 'cause he was a nice guy. He view was that he wanted to create a bigger consumer economy. And that if you had two weekend days, more people would buy cars. 'cause they had time to go places. They'd buy different outfits, they would, you know, do things to their home, all sorts of things like that. And he suggested at the time that all federal holidays should fall on a Monday except for Christmas, so that you could get a three day weekend to create even more consumerism. And so I always thought that John RAs up was just this sort of strangely interesting, uniquely fascinating character that a lot of people don't talk about today, but I think had a profound impact on America.

- We we should be thanking him for three day weekends, I guess at some level. I mean, that, that, that's amazing. And yeah, I I didn't even realize that the stock market was open on Saturdays. I mean, it's, yeah, it's such a fascinating time. I wanna, I guess, walk through a little bit, I guess some of the, the narrative at the time and o obviously my, my understanding is, you know, and having read the book, you know, a lot of these stock market losses, you know, black Monday, black Tuesday I Thursday, you know, all Yes. That's all happening in October of, of, seems like all these financial crises always happen in, in the Autumn for some reason. But that was a really a key point, a huge breaking point. But I'm just curious, you know, sort of in the lead up to all this, you know, we have, you know, there was the panic of 1907 where, you know, the stock market crashed and, and JP Morgan bailed out Wall Street. But then in, in, you know, we had the creation of the Federal Reserve in, in part, in response to that, to sort of fill the, the, the role that JP Morgan had played as a lender of last resort. But at some level, you know, the, there, you know, the New York Fed, you know, they, I think they did use the discount window a bit during this time. But, you know, at some level this, you know, we didn't have deposit insurance, right? We didn't have, you know, the whole concept of government stimulus wasn't even in coined or invented. It was really in response to the events of 1929 that John Maynard King's wrote treaties on, on money, I think, and then yes, and then wrote the general theory much later in 1936. But at some level, a lot of the sort of things that we're talking about today, you know, in terms of policy responses or, or you know, deposit insurance didn't exist at all, but were created sort of in response to that. So I'm just curious, like, you know, reading the book, what did you learn sort of about policy and, and how it's been shaped by these events as well?

- Well, well, so just for, for those folks who are listening to this, the book is not just about the crash of 1929. It really is the period of, call it the beginning of 1929 through 1933, which to me is the real sort of, the sort of full arc of the story. The crash of 29 was really just the first domino in a series of dominoes that ultimately were oftentimes political policy choices that led to the Great Depression. It wasn't preordained that what happened in 1989 had to lead to 25% unemployment. By the time we got to, to 1932. It's that we had a crash in, in October of 1929. By the way, by the end of 1929, by the end of the year market was only down 17%. People forget that it had gone down, basically it was down 50% by November 13th, and then actually started to go up again. The problem was so many people had bought on margin. People were, were going into these brokerages putting down a dollar, they were getting loans for $10. It is 10 to one. And so all of a sudden the downdraft, you know, just, there were so many margin calls and people were, were losing their homes. And that was really the first domino of just the confidence that got sucked outta the system. But then it was the series of policy choices after that, everything from the tariffs, Smoot-Hawley tariffs in 1930. I mean, go back and think about Hoover. Hoover wanted to win over America, you know, the election 19, in 1928, he was trying to tell farmers, if you elect me, I'll, you know, I'll put these tariffs in place. And so he wanted to make good on his pledge, even though everybody was telling him 1930, the economy's, you know, teetering, and this is a terrible idea. He does it anyway. You know, the Federal Reserve basically doesn't do anything. They sit on their hands for most of the time. At one point, Hoover's trying to raise taxes, which is probably not a great idea in, in, during all of this. So there were a couple of things that were happening, and you're right, there were no, you know, there were no insider trading laws, there was no SEC, there was no deposit insurance. There was a big debate about, you know, how do you backstop the banks when, when they started to, to tumble, you know, do you wanna throw money at the problem? I think that's one of the lessons we actually learned at Keynes 1930, you know, that, that you have to throw money at the problem, but guess what, we had a gold standard back then, so it wasn't like we could print money willy nilly left and right. And so there was a big debate about that, that was taking place during that period. By the way, there was no capital requirements for the banks during any of this. I mean, the Bank Act 1940. So there was so many pieces of the puzzle that really did come afterwards. And I think we, we learned from that. And for the most part, even though I know we've had other crises including 2008, I think the lesson, there have been a lot of lessons. And I, I like to believe, you know, people always say we have another 1929, I would say, could we, we could. But by the way, 1929 doesn't have to result in 1932.

- Yeah, I mean it's, it's fascinating, you know, when you're talking about putting $1 down and taking $10, a lot of, I'm starting to think about the zero day options and some of the things that, that are going on now. And

- Well, there are, by the way, some of that does exist both in the options market that some in the crypto, some of the unregulated crypto space. I mean, there are some of this does, does parallel.

- Yeah, I mean, it's, it's fascinating. I mean, in, in just, you know, in, in going through I guess some of these topics, you know, it's like we had, you know, obviously Carter Glass, glass Siegel, you know, that was another thing, you know, separation, investment banking and, and commercial banking. I, I, I, I guess, you know, and it wasn't, you know, o obviously, you know, RO Roosevelt coming in, in, in 1932, sort of is is a watershed moment. I'm just curious about that election in particular. Like what were the things that you sort of learned in, in that period about the, the policies and, and sort of the push I guess for, you know, what became the New Deal?

- Well,

- What were the things that you learned about that? I think the

- Big, the biggest thing I learned, I had an impression, as I imagine many Americans do, that Hoover lost the election to Roosevelt because of the economy. That people believed that this depression was terrible and they hated Hoover, and you'd blame Hoover for it. We always say that, that the electorate, you know, votes with their wallet. If you go back and look at the polling at the time, two things are happening. Once the market was actually going up, it appeared to people they thought the economy was getting better during the election of 1928, I, I'm sorry, of 1932. And uniquely the, the pivotal sort of voting issue at that moment was actually prohibition.

- Wow. - And it appears that Hoover lost in large part because he supported Prohibition more than anything else. So he loses, and really within a month of him losing a lot of the banks start to get into a lot of trouble. And he sees that, and he is starting to think, okay, we really need to backstop these banks somehow. And he talked about trying to use presidential powers to do that, but he thought that he couldn't do that without the support of Roosevelt who had now just won. And because he's a lame duck, he's thinking, you know, I can't do this. And if, and if I announce some plan to, to support the banks without Roosevelt also supporting the banks, or at least his, some kind of, you know, acceptances, this is the sort of long-term plan. People won't buy it. And so Hoover secretly goes to Roosevelt and says, Hey man, we gotta do this together because otherwise we're gonna have a problem. And Roosevelt basically says, talk to the hand, like, I'm not taking this on and I'm not saying yes to this, because he didn't wanna get tagged. If it didn't work, he didn't wanna get tagged with it. He wanted to start afresh. And in fact, he kind of lied to Hoover and said he would never do anything like that. And of course, two days later, after, after winning, he does exactly that and closes down the banks and then supports them and, and everything else. So, you know, it was very just sort of interesting moment to sort of watch the transition. The transition of presidential power in this particular case was very important. And actually, I oftentimes in my mind, go back and think about too big to fail. And I juxtapose the transition between Bush and Obama actually, and tarp and all the things that were taking place in the fall of 2008, and actually how well they worked together. And I think that's one of the reasons that we got to the other side as quickly as we did.

- Yeah, I I remember watching, I think it was some financial crisis anniversary type event where they interviewed George W. Bush and, and he, and, and reflecting on, you know, the events of the 2008 Global financial crisis basically said that going through his mind and, and himself being a student of history, that he didn't want to be a Herbert Hoover. That they didn't want to sort of commit the same mistakes. And so I, I think, and I, I think he, he know, he, he very much, you know, leaned on making sure that they were you with tarp and, and I mean, later, you know, they, they, the Obama administration passed the, the, the stimulus bill and that, that, you know, they were very much on, on the same team. So yeah, you, it's amazing how, I think it's some level you, that moment there in, in 19, you know, 32, 33 really, you know, set the course for all these things and, and that, that we have today. And, and obviously they, there was a lot more that came after that Social security, I think 1935 and, and then the, and you know, sort of the, the rest of the sort of new deal. But, you know, it's a fascinating period and I, I, I guess I'm curious, like you, and we also, you know, certainly when we're going through the goal financial crisis, you know, we heard a lot about, you know, glass Eagle and, and separation of, you know, commercial banking, investment banking, I feel like for a long time, one sort of thing that's been pitched and still pitched, I think by Senator Elizabeth Warren when, when she's on Squawk Box and elsewhere Yeah. Is that we need to bring back Glass Sal. But you know, these, these were Glass and Segal were characters in, in, in some of their characters in your book. I, I'm just curious what, you know, what did you learn about them and Congress and the, the role that they played in all this?

- Well, so one of the, the main reasons I actually wanted to write this book was because of Carter Glass, the character of Carter Glass, which I, I had never really spent extraordinary amounts of time trying to understand or examine. And it wasn't until I really went back and understood his own story. And by the way, he really was sort of the Elizabeth Warren of his time. And it, during much of the twenties, late twenties, he used to rail about this thing called Mitchell, as in Charlie Mitchell, the guy who was running National City. He believed that by Charlie Mitchell loaning all this money to folks that it was gonna cause the speculative fervor and it was gonna upend America. And I, what I remember thinking was, oh goodness, now there's a spine of a story because there's two characters that are sort of going at each other. Charlie Mitchell on one side, Carter Glass on the other, and this goes on for years. And of course, without giving it away, you know, Charlie Mitchell gets in all sorts of trouble, including by the way, getting arrested at his own home. And Carter Glass ends up obviously creating the Glass Eagle Bill. But the other thing that was really a fascinating lesson to me is Elizabeth Warren and others today, you know, I think all point to, to Glass Stegel as this sort of, I significant historical bill that's pure, that was, that was based on really this idea of, you know, breaking up the banks because they needed to be broken up. And because, you know, this was done, done for, you know, all the right reasons. But when you get behind the story, you realize actually that part of the bill wasn't even written by Carter Glass. It was actually written, I mean literally physically written by a banker who was trying to screw over another banker at JP Morgan. And that all of the sort of lobbying and things that go on in Washington today were going on then, you know, I used to have this sort of, you know, you think, oh, the good old days, there was no, you know, there was no money or, or influence back then. It was all the same. In fact, if you really read Glass Stegel and understand how Glass Tegel was created, part of it was created by the Rockefellers effectively to screw over JP Morgan. That's what it was, by the way, w with the, not just implicit with the explicit help of Roosevelt.

- Wow, that's fascinating. I mean, today, I, I feel like, you know, something like that almost couldn't happen in the sense that, like, that you've got lobbies. There's, I mean obviously there is activity that like that that goes on, but I feel like the, the lobbying from, you know, the banks is so much more organized. I mean, what, I mean, what was exactly the JP Morgan or James PP Morgan's response to, to all this? I mean, I, I guess, you know, the Rockefellers, you know, they had their own oil, you know, dynasty and, and they, they had standard oil, I mean, which obviously got broken up later too, or, or had already been broken up. I mean, what, what was the response from, from the house of JP Morgan at that point?

- Well, so what was happening was the son-in-law of the Rockefellers was running Chase the, the bank Chase, which was owned by the Rockefellers. And they really wanted JP Morgan to get broken up more than anything so that they wouldn't have the investment banking and the commercial banking piece together. 'cause they thought that was competitively gonna hurt Chase. I mean, that's what was going on. And so you had Aldrich who was, who was one of the Rockefellers effectively going to, to Roosevelt and saying, we need to do this and this is why. And, and he gave, you know, reasons that weren't about screwing up JP Morgan, but that was behind the scenes what was really happening. And then you had Thomas Lamont who would get meetings with Roosevelt and who'd be in the Oval Office saying to to, to Roosevelt, you know, we don't need this. This is too much. You're going too far. It's gonna mess things up. And he would, you know, you, you could see both of them literally lobbying the president. I mean, it's interesting today people think that it, that, you know, CEOs spending time in the Oval Office is unique under Trump, but not that different than what was happening back in in the 1930s.

- Absolutely. I guess like, you know, a lot of other investment banks, you know, Goldman Sachs was still nascent, maybe a commercial paper company in, but I remember, you know, when I was working at Goldman Sachs, you know, hearing a lot of these stories about Sidney Weinberg and his relationship with, with Roosevelt. But yeah, I mean, at the time too, I, I'm sure just the, the power in across industries was so different, you know, in the, as of 1950 and it's like the richest metropolitan area in America was Detroit. And, you know, this was very much at the, you know, at this time, certainly in the, you know, 1930s, you know, the, the auto industry was just starting to take off really. And, and I'm sure you know, at some level, you know, the, the banks weren't maybe even as totally powerful, you know, certain banks, you know, might not have been as powerful at, at the time. So you could imagine, you know, like an oil dynasty and, and, and also banking, you know, I mean, some banking interest might, you know, have some power and be able to, you know, fight against the banks. I mean, it's ama I mean, even now I feel like, you know, maybe in around the time the global financial crisis, you know, the banking lobby felt very strong. But just even today, in, in sort of 15 years later, I feel like the tech industry, their lobbying, you know, the crypto industry, you know, they're lobbying and you can see this right now, like playing out with like, you know, stablecoin regulation.

- Totally.

- Whether stablecoin not offer the yield or not, the, you know, the banks obviously don't want stablecoin to yield for obviously the stable coins and the crypto industry does. And so I mean, that, that's going on right now in terms of, you know, the banking industry, like wrote the line in the Genius Act, you know, pre preventing the, you know, stable coins for offering any kind of yield that the, you know, for regulated stable coins. But I mean, these dynamics are, are, are super fascinating to the least.

- It's, it, it, it's all repeating in its own way. That's the, the fun part about life is it, if it doesn't repeat, it rhymes. So.

- Absolutely. So I, I'm just curious like in, in terms of other, you know, particular players that, that you think were, were interesting and what like, I I, I guess like in terms of,

- Well, do you wanna laugh? If you wanna laugh,

- I'll give

- You one of my would love that. My, my, one of my favorites is a, a character named Evangeline Adams. Evangeline Adams was an astrologer based in New York who had an office in Carnegie Hall. And every banker, including j Pierpont Morgan was a client and they would go visit her to figure out what she thought was gonna happen to the stock market. Literally, she had a newsletter back then with a hundred thousand subscribers. I mean, it was bigger than DealBook on a, on a, if you think about what it was at that time. And she, people would pay her $50 an hour to come visit with her, like she was a, a psychiatrist to tell you what was in the stars. And, and that's what was happening. I mean, it was such a, she was such an extraordinary sort of character, I mean a true character of characters during that period. And I couldn't believe it. I, when I remember somebody told me about her and I, I sort of laughed. I thought, oh, that's gotta be like a side side thing. And then I find out that like all these real people are going to ask her what's happening to the stock market, and then by the way, they're trading based on what she's telling them. That's wild.

- My goodness. Crazy least, I mean, lots of people, you know, I guess are, are, you know, there's lots of all sorts of crazy, you know, stock tips that I think of over the years, you know, and all these folks, but I mean an astrologer that that, that, that's their first, I guess I, I wanna just, you know, maybe get into a little bit on, on sort of the bank run side of things because, you know, in 2008 we hadn't really seen bank runs in a long time in the US and arguably, you know, 2008 was a a, a run on money markets and, you know, those are not the kind of run that you're, you're used to seeing. But even just a few years ago with Silicon Valley Bank, you know, it was very much a, a, a run conducted by, you know, people withdrawing funds, you know, through their phone overnight. And so, you know what, but what, what makes this, I think, you know, some of these photographs just so memorable is that, you know, you had people waiting in line to, you know, to get their money out of the bank. You know, for those that are watching, you know, it's a wonderful life, you know, which isn't I, I don't think it's a bank, I think it's like an SNL or something like that, right? But you know, that, that George Bailey kind of, you know, bank run kind of scenario. I'm just curious about some of the stories that you read, you know, about that. I mean, obviously, you know, if you're a, a household, you know, mom and pop household and you kept money get, get money to the bank, that's, it's, you know, pretty frightening. But I'm just curious about like the psychology that, that that created at the time. You know, the, the bank runs themselves as well as obviously the, the massive stock market decline. Like, I don't think at that time, you know, you didn't have tons of savings, you know, in the way that you do in a robust way with 4 0 1 ks and IRAs and stuff like that. So I, I imagine that like the fraction of Americans at the time that actually owned stocks was probably somewhat, it was much smaller than, than it's today.

- Oh, meaningfully smaller. But in terms of the psychological impact, I think it was extraordinary. And, you know, I was struck, you know, you famously always see these, you were talking about the pictures of, of people you know, around a bank and, and of course one of the first bank runs during this period was, was, was the United States, the, the Bank of the United States, which of course unrelated to the government, but that was the name of the bank. It was in New York where it happened and happened because of a, a bad rumor. But I was struck the famous pictures that we all see down at the New York Stock Exchange in 1929. You know, we, we see all these pictures of like thousands of people standing outside the exchange. I don't think I ever really understood what they were doing there until I worked on this book, which was, they'd all, you know, so many people, not just from New York but around the world, around the country, were coming down to the exchange during those, those terrible days to try to find out what was happening to their money. I mean, like, literally, and this goes to, this is sort of a technology story in a way because the stock market itself was so off in terms of the prices that you'd see even on the big board compared to what was actually happening in reality, sometimes they were 3, 4, 5, 7 hours behind and it, it would be like, you know, a server today glitching out basically. But back then, you know, so much, so much trading volume was, was pouring through the system and it literally, the system couldn't keep up. And so people were hearing rumors, parts of the city, part of the country about where, what the stock prices were, they didn't know. So they literally physically came there, like to stand outside and try to talk to people to find out, you know, could they sell their stocks and what were they gonna do? And da da, I mean, talk about a run on the bank. It was, it was actually the sort of ultimate run on the bank. And I've always thought that the technology issue in part actually really helped the, the crisis get, you know, so much worse because people just almost decided, you know what, I'm just gonna sell indiscriminately. I don't care. 'cause I just don't really understand what's even happening anymore. The other thing I was gonna mention about the sort of psychological impact of all this is, and I don't say this in the book my grant, 'cause it's not really a personal story in the book, but my grandfather was a messenger boy with his brother down there during this period of time. And he was, I think his brother was a 16, he was like 11 or 12 years old. And he used to tell a story about watching somebody jump out of a window after all this happened. And as a result, my grandfather, he lived till he was 91, 92 years old, he never bought one share of stock his whole life. He bought bonds, bought real estate, never stock. And so I do think there was a whole, it that whole period of time for a generation of people, they were worried about, you know, whether the money they were keeping at the bank was actually gonna really be there when it was all over. They were worried about whether the stock market was rigged against them, by the way. And by the back in 1929, there was no insider trading rules. In some cases it was being rigged against them. And so there was so many sort of psychological impacts that I think impacted Americans that didn't, it wasn't just about 1930 or 32 or three that lasted, you know, in the fifties, sixties, seventies, in my case, my grandfather, you know, into, into the nineties and aughts.

- Yeah, it's amazing. I I mean some of these, you know, jobs that existed, you know, that don't exist anymore. And I met, there's this guy named Al Feld who's a private wealth advisor at, at Goldman Sachs for I think like 75 years or something like that. He got his first job at Goldman in like the thirties. I think his first job was like, he was like a wheelbarrow boy for the paper stock certificates or something. You know something like that. And it's, it's amazing. Like you now, today, obviously, you know, we have instantaneous information, but you know, back then, you know, it is like you stock was an actual stock certificate and you know, prices were delayed and, you know, there was all these, you know, it, it took time to actually figure out what was going on. It, it just, you know, technologically things were so different.

- And that's, by the way, one, one reason why I like to believe that things are better today is actually the technology so much better that you can actually look at it by the millisecond on the telephone. Now, at the same time, you could argue that a bad rumor can spread much more quickly, even more broadly, but I also would think that a bad rumor could be squashed that much more quickly too, in terms of just the efficiency of it. But, you know, I remember I, when I was writing this book, there was a moment 2021 where the whole GameStop phenomenon and a MC was happening, and I was thinking, oh my goodness, this, this also was like 1929 in certain ways. And people are, you know, talking up stocks golden, you know, diamond hands and this and that, and no, I mean that's yeah, really what was happening. And I, I wonder whether the technology, while the technology is better, I also wonder whether it could make a crisis better in the future or, or worse in the future. And I just, I'm not sure I know the

- Answer. Yeah, I I mean, I feel like at some level, you know, you still got psychology, you know, behind these things. I, I don't think, you know, it's not like every trader is an algorithmic trader and even the algorithms, you know, sometimes are, are not programmed appropriately to deal with, you know, certain sorts of stock market swings. And, and I think that's, you know, part of what happened are, you know, I don't think they were expecting some sort of a short squeeze, you know, retail event to happen. And, you know, maybe the, the algorithms are, are now, you know, better equipped to deal with that and why we haven't seen, you know, much too much since the, the A MC and the, the GameStop pumps. But, but yeah, I mean, it, it's, it, it's, it's super fascinating to, to say the least. And, you know, I think, you know, 1987 sort of gets, I guess a similar sort of, people are still trying to figure out what exactly happened then, right? You know, when the stock market fell by 25% a single day. And I, I know people even to this day, you know, who were working, you know, at, at Goldman Sachs, you know, for an example, one person who I know like doesn't wanna manage money because, you know, they saw someone jump off a building in 1987, and then, you know, they, they are doing other things in finance, but they, they, they, you know, didn't want to invest because of that event in particular. So I mean, the, I mean, the psychological effects of these things, you know, have very, very long, long lasting effects. And so it's, but

- Look, one, one of the main characters of the book is a short seller, famous short seller. A lot of people in Wall Street know him, Jesse Livermore during that period. But Le Jesse Livermore was an emotional wreck of a guy. He was very successful in 1929, made a fortune and made about a hundred million dollars. But he was so obsessed with trading that he, you know, he made the fortune, he lost the fortune, he made it back, he lost it. He ultimately, literally shoots himself in the head in 1940. And so I think it cannot, the, the emotional, psychological impact of this market is a real, a real thing for some people.

- Yeah. Again, just came back to the, you know, policy angle and, and you know, looking across both, you know, two big to fail 1929, I mean, is there a, a, a lesson or a set of lessons that you think policy makers and, and people in financial markets still haven't like, fully absorbed from, from these, these events?

- Well, well, I think they've absorbed some of them, and then we forget some of them. I think the, the biggest is that debt really is the match that lights the fire of every crisis, every systemic crisis that, that just is, is a truth. And we should just stipulate that at the top. I think people do forget that also, every single time it was margin dead in 2000, in 1989, obviously it was subprime dead in 2008. And, and I think, so we always have to watch the debt levels. That to me is a huge, huge piece of it. The other thing is you need transparency. You need disclosure. I think in a lot of the cases back in 1929, there was a lot of manipulation and other things going on. I think 2008 there was, I think there was some manipulation going on, and people didn't understand exactly what was happening. And so every time new financial products sort of come to the fore, we need to be careful about what the guardrails are around them. And then the, the last thing I'd say is, and those things are basically to try to avoid a crash or crisis on the front end. I think the last thing we, and I think we have learned our lesson, Ben Bernanke, I think demonstrated the lesson because he did his PhD on this period of 1929 in the Great Depression, is that when you have a crash and you have a crisis, you need to throw money at the problem. Like that is the lesson that is the playbook. And I think we've shown that that playbook works. 2008, it worked, by the way, we, we did the same thing for a hot minute during the pandemic, and that worked as well. Having said that, the one piece of this that I, I worry about is we've, we've told ourselves that when there's a crash or a crisis, we throw money at the problem to create sort of a put on the market. And that works. But, you know, back in 1929, there was a budget surplus in America. Today we're living with, you know, $38 trillion of debt in America. And I've always thought there'd be some invisible line that we just can't go over that would turn into a red line. And that actually could bring you back to a 1929 or 1932 like moment, where at some point, you know, Congress and the Fed and everybody else says, you know, we're gonna spend another 5 trillion or 10 trillion, the things have gotten so bad, we, we need to, to deal with it. And, and we've done in the past, we'll do it again. But at some point, the bond market raises their hand and says, we can't do it this way anymore. And then you get into some kind of austerity trap, and then you really get in trouble. I don't know. And that's, that to me is, that to me is the big question.

- Yeah, I, you know, I think 10 years ago or 15 years ago or so, you know, Reiner, Roff had this sort of 90% debt to GP threshold that they found. And, you know, it's descriptive data and you know, there there's only so, you know, so much you can do with it. But you know, the idea is that you, after, after you pass 90% of debt to GP or so that, you know, economic growth is, is usually much lower. And so yeah, we will, we'll see, I mean, given that we've passed that, that threshold, but, you know, I, I think I'm in complete agreement with you that the, the lender of last resort powers, I think, you know, are, are super important. Much more so than, you know, I think quantitative easing, you know, I think it's sort of had a mixed track record as a growth strategy. You know, think, think of, you know, Europe and Japan and the Bank of England, you know, they've all done as much or more QE as the US as as a fraction of GDP. And yet, you know, their GDP per capita has been pretty flat and their stock markets have been comparatively flat compared to the us. And I think the, you know, the, the US story is really that of, you know, technology and, and it's something that's been very unique and, and it's been driving a lot of stock market returns in the past, you know, 15 years or so. But, but when it comes to those crises, you know, following, you know, bachelor's dictum, you know, you know, lending freely at a penalty rate, you know, against good collateral, that, that's, that, that's kind of the key. And I think that's the, The lesson that, the key lesson that I think we, we've learned from, from 1929 that I, that I think we're, we're, we're now following in, in good stead. So I think maybe that's one of the, the great lessons that, that, that policymakers seem to seem to have absorbed here. You know, Andrew, it's, it's been a real honor to have you on and talking about your amazing career in, in journalism New York Times and CNBC and your two fantastic books. Definitely recommend to our listeners to, to read both 1929 and Too Big To Fail. They, they truly are, I think, the two definitive accounts of the two worst, you know, financial crises in, in American history. So it's a real honor to have you on thank you and talk to you about these books.

- This was a privilege to be with you and what, and what a great conversation. Thank you.

- This is the Capitalism and Freedom in the 21st Century podcast, official podcast of the Hoover Institution Economic Policy Working Group, where we talk about economics, markets, and public policy. I'm Jon Hartley, your host. Thanks so much for joining us.