The Day the Bubble Burst: A Social History of the Wall Street Crash of 1929 – Gordon Thomas and Max Morgan-Witts

Morgan-burstIn the autumn of 1929, between the months of September and October, the world was plunged into financial uncertainty as stock markets in New York City and other places saw a massive devaluation of stocks and bonds.  Some investors lost millions in the crash and others less financially secure, saw nearly their entire market portfolio crumble before their eyes.  In the wake of the crash, America plunged into the great depression that spread misery and despair across the nation for several more years.  The crash remains to this day, one of the greatest financial disasters in history.  However, its causes are still up for debate and there is no single reason for the catastrophe but numerous factors did combine to bring the economy to a grinding halt.  Authors Gordon Thomas and Max Morgan-Witts have studied the crash and tell the story here about the “day the bubble burst”.

Prior to reading the book, I was familiar with some of the names that are critical in the story. For example, I knew of William C. Durant (1861-1947), the founder of General Motors and the legendary Joseph P. Kennedy, Sr. (1888-1969), former owner of RKO Studios and Ambassador to Great Britain. Incredibly, Kennedy comes out of the crash with minimal loss and would go to establish his own dynasty that catapulted his son John F. Kennedy (1917-1963) to the White House in the 1960 election.  But there are many others crucial to the story and their lives and actions are intertwined in the fabric of American society both past and present.

I forewarn readers that the story moves from one person to the next and then back again.  And although the book does follow a chronological order, it is actually several stories woven into one. Next to Durant, the life of Charles Stewart Mott (1875-1973) comes into focus as the authors examine his role at General Motors and actions at the Union Industrial Bank which plays a very important role in the story.   The authors also take a look as A.P. Giannini (1870-1949) the founder of Transamerica known today as Bank of America. Continuing on, Jesse Livermore (1877-1940) enters the picture as the poster-boy for the successful stock trader.  Charles E. Mitchell (1877-1955) joins the cast of characters as chairman of National City Bank, known simply today as Citi Bank.  His financial policies are believed by many to be one of the direct causes for the crash of the market. John Pierpont “Jack” Morgan Jr., (Jack Morgan) is a strong presence as well and readers will take note of a key situation involving Morgan and Joseph Kennedy that seemed to grind the latter’s gears and set him on due course to become a financial titan of his own. And finally for the New Yorkers, John J. Raskob (1879-1950) will be of high interest for his enduring contribution to the New York skyline: the Empire State Building.

One of the book’s major strengths is the explanation of the stock market provided by the authors, which is helpful to readers seeking to get an understanding of how the traders were manipulating and playing the market. Of course, the book is not intended to be a stock market guide but simple enough for the everday reader to understand in relation to the story being told.  Today, the market is just a competitive but back then, less regulation existed and traders were far more willing to engage in dubious and illegal activity as can be seen in the story.  The thirst for wealth was so contagious that traders in other countries would also play a role in the crash such as British investor Clarence Hatry (1888-1965), who some blame for ingiting the spark that caused the panic resulting in the plummeting of stock values across world markets.  The authors do not convict him in the book but leave it up to readers to decide. However, they do say this to make their point clear:

“To say that Hatry caused the Wall Street Crash would be to put it far too strongly. But to say that his downfall played no part in it whatsoever would possibly be equally misleading.” 

Undoubtedly, the crash had many causes and the number of people who deserve blame is quite significant. Greed and disregard for financial risk, allowed unrestrained investing into a market, held together by carefully adjusted interest rates and the exchange of foreign currency and other commercial goods. And a ripple in that temperamental network of world markets resulted in a crash no one thought possible yet everyone feared. From housewives to savvy Wall Street players, the impact was brutal and drove some to the brink of suicide. And today that risk is present as the market fluctuates constantly. However, in the wake of the crash, the Federal Government stepped in and imposed tougher regulations to prevent a replay of 1929.  And if there is any doubt as to the severity of the crash, this quote sets the record straight in the most sobering of ways:

“In the five hours the market had gone mad on October 29, it was later estimated that almost as much money in capital value vanished into thin air as the United States had spent on World War I. The loss was around ten times the budget of the Union in the entire Civil War.” 

Towards the end of the book the discussion shifts slightly away from New York and on to Berlin where a young Austrian named Adolf Hitler (1889-1945) is making a name for himself and using Germany’s dire situation and the crash to consolidate his power and grip of the Fatherland.  The connection between the market’s crash and Hitler’s rise to power will be of high interest to history buffs and aficionados of World War II.   And what the authors reveal about the relationship between Wall Street and Germany might leave some shaking their heads in disbelief.  There is far more to the story than I could possibly discuss here but what is disclosed explains why some elements of American society were hesitant to get involved in World War II.  The saying “follow the money” certainly does apply.

In the afterword to the book, the fates of those involved with the crash are detailed by the authors, and here we see how they ended up after devastating financial fallout.  The end result is often sad and in some cases involved criminal prosecution.  The government left no stone unturned and hardly any of the major places was ever the same again.  A few did rebound and fair quite well in later years but they are forever linked to that fateful autumn of 1929.  Some may wonder if another market crash could happen.I believe so but under extraordinary circumstances.  Regulations are far more stringent today and watchdog organizations keep a carefully trained eye on the market.  However, it is also true that if we do not know our history, we are condemned to repeat it.  The 1929 crash was nothing short of earth shattering and the repercussions were felt for decades.  This is the story of how and why it happened.  Highly recommended.


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