Andrew Ross Sorkin on the Crash of 1929 & The Parallels We See Today | The Real Eisman Playbook

Episode Overview

• Explores the 1929 Wall Street crash through the personal stories, motivations, and incentives of the key figures involved, as detailed in Andrew Ross Sorkin's new book.
• Describes the unregulated, "Wild West" nature of the 1920s financial markets, a time before the SEC when market manipulation by powerful financiers was common.
• Identifies the timeless ingredients that fuel nearly every market crash: excessive debt and leverage combined with the psychological driver of "Fear Of Missing Out" (FOMO).
• Details how the catastrophic aftermath and public outrage, fueled by the theatrical Pecora Commission hearings, led directly to the creation of the SEC and the Glass-Steagall Act.
• Draws surprising and eerie parallels between the speculative fervor, political dynamics, and human behaviors of the 1920s and those seen in the modern financial world.

Key Concepts

• The primary cause of financial crashes is a recurring combination of two factors: excessive leverage (debt and credit) and human psychology, specifically FOMO (Fear Of Missing Out).
• The 1929 market operated without regulatory oversight from bodies like the SEC, which allowed for blatant market manipulation and self-dealing schemes that would be criminal today.
• The massive public outrage following the crash, combined with shocking revelations of tax evasion and corruption from the Pecora Commission, was the direct catalyst for creating landmark financial reforms.
• The era was defined by power struggles between the "old guard" of finance, like J.P. Morgan, and aggressive "new guard" bankers like Charlie Mitchell, as well as political battles with reformers like Senator Carter Glass.
• A central theme is the critical role of human behavior—greed, ambition, compulsive gambling, and flawed incentives—in driving financial crises, a pattern that echoes from 1929 to today.

Quotes

• At 0:19 - "I wanted to know who the people were... I wanted to understand their motivations, I wanted to understand their incentives." - Sorkin details his primary reason for writing "1929," aiming to tell the human story behind the historical event.
• At 0:30 - "This truly was the Wild West. There were no rules. The SEC didn't exist." - Sorkin emphasizes the complete lack of regulation in the financial markets leading up to the crash.
• At 21:10 - "who's probably the Elizabeth Warren of his time... Carter Glass." - Sorkin describes Senator Carter Glass, a fierce critic of Wall Street speculation who became a primary antagonist to Charlie Mitchell.
• At 27:41 - "what causes almost every crash... It is debt, credit, leverage, plus FOMO, fear of missing out." - Sorkin provides a simple, two-part formula for what he believes is the root cause of nearly all financial bubbles and subsequent crashes.
• At 29:13 - "Tell us about the shenanigans they pulled by selling stocks to their wives." - Eisman prompts Sorkin to discuss the tax evasion schemes uncovered by the Pecora Commission, where powerful bankers would sell losing stocks to family members to book a loss for tax purposes.

Takeaways

• The fundamental drivers of financial crises—human greed and excessive leverage—are timeless and tend to repeat in similar patterns across different eras.
• Major regulatory frameworks are often not created proactively but are born out of public anger in the wake of a catastrophic market failure that exposes widespread corruption.
• Understanding the personal motivations and incentives of key financial players is just as important as analyzing economic data to comprehend why crises happen.
• The pre-SEC environment serves as a stark reminder of the crucial role regulation plays in maintaining market fairness and preventing systemic collapse.