Galbraith's Great Crash 1929 revisited

Monday, April 6, 2009 2:05 p.m.

One of the classics in economic history is John Kenneth Galbraith's The Great Crash 1929 published by Mariner books, Houghton Mifflin originally in 1954 but reissued five times since.I have spend the past two days rereading the book.It has been a haunting but in some ways pleasing experience. Galbraith was a brilliant story teller and his tale of the 1929 crash is unparalleled in terms of its mordant style and penetrating insight into the folly of the human condition.It is also uncanny the number of parallels that exist between the cast of characters and events of the great crash with those of the crash and panic of 2008. In 1929 there were the absurdly over leveraged watered stocks of the Shenandoah and Blueridge trading companies launched by none other than Goldman, Sachs .Both of these bull market driven ventures collapsed during the crash. Deleveraging then as now claimed hundreds of thousands of victims. There were also a number of Madoffs and others who while not as dishonest certainly pushed the boundaries of acceptable behaviour. Charles Ponzi after all had cut his spurs during the great Forida swamp land speculations of the mid 1920s.
The crash and subsequent depression claimed many prominent victims .Richard Whitney ,for example,the vice president of the New York Stock exchange in the late 1920s emerged bankrupt in 1938 after   a series of bad investments, excessive loans and questionable practices.He wasn't alone.

Galbraith also points out that despite the evidence of disaster with predictable frequency there were regular proclamations of optimism and confidence by politicians, financial and business leaders alike.President Hoover held multiple meetings at the White House with bankers, industrialists and business leaders. These were followed by press conferences and photo ops at which positive upbeat assessments were proclaimed.

There was also a false recovery in the stock market, the so called bear rally in January, February and March of 1930 after the crash in October of 1929 . This rally soured in April 1930 and values plummeted until their low point in June 1932.In the early days after the crash prominent wealthy personalities like John D. Rockefeller were heralded by the press for their purchase of "sound stock" at cheap prices. Better days seemed just around the corner.

Spend some time with Galbraith and then consider our current circumstances. President Obama thankfully is not Herbert Hoover and the stimulus put in place is far superior to what Hoover did.

But the parallels are haunting nonetheless.