Chapter 1: What is the main topic discussed in this episode?
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This is Fresh Air. I'm Dave Davies. It hasn't happened much in recent years, but there have been times when the US economy has experienced the kind of convulsive upheaval that threatens the jobs and life savings of millions of people.
In 2008, only massive cash infusions from the federal government prevented the collapse of leading financial institutions critical to the functioning of the economy.
Today, many analysts are again warning of serious risks building in the economy, from heavy speculative spending on artificial intelligence, the influence of so-called shadow banks, the growing use of cryptocurrency, and uncertainty caused by the unpredictable tariffs imposed by the Trump administration, risks that could potentially lead to another crisis.
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Chapter 2: What historical lessons can we learn from the 1929 crash?
The Waldorf Astoria, Rockefeller Center was being constructed. So it really was this sort of remarkable period. And you can see what boom times created even today.
So when the stock market really began the nosedive and stocks started to crash, in the kind of popular memory of this, that led to the Great Depression. But it's interesting. When I read your book, the slide into the economic depression really took a while. By the end of 1930, the market had counter-rallied a little bit, no widespread bank failures.
But by the end of 1932, 11,000 banks had closed. Unemployment was 23 percent, 13 million Americans out of work. And the question was what should the government do about this? Herbert Hoover was the president. He had been elected in 1928, right? What was his approach?
So Herbert Hoover arguably was probably in the best position to deal with this. He'd actually been in Treasury at the time of the last crash, which was 1920, 1921. But, you know, he doesn't get into office, into the White House until March 4th of 1929. So there actually wasn't a lot of time ahead of the crash. in October.
So there's a real question of what should have he done on the front end to have prevented the crash? And then, of course, the question is, in the aftermath of this crash, what are the right tools to have used? So to prevent the crash, the question is, could have they really tamped down the amount of margin that people were using? Or had people used so much margin that had you actually
tried to stop people effectively from borrowing money to buy stocks the way they were. And there was an attempt to do that, though quite unsuccessful.
You're talking about essentially squeezing credit and just not making it so available, right?
Squeezing credit. If you had gone to the banks and said, look, you know, if somebody walks in the brokerage and says they're going to give you a dollar, you can't give them 10. You can give them up to three, which is, by the way, what it is basically today. Back then, there were no rules. There were no what they call capital requirements.
Banks didn't have to keep a certain amount of money on hand at any given moment. There were no insider trading laws. So all of the sort of manipulative behavior, even the corruption that was taking place was genuinely legal, not illegal, legal. Then you have the crash itself. And as you described, it really is like a slow motion crash. I think everyone has an impression that
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Chapter 3: How did speculative frenzy contribute to the 1929 stock market collapse?
The separation of investment banking from commercial banking so you wouldn't be using your depositors' money to gamble, I mean, that was essentially repealed in a bill signed by Bill Clinton in 1999 and probably contributed to the 2008 crisis. A lot of economists and academics and business writers are saying that now – There are some pretty scary signs out there.
We see a roaring stock market but underlying trends that maybe could threaten another crash. I mean the things that people cite a lot are a lot of optimistic spending based on the assumption that artificial intelligence will transform businesses. We're seeing these huge data centers go up around the country.
Increasing use of cryptocurrency particularly now that it has been embraced by Donald Trump. And then the growing influence of these shadow banks. I don't quite get this. These are financial firms that can finance a lot of stuff but operate outside the regulated banking system, right?
Let me explain the shadow banking thing because I think it's important. After 2008 and the financial crisis that we had there, we decided to regulate our banking system in a much more meaningful way, frankly, which made it harder for banks to lend money the way they had before.
One of the things that sprung up on the other side of that regulation was an entire new system where effectively private equity firms and other investment firms decided they would start to loan money to businesses, small businesses, large businesses instead of the banks.
Those firms are not regulated like banks, but so much of the lending in America has really moved into what we call the shadow banking system because it's a shadow lending system. It's almost like the banks without the regulations that the banks historically had. And so there's one view that it's actually a safer form of lending because it's not attached to the banks in the same way.
But there's another question, which is because we don't have transparency into this marketplace, we don't really know how large the loans are and how interconnected those loans are. What happens if things turn bad?
What is the additional risk posed by this?
Well, there's a couple of risks. The first is this is not just rich people's money being loaned out. It's pension money being loaned out. It's insurance money that's being loaned out. And because it's so concentrated and so much of the loan process is now moving through what's called private credit or shadow banks, the question is if the economy were to turn south and
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Chapter 4: What role did margin trading play in the financial crisis of 1929?
Andrew Ross Sorkin is a business and financial columnist for The New York Times. His new book is 1929, Inside the Greatest Crash in Wall Street History and How It Shattered a Nation. On tomorrow's show, we hear from longtime sports journalist Sam Smith and Phil Jackson, who coached the Chicago Bulls and Los Angeles Lakers to 11 NBA championships.
Their new book, Masters of the Game, shares untold stories and hard-won lessons from some of the greatest players in basketball. I hope you can join us. To keep up with what's on the show and get highlights of our interviews, follow us on Instagram at NPR Fresh Air. Fresh Air's executive producer is Danny Miller. Our technical director and engineer is Audrey Bentham.
Our managing producer is Sam Brigger. Our interviews and reviews are produced and edited by Phyllis Myers, Roberta Shorrock, Anne-Marie Baldonado, Lauren Krenzel, Monique Nazareth, Thea Chaloner, Susan Yakundi, Anna Bauman, and Nico Gonzalez-Whistler. Our digital media producer is Molly Seavey Nesper. Our consulting visual producer is Hope Wilson. Teresa Madden directed today's show.
For Terry Gross and Tonya Mosley, I'm Dave Davies.