The inside story of the greatest crash in Wall Street history | AFR

It took Sorkin eight years to write 1929, and not just because he was busy breaking stories in his “day job” and hosting DealBook conferences that attract the marquee names from Hollywood to Wall Street and Pennsylvania Avenue (actor Halle Berry, Californian governor Gavin Newsom and Treasury Secretary Scott Bessent are scheduled to appear in December).

His research was prodigious. He travelled to universities and libraries across the country, to which tycoons and politicians had donated their papers. He found private correspondence and unpublished memoirs. Using the Freedom of Information Act, he sought minutes of Fed meetings. The Fed’s response was heavily redacted. Sorkin persisted, and the Fed eventually released unredacted minutes.

He even consulted the “Table of Sunrise/Sunset Moonrise/Moonset” at the US Naval Observatory. So when Sorkin writes about the “darkening downtown streets” filled with “anxious brokers in their fedoras and flat caps, messenger boys and switchboard girls” trading gossip, you can trust it is not historical fiction.

But this is not a dry academic tome for economists. It is a drama, told through characters who were at the centre of it – bankers, moguls, senators, politicians, and an astrologer who charged clients $50 a session to advise them on which stocks to buy based on their zodiac sign.

It is easy to imagine 1929 being turned into another Wolf of Wall Street.

Even Winston Churchill got caught up in the sharemarket frenzy of the 1920s. “Wearing his customary trilby hat and carrying a cane with a silver knob” (these colourful details make 1929 such a delight to read), he had arrived in the US on a trip organised by Bernard Baruch, legendary millionaire market speculator and adviser to presidents. Baruch paid for Churchill’s room at the Plaza Hotel, as well as his cigars and brandy. In one week, Churchill, who had overdrawn his bank account and was delinquent in his tax payments to the UK, traded more than £400,000 on the US sharemarket.

On Black Monday, Churchill, who enjoyed the company of the rich and famous, was guest of honour at a dinner at Baruch’s Fifth Avenue home (six storeys; 10 baths). Charles Mitchell, president of the country’s largest bank, National City Bank, proposed a toast. “To my fellow formermillionaires,” said Mitchell, whose National City shares had fallen from $450 to about $200. (Churchill lost everything he had invested in the market, his account £75,000 in the hole.)

Mitchell is a central character (villain?) in Sorkin’s fluid narrative. In his early 50s, athletic, legendary energy, optimistic – “Sunshine Charley” – in 1928, he was one of the highest-paid executives in the world. His home on Fifth Avenue included a music room for his children; he had a butler, valet, two footmen, five maids, a French governess.

Mitchell was also a member of the Federal Reserve board, which had been established only a few years earlier, a compromise between industrialists who wanted a strong central bank to lend money and small towns and farmers who feared federal power. To curb the sharemarket speculation, most of the bank’s governors wanted to raise interest rates. Mitchell argued for lowering them – so that more people could buy shares on credit and, more prosaically, so his National City Bank (known today as Citibank) could make more loans to more customers to buy shares on credit that the bank was selling or in companies that were bank clients.

In Mitchell’s view, shares were no different than a vacuum cleaner or dishwasher. “We sell our goods over the counter just the same way a clerk sells a necktie,” said the man who wore bespoke suits. Besides, as Sorkin writes, the attitude was “if Americans wanted to gamble, they should be allowed to do so without Uncle Sam sticking his nose in their affairs”.

In an effort to avoid panic and bolster confidence in Wall Street, and fearing a run on his bank, Mitchell had bought more of his bank’s shares as the price fell. With his losses hovering around $4 million, he entered into what can rightly be called a sweetheart deal. He “sold” 18,300 of his bank shares, for which he had paid $367 a share, to his wife for $212 a share, with an agreement to buy them back. Under US tax law, he could offset the “loss” – $2.7 million – against his salary. As a result, Mitchell paid no income taxes in 1929. Jack Morgan, the head of JPMorgan, the storied investment bank, paid no income tax in 1931 and 1932. Nor did any of the firm’s top 20 partners.

A few years later, called before a congressional committee investigating the crash, Mitchell was indignant when the sale was described as a sham. Mitchell’s attitude, shared by other bankers was, as Sorkin puts it, “What happened on Wall Street, in their view, was none of Washington’s business.” Less regulation. Not more. Lower taxes. They were patriotic, they argued, not greedy.

Mitchell’s nemesis was a senator named Carter Glass. Openly racist – “the South had no intention of letting the Negro vote” – Glass was also determined to “reform” the banking system, by which he meant prohibiting banks from engaging in traditional commercial banking (taking deposits; making loans), and investment banking, underwriting securities, selling stock, facilitating mergers. The separation was necessary, Glass argued, to protect the deposits of ordinary Americans from the stock traders and speculators.

Long before today’s social media and “disinformation”, covert smear campaigns were part of American politics. On one occasion, a wealthy Democratic donor hired a journalist to plant scurrilous and false rumours about president Hoover, blaming him for the sharemarket crash.

In the 1932 presidential election, Hoover was defeated by Democratic candidate Franklin Roosevelt. The run on banks had reached epidemic proportions – an average of 60 bank closures a month in 1930. A bank holiday was needed. Hoover didn’t want to do it alone, fearing it would tarnish his legacy. He asked Roosevelt, who was highly popular after winning 57 per cent of the vote, to unite in calling for one. Roosevelt refused to let Hoover get any credit. Two days after being sworn in, Roosevelt declared a national bank holiday.

Roosevelt’s sweeping victory and popularity reflected a rising distrust of business, Wall Street and Washington as the Depression deepened. In 1932, Glass’ crusade to separate commercial banking from investment banking became law when Roosevelt signed the Glass-Steagall Act. (The Steagall provision provided federal insurance for an individual’s bank deposits. The law remained in effect until repealed by president Bill Clinton in 1999, under pressure from friends on Wall Street; many economists have argued that the repeal contributed to the financial crises of 2008 by loosening the regulation of banks.)

“Could the 1929 crash have been avoided?” Sorkin asks at the end of his book. “The short answer is yes. There were plenty of opportunities to arrest the forces of speculation as they got out of hand.”

With the wild frenzy and speculation today in bitcoin and AI, one has to ask if we are missing opportunities today.

1929: The Inside Story of the Greatest Crash in Wall Street History, by Andrew Ross Sorkin, published by Penguin Australia, $39.99.

Raymond Bonner is a Pulitzer-prize winning former New York Times correspondent and owner of Bookoccino, in Avalon.