Charles Mitchell and the 1929 stock crash

https://thehustle.co/the-banker-who-caused-the-1929-stock-crash/

by paulpauper • 4 years ago

141 86 4 years ago

burglekutt• 4 years ago

Such a clickbaitey title. There were just a few.. THOUSAND.. causes that culminated in the 1929 crash, but saying one person caused it gets those clicks.

hypertele-Xii• 4 years ago

"Mitchell more than any 50 men is responsible for this stock crash." — U.S. Senator Carter Glass, November 1929. [1]

[1] https://web.archive.org/web/20070905000359/http://www.time.c...

eesmith• 4 years ago

If he were one of 10,000 then he could be 50x more responsible than the next, and still not be "the banker who caused the 1929 stock crash."

BTW, I stuck that phrase into Google Scholar and found https://www.cambridge.org/core/journals/business-history-rev...

Extremely successful both as an investment and as a commercial banker, Charles E. Mitchell was identified by contemporaries as the epitome of the unscrupulous “money changers” whose speculative dealings they felt played a major role in the Crash of 1929 and the ensuing economic collapse. This portrayal has been echoed and elaborated by historians and commentators down to the present day. In this article Dr. Huertas and Dr. Silverman demonstrate that Mitchell's activities, while sometimes ill-advised, were motivated by the economic “good sense” of the day and were not attributable to either rampant immorality or ungoverned greed. At the same time, they direct the attention of economic historians to the monetary policies of the Federal Reserve system in the 1920s and 1930s—in which Mitchell also played a role—and suggest that a more potent source of the Great Depression lies therein.

dang• 4 years ago

Yes, we've changed the title now (as the site guidelines ask in such cases: https://news.ycombinator.com/newsguidelines.html).

Please let's talk about the interesting bits now.

redkinght99• 4 years ago

Charles Mitchell, saved you a click. https://en.wikipedia.org/wiki/Charles_E._Mitchell

photochemsyn3• 4 years ago

"What Is the Glass-Steagall Act?

The Glass-Steagall Act, passed in 1933, forced commercial banks to refrain from investment banking activities in order to protect depositors from potential losses caused by bank speculation in stocks. Glass-Steagall was largely repealed in 1999..."

https://www.investopedia.com/articles/03/071603.asp

As far as this headline, it's the worst kind of nonsense, comparable to "This is the pebble that caused the avalanche!".

melling• 4 years ago

Didn’t repealing it make the 2008 financial crisis worse?

onionisafruit• 4 years ago

That's what NPR told me.

photochemsyn3• 4 years ago

Yes indeed. Probably the best cinematic take on that is in the movie Margin Call - here's the senior partners meeting:

https://www.youtube.com/watch?v=Hhy7JUinlu0

Essentially, the dissolution of Glass-Steagall allowed investment banks to create complex financial packages, each one constructed out of dozens if not hundreds of home mortgages. Each individual mortgage was graded but the packages were built out of a mixture of low-grade and high-grade mortgages. Since trading (gambling) with these packages was very lucrative, the investment banks worked with shady mortgage brokers to increase the number of packages by pushing adjustable-rate mortgages on gullible people who probably were not that familiar with compound interest calcululations. These unlikely-to-succeed mortgages were mixed in with the high-qulaity mortages to create a wide variety of highly leveraged financial products, and then bets were placed on the outcomes of trading in these products (derivative markets, synthetic CDO squared nonsense, etc.). Once people realized that many of these mortgages were not going to be paid off, then the avalanche of collapse began.

Glass-Steagall, if retained, would have made all of that impossible.

rufus_foreman3• 4 years ago

A better explanation might be the enactment of the Commodity Futures Modernization Act of 2000 (CFMA) which prevented regulators from treating derivatives as futures under the Commodity Exchange Act or as securities under existing securities laws.

Even with that act, there is an argument that it merely codified the existing situation and the crash would have happened without the law being passed.

bruce5113• 4 years ago

The crash didn't happen because of 1 banker, but it did happen because of things he, and his contemporaries dreamed up.

Basically bankers make money when money flows. It flows only when "there is something better". So to keep making money there always has to be "something better" and ultimately that becomes unsustainable.

1929 was a re-adjustment, where all the bullshit is cleaned away. It was perhaps the first time it impacted such a large portion of society. An education of the masses if you will. Crashes did, and will, keep happening again - as long as the myth of "forever going up" persists.

In the early 2000s it was property. Today its (maybe /likely /probably) crypto.

At least today society is notably, collectively, smarter. There are a lot more naysayers in general, and whole there will be crashes, they tend to be more limited in scope and reach.

But greed, the root of all of this, will always be with us. Greed offers some to be winners, but most to be losers.

bogota• 4 years ago

Really today its crypto? The tiny market and not the massively overpriced tech stocks trading way way above earnings. They have just slightly corrected from the covid mania but many are still trading at ridiculous multiples that everyone justifies with “they will keep growing”

bruce5113• 4 years ago

Not exclusively crypto, but when I see adverts for crypto on TV, and hear it pitched over radio, then I wonder.

At that point it's appealing to the least sophisticated investors, which to me is the first signal of a bubble.

The nature of a ponzi scheme is that it starts small, but then has to appeal to an ever larger group. This ends with mass advertising to reach the biggest group of all. Then what?

Couple this with the tone. Crypto is being marketed as an investment, not as a utility, not as a currency. Its sole appeal is "it will go up".

Crypto itself is mostly a solution looking for a (legal) problem. While the killer app is facilitating illegal activity (which has some value for moral, but illegal activity - alas a minority of the actual use case) that's a hard sell. Finding a legal killer app though is proving elusive. Most things it _can_ do are already done better/faster/cheaper/simpler another way.

Of course it has some utility, but nowhere near the hype levels.

Tech stocks - yes, they are high, and will likely correct some. But apple, Google, Microsoft, amazon, Facebook and friends are all generating huge amounts of revenue and profit. Their stock values are massive, but their profit levels are unprecedented.

Startups get a lot if attention, but from VCs which is not public money, and not traded to the public, so is a different kind of bubble, unrelated to the 1929 depression etc.

Phurist• 4 years ago

That's what they keep saying throughout history, yet it seems that tech industry as a whole just wants to reach these highs over and over again. I wonder why ? Could it be because it's the superior business case, which can reach global markets at ease ?

Oh noo... noo how can that be... my wood workshop in Agbogbloshie Dumpsite, Ghana has the best business model known to mankind, how can it be that it can not compete with BigTechCorpo123 ? Oh.. I don't know... maybe because BigTechCorpo123 can sell their product to the whole world at ease while your wood toys have to be shipped by vans ?

Shorel3• 4 years ago

I think it is properties again. And harder this time.

Except this time it is worse. It's not about the rising prices of properties, but the idea that there isn't something else more profitable than real state long term that makes me feel the economy is stuck in a bad place.

Cryptocurrencies are noisy news-makers, but their total value is still very small compared to basically anything else.

tjr2253• 4 years ago

Property is intrinsically limited. Property in desirably places is especially intrinsically limited. You’re basically lucky if you own any property at all at this point.

Just take a gander and how much property in Hong Kong or Amsterdam costs and you’ll start to think it is cheap in the US. It’s only going to get worse. Do you think that people are going to desire living in Santa Monica or Queen Anne less over the next few hundred years?

Our planet is getting smaller relative to the amount of people that live on it and relative to the habitable places that exist.

throwaway2904• 4 years ago

I think it's scarcity (or to be precise scarcity mentality, which would probably extend into post-scarcity). The very reason for trying to find profit in the first place, real estate crypto or whatever, arises from wanting to outcompete someone else for resources.

imtringued2• 4 years ago

If you own land you own a piece of the planet. How much is permanent ownership over a given plot of land worth? Millions? Billions? Trillions? Infinite?

Why would any sane person even run a business if the government pays massive subsidies (public services) to make your land more valuable? Just buy more land.

just_boost_it• 4 years ago

I think when people forget that the crisis in 07/08 wasn't just a dip in property values. The entire financial system had managed to get itself propped up on extreme leverage against the single bet that mortgages would almost never default. That extreme leverage put the whole system in a highly unstable state, and it took just a little stress to pull the whole thing down. It collapsed the entire risk management systems of banks, funds and companies across the entire economy. That meant that there was nobody in the market that could lend, and everyone needed to borrow to try and plug the gaping hole that was ripped in their balance sheets.

The financial system just isn't completely levered to housing that way today. Today, an economic slowdown might lead to a dip in property prices, but to find an event that would cause widespread and long-lasting damage to the financial system I think you're going to have to look elsewhere.

bmitc• 4 years ago

At least today society is notably, collectively, smarter. There are a lot more naysayers in general, and whole there will be crashes, they tend to be more limited in scope and reach.

Is that really true?

rufus_foreman3• 4 years ago

No, society is getting less smart. Average IQ is falling and has been for almost half a century, which has been obvious to anyone who has lived through it.

irjustin• 4 years ago

At least today society is notably, collectively, smarter.

My pessimistic view will say greed will wipe out any "collective" smartness and the cycle repeats.

G3rn0ti• 4 years ago

it did happen because of things he, and his contemporaries dreamed up

Well yes and no. The common root of all evil behind all the bank runs and market crashes throughout the last 100 years is monetary inflation. It is not a coincidence that the worst economic crises happened after the installation of the Federal Reserve.

For a good general overview on this topic I recommend reading „The Ethics of Money Production“.

roenxi• 4 years ago

But greed, the root of all of this, will always be with us.

Greed isn't the root of all this, because greed was present at times when the market did crash, didn't crash, generated enormous real value and at all other times. Greed is just a mindset that makes people act, a bit like a fuel for activity. Fuel is associated with forest fires, but fuel isn't really a root cause.

5 years of confusion in the stock market isn't even that interesting. We shouldn't be talking about it almost a century later. Our stock market isn't even connected to the performance of the real economy like it was back then, modern markers went up during COVID and down with the recovery, because central bank policy has successfully dissociated reality from returns.

ianai• 4 years ago

1929 refuted the notion that “what goes down will come back up.” Society in the US pushed hard for decades to investigate and protect against similar market conditions through banking regulations and oversight. Galbraiths work is worth reviewing on this. (The sad truth is much of those safeguards were dismantled by the 50s.)

Definitely history worth studying.

vsareto• 4 years ago

At least today society is notably, collectively, smarter.

Intelligence has gone up, Wisdom has declined

chatterhead• 4 years ago

1929 wasn't a readjustment and the early 2000s weren't about property and no we are not "...notably, collectively, smarter."

Stay in school.

themitigating• 4 years ago

How great that he was never punished and lived out the rest of his life in luxury.

When are we going to start going after these rich assholes in a serious way?

saulpw• 4 years ago

Pecora was no grandstanding politician. He was a cigar-smoking, fedora-wearing New York City prosecutor who liked to call the bank executives “banksters” because he saw them as finance gangsters.

logifail• 4 years ago

"The bank was just basically selling anything that came along that they could make money on, and really weren’t telling investors about what their internal investigations had uncovered about the quality of the securities."

That line sounds like it could be straight out of The Big Short (2015), essentially nothing has changed in the best part of 100 years.

sroussey• 4 years ago

Can I interest you in an ICO?

vaneri2007• 4 years ago

Nothing changes and nothing will ever change. Once you reach a certain level, you are above law and other sharks will see value in you. You will no matter what make money, even idiots at this level make money. Got something similar in my company, lots of big and important people joined; took all the money and either flee to other companies or stayed on the board of director while lots of people were let go! Image is more important than results.

klelatti• 4 years ago

On the other side of the pond there is also Clarence Hatry

https://en.wikipedia.org/wiki/Clarence_Hatry

Economist John Kenneth Galbraith described Hatry as "one of those curiously un-English figures with whom the English periodically find themselves unable to cope."

gibsonf1• 4 years ago

The real culprit, the federal reserve and artificially low interest rates as we are witnessing yet again.

Charles Mitchell and the 1929 stock crash

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