1929: The Great Crash Page #3

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tempted by Wall Street's promise of a quick buck.

Alice Austen discovers that she's running a

little low, and the question becomes, "What to do?"

Her friends

urged her to be conservative,

cut some spending, maybe not go

to Europe, maybe not buy a car.

Instead, Alice found a broker who advised her no,

buy stocks, become rich quick, and you know what?

You can borrow money, so you can buy

even more stocks, buying on margin.

And Alice Austen thought that, hey,

sounds like a good idea to me.

Throughout the soaring market

of the 1920s,

the Republican party stayed in power, on

the back of America's increasing prosperity.

Calvin Coolidge

became President in 1923.

An investor himself, he was notably silent

on the speculative mania gripping Wall Street.

Calvin Coolidge typifies the laissez-faire,

devil-may-care recklessness of the 1920s.

He was famous for saying that the

business of America IS business.

It was a prosperous period. Business was

making money. Wall Street was making money.

The politicians, I think, just said, "Well,

everything's fine. The economy's growing.

"The market takes care of things, and the

government's job is to get out of the way. "

During the Coolidge presidency, Wall

Street's power continued to grow unchecked.

His administration had close links with

an elite group of bankers and financiers -

Wall Street's inner circle.

Their wealth and connections gave them immense

influence over the government's financial policy.

There were small,

elite, private partnerships.

This was really the royalty

of Wall Street.

These were very mysterious

and discreet places.

They were small firms

with limited capital,

but they exercised

really an outsize power.

The most prestigious of these elite

firms was the JP Morgan Bank.

Strategically located directly

opposite the Stock Exchange,

it would play a key role

in events to come.

As senior partner at JP Morgan, Thomas Lamont

was the most powerful man on Wall Street.

His influence extended

well beyond New York.

Lamont and the other JP Morgan partners

spoke regularly with successive Presidents.

Grandfather was

a very, very busy man.

He didn't have time,

as some grandfathers might do,

to take his grandson

to the baseball game

or go fishing,

and do things like that.

Grandfather's lifestyle was certainly a very

handsome lifestyle. There's no question about it.

He did have his yacht, the Reynard,

which was a 72-foot, very handsome yacht,

which he often would cruise

down from his house in Palisades,

commuting by boat, if you will, down to Hudson

River to Wall Street, and then walk up to the bank.

Under Lamont's leadership, JP Morgan steered

clear of the worst excesses of the Stock Market.

But the close relationship between

elite bankers and politicians

helped keep government regulation

of Wall Street to a minimum.

While amateur speculators were transfixed

by the soaring value of their investments,

they were hopelessly unaware

of how Wall Street really worked.

With little government supervision,

the market was a law unto itself,

and insider-dealing was rife.

There was a lot of market

manipulation going on. It was rampant.

There was no disclosure at all. When Wall

Street was very small and very self-contained,

that was OK, but as people like you and me put our

hard-earned money into the market, then it really mattered.

The stock market of the 1920s was

neither fair nor democratic.

It was a big gambling casino and it

was rigged by professional speculators.

As smaller investors gambled

with their life savings,

they failed to realise that the odds

were stacked against them.

Men like Joseph Kennedy did not make their

fortunes by simply picking the right stocks.

The truth was that they were cashing

in on the naivety of gullible newcomers.

A bunch of sharp speculators

would get together

and in a co-ordinated fashion, they would start

quietly but relentlessly buying an individual's stock.

What they would do is hype up the

particular stock, buy it up themselves,

then dump it on the market

so that THEY took the profits

while the average investor in those

stocks were left with the losings.

Even some of the elite investment

houses on Wall Street

were engaged in

this type of market manipulation.

In March of 1929, a new Republican

President, Herbert Hoover, was inaugurated.

In his address,

he reassured Americans.

We have reached a higher degree

of comfort and security

than ever existed before

in the history of the world.

But behind the scenes,

he was less confident.

Hoover is actually sceptical about what's going

on on Wall Street, and the economy, generally.

But he doesn't have the political

courage of his convictions,

and so, when he becomes President,

he does nothing to rein in

this wild, speculative fervour.

He doesn't do anything to encourage

the Federal Reserve or the Treasury

to tighten up margin speculation

in the Stock Market.

In private, Hoover

talked of an "orgy of speculation",

but, like his predecessor Coolidge, he had

no appetite for regulation of the marketplace.

Yet Hoover was not alone in his fears that the

Stock Market bubble might be about to burst.

Days after the inauguration speech, a prominent

and highly respected banker - Paul Warburg -

broke ranks with the Wall Street

aristocracy, and issued a bleak warning.

If orgies of unrestrained speculation

are permitted to spread too far,

the ultimate collapse is certain to bring about

a general depression involving the entire country.

My great-grandfather issued a warning in

March of 1929. He actually used the word...

a "depression".

And he was shouted down.

I think he was disregarded.

He was, you know,

a party pooper.

I mean, "No, no! Everything's fine. "

Everybody's making money

and having a good time at the party.

So, when there is a good

bull market, the person who says,

"This might be getting over-valued,

"you'd better be careful",

he's dismissed.

Warburg's prediction

fell on deaf ears,

and between May and September 1929,

60 new companies were floated

on the New York Stock Exchange,

adding more than 100 million shares

to the marketplace,

fuelling the investment bubble.

You hear the same things

in every bubble -

this time is different, it's a different

financial world, it's a new financial world.

In fact, Groucho Marx went to his

broker at some point and said,

"I just don't understand how these prices

just keep going up", and the broker said,

"You just have to understand that

it's a global economy now. "

This was 1928, 1929! Gee, I think

I've heard that some time since then!

Some professional speculators sensed

that the market was overheating.

The more astute

got out during the summer.

One day, apparently, Joe Kennedy,

according to later recollections, he said,

"If the shoeshine guy knows as much

as I do about the Stock Market,

"maybe it's time for me to get out. "

In September, the market

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