1929: The Great Crash Page #7

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Richard Whitney, who had so boldly bought

stock on Black Thursday lost money of his own

and began borrowing from his brother and when

that didn't work, he began stealing from customers.

He ended up in jail, doing time.

The most prestigious bank in America, JP

Morgan was also found to be far from blameless.

The hearings uncovered evidence

of a list that offered preferential

deals on stocks

to friends in high places...

including a former President.

There were not only Morgan partners

and Morgan family members, but also

prominent corporate executives and

even some politicians...

Calvin Coolidge was on the

preferred stock-list, for example.

That was a practice...

that a lot of people felt was wrong.

Ferdinand Pecora had a great quote, he said, "it was

shocking disclosures of low standards in high places,"

which I love because you know

you could say the same thing today.

In response to public outrage

at the bankers' dirty dealings,

President Roosevelt set up the

Securities and Exchange Commission...

its task - to clean up Wall Street.

At its head, he chose a man who knew

more about unethical practice than most.

President Roosevelt when he introduced the

Securities and Exchange Commission to regulate

Wall Street, named his old friend and

supporter Joe Kennedy to be the first chairman.

That's putting the fox

in the chicken coup.

Although Roosevelt restored

confidence in the banking system,

the Great Depression would last

until the outbreak of World War II.

Then as now, the globalised

economy meant that

the Crash and subsequent Depression

rippled out across the world.

In Britain, there was a slump in

manufacturing and millions lost their jobs.

Germany... still suffering from

defeat in the First World War...

was hit even harder.

So many people had their life

savings destroyed during

the Great Depression that it created

in many countries a desire for some

authoritarian government that would

save them, that would rescue the economy.

No doubt that the Crash and the Depression

strengthened anti-capitalist movements.

The communists had taken over in Russia

and there were rising fascist movements.

Mussolini was already in power

in Italy.

And Hitler's political

base was growing in Germany.

And when American-style free-market

capitalism suffered from this Wall Street Crash

followed by a depression, it just strengthened

those people who wanted to say there's a better way.

While communism and fascism prospered, many

nations put up barriers to prevent free trade

and turned inwards, in an

attempt to save their economies.

Economic nationalism

led to trade wars, and later...

world war.

80 years on, those

who remember the bubble of the '20s

and the Crash that followed, feel

that they have seen it all before.

I don't think we

learned anything from it.

I have found that people's

memories are very short.

They make the same type of leveraged commitments

where they don't look at the downside risk.

You have a lot of cheap

credit in the 1920s.

Now we've had cheap credit and

people have speculated on houses

and now the housing

bubble has collapsed.

You have a heavily

leveraged American consumer...

he's into debt up to his eyeballs,

and he can't sustain that debt.

The sub-prime mortgage

crisis is a symptom of that.

In the '80s and '90s,

faith in the free market had

revived, and as optimism returned,

many of the financial regulations

which Roosevelt had introduced

were felt to be outdated, and

were slowly dismantled.

Yet again, a lightly regulated market

allowed speculation to grow unchecked.

We are now reaping the whirlwind of that

deregulation and in that sense we're in

exactly the same position as people

were in 1929 when the Government

turned a blind eye to what was

going on in the financial world.

What I do hope and I

do think, is that the government has

learned it lessons and is trying to

take steps that are much active

and much more aggressive than what

was taken in the '30s,

to try and stem

the pain and stem the decline.

The hope is that

such steps will work.

But the lessons from the Crash of

1929 are that history repeats itself,

that human folly and greed are much

stronger forces in financial affairs

than reason and restraint.

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