PBS News launches 'Settle In' podcast with lessons from the 1929 stock market crash

Key Concepts

• "Settle in" Video Podcast: A new video podcast featuring discussions on significant topics.
• "1929: Inside the greatest crash in Wall Street history and how it shattered a nation": Andrew Ross Sorkin's new book detailing the 1929 stock market crash.
• Buying Stock on Credit (Margin Buying): A significant shift in investment practices where individuals could purchase stocks with borrowed money.
• Democratization of Finance: The process of making financial markets accessible to ordinary investors, moving away from an elite-only domain.
• Pump and Dump Scheme: A fraudulent investment scheme where promoters artificially inflate the price of a stock through false and misleading statements, then sell their own holdings at the inflated price.
• Margin Loan: A loan provided by a broker to an investor, allowing them to purchase securities on credit.
• Great Depression: The severe worldwide economic depression that took place mostly during the 1930s.
• Generational Scarring: The lasting psychological impact of traumatic events on individuals and subsequent generations.

The Launch of "Settle in" and Andrew Ross Sorkin's Book

The video announces the launch of a new video podcast titled "Settle in." The premiere episode features financial journalist Andrew Ross Sorkin in conversation with Amna Nawaz. The discussion centers on Sorkin's new book, "1929: Inside the greatest crash in Wall Street history and how it shattered a nation."

The Shift Towards Margin Buying and the "Democratization of Finance"

A key point highlighted is the significant shift in American financial culture that allowed individuals to buy stocks on credit, a practice previously considered a "moral sin" and culturally frowned upon, akin to visiting a pawn shop.

• Pre-1919: Taking on credit was culturally unacceptable.
• Catalysts for Change:
  • General Motors: Decided to sell more cars, implying a need for broader consumer credit.
  • Sears, Roebuck: Recognized the public's willingness to use credit and began selling appliances on credit.
• Wall Street's Role: Figures like Charlie Mitchell and Wall Street institutions saw this trend and aimed to "democratize finance," making the markets accessible to ordinary people beyond the financial elite.

Shady Practices and "Pump and Dump" Schemes

The conversation delves into the unethical practices employed by bankers during this period.

• Investment Pools: Bankers would form investment pools to artificially inflate stock prices.
• "Pump and Dump" Mechanism:
  • Wealthy individuals would create a scheme to buy stocks at escalating prices (e.g., $100, then $200, $300, $400).
  • The plan was to "pull the rug" by selling their holdings simultaneously.
  • The expectation was that ordinary investors, not part of the scheme, would buy at these inflated prices, becoming the losers while the scheme participants profited.
  • Trading floors were described as having actors with specific instructions on when to buy and sell, creating a shocking environment.

The Impact on Ordinary Investors and the Crash

Ordinary investors were ultimately caught in the middle of these manipulative practices.

• Beyond a Single Day Crash: The crash of October 1929 was not a singular event but a culmination of various factors leading to the Great Depression.
• The Peril of Margin Loans: The primary problem for investors was not just losing money as stock prices dropped. Because they had borrowed money to invest (margin buying), they were "on the hook" to repay these loans.
• Groucho Marx Example:
  • Groucho Marx, known for his conservative financial habits, was encouraged by his broker to invest heavily in the stock market, being assured of its future prospects.
  • In late October, he received a call demanding payment for his margin loan.
  • Unable to pay, he had to take out two mortgages on his home.

Generational Scarring and Psychological Impact

The 1929 crash had a profound and lasting psychological impact, leading to what is described as "generational scarring."

• Dramatic Consequences: The period was marked by dramatic events, including suicides.
• Grandfather's Witness Account: Andrew Ross Sorkin's grandfather, who was 11 years old during the crash, witnessed someone jump out of a window on Wall Street after the market collapse.
• Lifelong Aversion to Stocks: This experience led his grandfather to never buy a stock, believing the market was "not for us." He preferred to invest in bonds and likely kept cash hidden.
• Widespread Psychological Impact: This created a generation of people psychologically scarred by the events, leading to a deep-seated distrust of the stock market for many.

Conclusion and Availability

The conversation underscores the devastating consequences of unchecked financial speculation and the manipulation of ordinary investors. The episode highlights how the "democratization of finance" was, in some instances, exploited through fraudulent schemes, leading to widespread financial ruin and lasting psychological trauma.

Full episodes of "Settle in" are available on YouTube, Spotify, Apple Podcasts, and other podcast platforms.