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An Economic History of the US in Five Stock Market Crashes

I’ve been searching for a book that combined the history, the people, and the emotional roller coaster of US economics. Given all that’s happening, I wondered how events today compare to other times in US history. I’ve spoken to people who lived through stagflation when interest rates were 15%. In history classes at school, I read about the Great Depression and the Roaring 20s. But I still sought the feeling of living it day-to-day.

I read Galbraith’s The Great Crash of 1929 and it’s good, but focuses only on a single event. A History of the United States in Five Crashes is the best I’ve found.

The book recounts five crashes: 1907, 1929, 1987, 2000, and 2010. So it doesn’t cover all US stock market crashes. But, the storytelling engrosses you, and you can imagine yourself reading the paper during those times, wondering how to invest. Exactly what I was looking for.

The author argues that low-interest rates combined with a new financial product and a geopolitical event caused all five crashes. In 1929, investors piled into investment trusts, which were lightly regulated and highly speculative. Also, the Federal Reserve chairman was good friends with the chairman of the Bank of England. The UK sought more gold deposits to return to a gold-backed currency and asked the rest of the world to lower their interest rates. The US Fed complied for ten years (!), and a bubble ensued.

I also didn’t realize how volatile markets were in that era.

The Dow had gained 48.2 percent in 1928 and a combined 90.8 percent during 1927 and 1928, still the second-best two-year run the Dow has ever had, trailing only the 95.9 percent gain made during the two years ending in 1905.

The book captures the quotidian sensation of reading the ticker. The stock market vacillations are written as a play-by-play, like a football match. Technology companies of the era - the radio companies and the utility companies - traded at stratospheric multiples and endured nausea-inducing swings in their daily share prices (SaaS).

Plus, the cast of players are spirited characters. It’s 1901. Teddy Roosevelt, shunted into the Vice Presidency by powerful politicians who wanted him out as governor of New York state, is sworn in as President after an anarchist assassinates President McKinley. Almost immediately, TR declares war against the monopolistic companies of the day (Facebook, Google, Amazon) and catalyzes a bear market. While the market is plummeting, TR can be found hunting bear deep in the American bush.

In this era before the Federal Reserve, the banks step in to shore up the market. JP Morgan, a colossus of the epoch, backstops loans and shores up equities to curb the plunge. And it was the foot traffic of other key bankers to Morgan’s office on Wall Street that journalists write about that imbues confidence in the market.

And that’s just the the first crisis. There are all sorts of chestnuts nestled in the book. The stock market used to be open on Saturdays for half-days. There’s an aside about the origin of General Motors and the allure of car stocks (Tesla). And how each era has its investment fad: chain banking, junk bonds, investment trusts, (passive investing).

The allure of historical economics, and perhaps the siren’s call, is the desire to see patterns from the past and apply them today. There are parallels to find between the modern era and today in this book. But, better is to see how they rhyme. You can see where I found rhymes in italics in this post.

If you’ve come across other similar books, please send them to me. I’d love to read them.