00:00 Speaker A
Joining us now, Andrew Ross Sorkin, New York Times columnist and author of The Greatest Crash in Wall Street History of 1929,
00:09 Speaker A
And how it divided the nation. And and Andrew, I just bring up what’s going on because you’ve been drawing parallels in many of your discussions about the book. So, you know, what do you think? Do you really think that?
00:20 Speaker A
Are we at risk of such an accident? Do you think it is because of this type of financial engineering and innovations that are making people take bigger risks in the market?
00:29 Andrew Ross Sorkin
So yes and no and and I don’t think we should have crashed or we should have crashed like we did in 1929, which actually in many ways I hope was a historical aberration and it wasn’t just the crash but a series of policy choices that ultimately led to the uh and the great depression. therefore
00:46 Andrew Ross Sorkin
If you think we are in a bubble today that can and probably will pop at some point, that doesn’t mean the consequences should be that dire.
00:58 Andrew Ross Sorkin
I think we’re in a moment right now, and I don’t know if we’ve forgotten 1929, maybe we’re in 1996, 97, something in that order,
01:05 Andrew Ross Sorkin
Uh where you see you know some random spending in terms of artificial intelligence, uh you see concentration in a certain part of the market, and then you see a lot of new products. Uh you talked about what’s the strategy and the strategy is the new product, but you know, I think we’re going to see a lot of private credit, private equity, venture capital investment uh, tokenize things in the retail space. I think when you have this kind of thing going on in the market,
01:33 Andrew Ross Sorkin
Uh often without the disclosure and transparency you want, uh it can create problems. So I wouldn’t be surprised if we have some kind of problem, but again, I don’t think it should be in the 1929 category.
01:47 Speaker A
I mean, even reading your book I was surprised that there are some similarities. You know, you obviously have a huge gap between rich and low-income people and the rising stock market is seen as a lottery ticket or a way to catch it in some way.
02:05 Speaker A
Your point in the 20s is that regulators didn’t step in until it was too late to try to stop that behavior. Now what is the regulatory background? Cause it doesn’t seem like there are many curbs, maybe more than that, but not many curbs.
02:20 Andrew Ross Sorkin
So here I will give you the differences and then the similarities. Differences are, in 1929 there was no SEC. So insider trading was legal. Uh there was no FDIC. So you don’t have an insurance deposit. That’s why we ran the banks the way we did. We didn’t have capital requirements on banks, that came in 1940 in the Bank Act. therefore
02:40 Andrew Ross Sorkin
There are differences, important differences.
02:42 Andrew Ross Sorkin
I would say the big difference today is that actually a lot of the guard rails that were put in place in the 30s and beyond when we started talking about putting private assets in the public market, are they called semi-liquid instruments, uh that you’re seeing or this idea of tokenizing private investment. All, by the way, under the guise of democratizing finance, which was the phrase of the day
03:07 Andrew Ross Sorkin
In the 1920s. I think you have to start uh to worry and look and then there are open issues about how transparent any of these things are. Every financial crisis, at least the one I’ve tracked now
03:19 Andrew Ross Sorkin
Really is a function of leverage in the system. And the question today is how much leverage is actually there? When you look at AI, it’s not just a tech company, some of which obviously have big um uh balance sheets, they’re leveraging a blue, you know, meta a blue owl private credit leveraging. Others are going out of order of the normal system and I think we don’t know where all the benefits are, the energy sector that’s supporting it, the uh real estate sector that’s supporting it.
03:49 Andrew Ross Sorkin
Where is all that profit? And that’s a big, big issue to think about. And then the last piece on leverage, which is that it’s not just corporate debt. You know, in 1929, there was a budget surplus. So what I always worry about is if we get into a crisis,
04:02 Andrew Ross Sorkin
The answer we learned from the pandemic from 29, 2008 is throw money at the problem, spend money because you don’t want to austerity. That was the correct answer. But do we hit some kind of red line breaking point in terms of our government debt, at which point the bond market says, we’re not going to do this anymore and then what?
