I finished John Kenneth Galbreath's book about the stock market crash and, almost in passing, its connection to the Great Depression that followed.
He closes with some interesting observations, listing major contributing factors. At the top of the list, extreme income inequality. The problem as he sees it is that the whims of a few major players can make an impression that the chaotic urges of thousands of lesser lights cannot -- unless they're following the lead of the big guys. There'd been booms and busts during the era of the "robber barons" a few decades earlier and the phenomenon of extreme wealth for a very few came back even harder in the 1920s. Look around: we've got that again.
He follows that with "bad corporate structure," the kind of trusts and holding companies that concatenated during the boom years before the Crash, companies that existed only to own the stock of companies that also existed only to own stock and so on: while they amplified gains, they also amplified losses, so that when things went bad, they kept getting worse. While that kind of thing is a lot less likely today -- and you can thank New Deal reforms and regulations for the reduced risk -- any novel financial instrument carries similar risk, as the sub-prime mortgage crisis awhile back revealed.
"Bad banking structure" comes in for censure, and that got a post-Crash restructure, too. Some of it has been rolled back. Good, bad? I don't know; ask an economist. Ask three of 'em, and you'll get four different opinions.
Next, "the dubious state of the foreign balance," and Galbreath credits high tariffs with helping to create the problem. They were not nearly as high then as they have become in the last few months. Ouch.
The stock market has "circuit breakers" these days: if prices start plunging, trading is suspended. While that may sound like a cheat, one of the main reasons for it (past putting brokers in time out to ponder their actions) is to let the record-keeping catch up. On multiple occasions during the 1929 crash, the decline and subsequent trading, sell-outs, bankruptcies, etc. got so far ahead of the data coming out of the stock market that nobody knew what was going on until hours after the close of trading; some people "lost everything" not once but multiple times. They ended up in holes too deep to claw their way out of. These days, the market can still crush you -- but it's a lot less likely to keep trying to wring out more afterward.
We're certain to see abrupt dips in the stock market -- if not today (seems to be mildly up so far), then eventually; we're unlikely to have another Great Crash. Unlikely does not mean impossible, and no matter how carefully a thing has been made foolproof, new and more ingenious fools arrive every day. Have they once again become too clever for their -- and our -- own good? Time will tell.
Update
7 months ago