Monday, June 16, 2008

The Great Crash: 1929. John Kenneth Galbraith.

The purpose of this blog, "Book Club Prep," is to suggest some books to read in book clubs. I tell why I think the book will be interesting to read and include some ideas and quotes to start the discussion.

The Great Crash: 1929
John Kenneth Galbraith
New York: Time Incorporated
1954 (1961)

Why read it? Because if contemporary bankers and financiers had read it, the great housing bubble of the 1990s and 2000s might not have happened.

Speculation was the cause of the Stock Market Crash of 1929, buying stocks with a percentage of the cost, the stocks becoming then collateral for the rest of the purchase price. However, the stock market crash contributed to, but did not cause the Depression--failure of the economy and unemployment were the cause of the Depression. The economy crashed along with the stock market, but the crash of the stock market did not necessarily cause the failure of the economy and its resulting Depression.

In the stock market crash of '29, selling seemed to become an unstoppable epidemic, beyond any one's control, a form of mass madness.

The only assurance against another stock market crash is to read the history of the Crash of '29.

Ideas and Quotes from the Book to Discuss
"This book is meant to be a history of the 1929 Crash; it is not meant to predict the next one."

"...the overwhelming, pathological desire to sell."

"Sermons suggested that we deserved what was happening because we wanted to be rich and had lost our spiritual values."

"The stock market crash can be explained. The Depression that followed cannot."

The people's lack of money to spend and the government's insistence on a balanced budget were two contributors to the Depression. "The balanced budget was a straitjacket on government spending."

"Clerks in downtown hotels were said to be asking guests whether they wished the room for sleeping or jumping." [It is a myth that the stock market crash of 1929 led to a wave of suicides. Suicides were actually higher when times were good. What did increase was the discovery of embezzlements after the crash because people had embezzled to put the money in the stock market with assurance that their profits would enable them to pay it back. With the crash, there was no money to pay back.]

"They, the experts, said nothing, but they said it well."

"The cliche that by 1929 everyone was in the market is far from the literal truth.... In later years, a Senate committee investigating the securities market undertook to ascertain the number of people who were involved in securities speculation in 1929. Only one and a half million people out of a population of approximately 120 million...had an active association of any sort with the stock market."

"One justification for the no-action meetng is that ideas were exchanged--but nothing was done. 'No-business' meetings give the impression of action because of the importance of the people in attendance. 'No-business' meetings attended by important people in a variety of fields have become an institution of government."

No comments: