Customer Reviews

The Great Bull Market: Wall Street in the 1920s (Norton Essays in American History)

5 star:		(1)
4 star:		(3)
3 star:		(0)
2 star:		(0)
1 star:		(0)

 

 

The market could only go up. Margin requirements were minimal. Investment in equities, seemingly ANY equities was a risk-less, rock solid path to fortune. Why buy one of the new electronic phonographs, or a refrigerator, on "time" (credit) when for the same amount of money, one could buy equities on margin, gain immense leverage, and be "guaranteed" to make the money back many times over, and be able to buy many more luxuries.

According to Mr. Sobel, this was, in a nutshell, the mentality of the average investor. Investment houses and financial institutions fueled the fire by making margin cheap and easy. Ultimately, stock prices were held up by nothing. Tremors of instability began to ripple through the market as the impending crash approached, often dismissed as buying opportunities. Ultimately, reality set in, and the unthinkable happened.

Are things different today? Yes and No. More safeguards would seem to be in place, however valuations of today make those of the 20's look miniscule. While a direct comparison is difficult to make between the period covered in the book, and the market of 2000, there are lessons to be learned. "The Great Bull Market" provides a fascinating account of the crash and the events that led up to it. A must read for anyone feeling a little jittery about the climate on Wall Street today!

While many stock market books have lots to say about parallels in financial history, this one is very different. The Great Bull Market is not really about the stock market at all. It's about the factors that led to the market mania of the late 1920s. Changes in social patterns, dramatic changes in the economy and living standards and a liberalisation of financial laws all led to the belief that life had really changed for everyone for the better.

Of course, there are wider things to consider than the rather simplistic and sometimes left-wing views put forward here. Even so, The Great Bull Market does take you away from the now perfunctory trawl through margin statistics and takes you into the heads of those who were actually parting with cash. For that it's a great read.

This book is one of the best I have read on the Bull Market. He takes Galbraith as his foil and expresses his profound discontent with Galbraith's unilinear formulation of govt. inactivity and outright stupidity. As Sobel argues, the The Great Bull Market was a product of a particular world view that grew up in the easy-money days of the 1920s. Parts of this world view were:
1) A notion that everyone should and could get rich
2) that hard work and risk as a pre-requisite for gaining wealth was a thing of the past -- indeed, inside the large brokerages it was loudly spoken that such older ethos' were not part of modern Wall Street.
3) supplanting risk and hard work was an ethos of power elites that scrathed each other's back. And that was assumed to be part of the normal healthy business processes.
4) There was a general overall lack of attention to detail and people working through the risks of financial euphoria.

In addition, unlike Galbraith, Sobel says that the powers that be actually made good choices, that the falls were really not as bad as they were made to look at the time.

It is a well written and cogent analysis of this exciting time.

Robert Sobel (1931-1999) was an American writer and history professor (Hofstra University) with an abiding interest in Wall Street. Therefore The Great Bull Market: Wall Street In The 1920s represents a welcome addition to the literature by a knowledgeable writer. Part of an essay series by the publisher this relatively concise volume, at 160 pages or so, is written for the layman as opposed to academic reader. It is clearly written and the material is well organized.

The strength and the weakness of the book is that it focuses exclusively on the factors contributing to the Great Bull Market of the 1920s. Therefore the first World War is merely a forethought and the Depression is merely an afterthought. Concurrent events, such as the recession in American agriculture through most of the 1920s, are largely absent unless they are directly effecting stock prices.

Even with those restrictions on his scope Robert Sobel presents a wide variety of factors driving the 1920s boom. Some advocates of Roosevelt's New Deal have attempted to re-write the 1920s as a speculative bubble. Robert Sobel makes a compelling case for true economic growth in that period. Factors include increased urbanization (1920 was the first time more than 50% of Americans were urban dwellers), adoption of the automobile and the spread of electrification. At the same time consumer credit, particularly for automobiles and electric appliances, increased demand. Tax changes by Treasury Secretary Andrew Mellon increased corporate profits and reduced taxes on consumers capital gains. Valuations (i.e. price earnings) were low, by historic standards, at the start of the decade but increased over the decade. Part of this was due to expectations of growth but also the availability of "call loans" (i.e. margin loans) to investors. The only area of the book was has aged is Robert Sobel's comparison of those 1920s valuations with those in the mid-1960s (themselves extremely high due to the "Nifty Fifty", such as Polaroid and Xerox, at the time of writing).

Robert Sobel's conclusion is that the stock market in 1929, while momentarily over valued, was fundamentally sound. After the "crash" the stock market proceeded to recover by year end and therefore it appears that his conclusion was correct. If the market was sound Robert Sobel's conclusion was that the institutions were weak. Specifically the New York Fed was keeping interest rates low (principally to help economic conditions in Europe) and this resulted in a flood of cheap money. Banks then used this money as call loans in the stock market. The President and Congress took a "hands off" approach inasmuch as the booming stock market made all of their voters happy.

Modern readers will undoubtedly draw a parallel of Alan Greenspan and the Fed flooding the markets with low cost money, the banks lending that to homeowners on increasingly easier terms and the President and Congress doing nothing as homeowning voters were happy.

Those who do not learn from history are doomed to repeat it!