The Great Crash 1929 by John Kenneth Galbraith

The Great Crash of 1929: A Speculative Boom and Bust

• John Kenneth Galbraith, in his book "The Great Crash 1929," argues that the government's inaction in both 1929 and 2008 led to economic crises.

• He states that in 1929, the government could have prevented the crash by taking action against speculative practices and pyramid schemes.

The Role of Government and Individuals

• Galbraith criticizes the "Greenspan Doctrine," which held that bubbles cannot be prevented and the government's role is only to clean up afterward.

• He argues that the 2008 crisis was a result of predatory lending practices and a lack of enforcement of regulations on mortgages.

• Galbraith highlights the case of Maravine Halterman, who was granted a mortgage far exceeding the value of her house, illustrating the extent of the fraud.

• He criticizes the role of rating agencies like Standard & Poor's and Moody's, who assigned AAA ratings to risky mortgage packages.

• Galbraith blames the government for its complicity in the crisis, stating that it allowed the rich to exploit the poor through predatory lending.

• He criticizes key figures like Alan Greenspan, Robert Rubin, Phil Graham, and Lawrence Summers for their roles in the crisis.

• The text discusses the similarities and differences between the Great Crash of 1929 and the financial crisis of 2008.

• It highlights the role of individuals like Charles Mitchell, Samuel Insull, Ivar Krueger, and Richard Whitney in the 1929 crash, noting that their reputations were tarnished by the event.

The 1920s Boom: A Time of Prosperity and Speculation

• The book contrasts the optimism and speculative nature of the 1920s boom with the more cautious and less speculative environment leading up to the 2008 crisis.

• It emphasizes the widespread impact of the 2008 crisis on the American middle class, particularly through the loss of homes and savings.

• The book acknowledges the differences in government response between the two crises, noting the presence of automatic stabilizers and fiscal stimulus in the 2008 era, which have contributed to a milder recession and faster recovery.

• It suggests that the 2008 crisis may not produce the same level of dramatic figures and heroic actions as the 1929 crash, leading to a less exciting and more dreary aftermath.

• The text concludes by discussing the author's own investment habits, revealing that he was a value investor and not a speculator.

• John Kenneth Galbraith, the author of "The Great Crash 1929," was known for his cautious approach to investments, even during the market break in 1987.

• Galbraith's testimony at a Senate hearing in 1955 coincided with a sudden stock market downturn, leading to accusations and threats against him.

• The author observes a recurring pattern of speculative booms and busts, driven by rising prices, increased attention, and optimistic expectations.

• He cites historical examples of speculative bubbles, including the Dutch tulip mania of 1637, the South Sea Bubble of 1720, and various real estate and financial booms in the United States throughout the 19th century.

• Galbraith emphasizes that these cycles are driven by a fundamental process of rising prices attracting buyers, further fueling the boom, and ultimately leading to a sudden and inevitable collapse.

• It highlights the role of British investment in fueling American speculation, particularly in railroads and South America.

• The text mentions the collapse of the banking firm, Bearings, in the 1990s, drawing a parallel to the 1929 crash.

• It emphasizes the vulnerability of the American economy in 1929 due to fragile banks, lack of deposit insurance, and the importance of the farm market.

• The text contrasts the economic situation in 1929 with the present, noting improvements like unemployment compensation, welfare payments, and Social Security.

• It discusses President Coolidge's optimistic view of the economy in 1928, despite the brewing storm that would lead to the Great Crash.

• The book acknowledges the positive aspects of the 1920s, including high production, employment, and rising wages, but also points out the persistent poverty and inequality.

• It concludes by highlighting the significant growth in manufacturing and industrial production during the 1920s, setting the stage for the dramatic crash that would follow.

• The stock market experienced significant growth between 1923 and 1929, with the Dow Jones Industrial Average rising from 100 to 126.

• Automobile production also surged during this period, increasing from 4,301,000 in 1926 to 5,358,000 in 1929, a figure comparable to the 5,700,000 new car registrations in 1953.

• Business earnings were booming, and even historians acknowledge that the era was prosperous.

The Florida Real Estate Boom: A Precursor to the Crash

• The text highlights a prevalent desire for quick wealth with minimal effort, particularly evident in the Florida real estate boom of the mid-1920s.

• The Florida boom was characterized by speculative buying, with people purchasing land based on the belief that the entire peninsula would soon be populated by vacationers and sunbathers.

• This speculative bubble was fueled by the desire to believe in the potential of Florida, even though the reality of the land's suitability for development was questionable.

• The ease of selling land for a profit further encouraged speculation, as buyers focused on increasing values rather than the underlying reasons for them.

• The influx of buyers into Florida led to a surge in land subdivision and a rapid increase in prices.

• The boom reached its peak in 1925, with prices soaring for land within 40 miles of Miami.

• However, the supply of new buyers began to dwindle in the spring of 1926, signaling the beginning of the end of the Florida real estate boom.

• The text mentions Charles Ponzi, a Bostonian who developed a subdivision near Jacksonville, as an example of the speculative frenzy that gripped Florida during this period.

• The text concludes by noting that the momentum built up by a boom does not dissipate quickly, and the Florida real estate bubble continued for a while after the initial signs of decline.

• The Florida land boom, fueled by speculation and extravagant promises, began to collapse in the fall of 1926 after two devastating hurricanes. Despite the obvious signs of trouble, many remained optimistic about Florida's future.

• The Florida boom was the first indication of the widespread belief in the 1920s that the American middle class was destined to become wealthy. This belief persisted even after the Florida collapse.

The Stock Market Boom of the 1920s: A Recipe for Disaster

• The stock market boom of the 1920s began in the early 1920s, driven by strong corporate earnings and low stock prices.

• Stock prices rose steadily throughout 1925, with only a few minor setbacks.

• In 1926, the market experienced a sharp decline in February and March, followed by a recovery in April. Another setback occurred in October after the Florida hurricanes, but the market quickly rebounded.

• The stock market continued its upward climb in 1927, with only two months showing a decrease. The market's rise was so consistent that it even overshadowed the news of Charles Lindbergh's historic flight to Paris.

• Despite a temporary dip in industrial production in the summer of 1927 due to Henry Ford's shutdown of his Model T production, the stock market continued its upward trajectory.

• The year 1927 was significant in the stock market's history, as it is believed to have sown the seeds of the eventual crash.

• Britain's return to the gold standard in 1925, at a pre-World War One rate, led to overvaluation and made Britain an unattractive place for foreigners to buy goods.

• This resulted in a series of exchange crises and unpleasant domestic consequences, including the general strike of 1926.

• In 1927, Montague Norman, the governor of the Bank of England, along with other European banking officials, urged the United States to adopt an easy money policy.

• The Federal Reserve obliged by lowering the rediscount rate and purchasing government securities, making funds available for investment in common stocks.

• This action, described as a "bold operation" by Adolf C. Miller, a dissenting member of the Federal Reserve board, is widely considered a costly error.

• The influx of funds fueled speculation in the stock market, leading to a situation that Professor Lionel Robbins described as "completely out of control."

• While the Federal Reserve's actions are often blamed for the speculation and subsequent crash, the text argues that speculation was not solely driven by the availability of credit.

• The author suggests that the boom's nature changed in early 1928, with a mass escape into make-believe and a growing need to reassure investors with tenuous ties to reality.

• By 1928, the stock market was exhibiting signs of a speculative bubble, with prices rising rapidly and then falling just as quickly.

• The market's behavior was particularly volatile in March 1928, with the industrial average rising nearly 25 points in a single day.

• John J. Raskob, a director of General Motors and a prominent figure in Wall Street, was seen as a key influencer in the market's surge.

• Raskob's optimistic outlook on the automobile industry, particularly General Motors, fueled a frenzy of trading, with General Motors stock rising significantly.

• Other influential figures in the market included William Crapo Durant, the former organizer of General Motors, the Fisher brothers, and Arthur W. Cotton, a grain speculator who had recently moved to Wall Street.

• These individuals, with their "boundless hope and optimism," were seen as driving the market's upward momentum.

• Professor Charles Amos Dice, a contemporary student of the market, observed that these figures, unburdened by tradition, were leading the market forward with a "vision of progress."

The Rise of Margin Trading and Brokers' Loans

• The text highlights the phenomenon of "trading on margin," where investors borrowed money to purchase stocks, focusing solely on potential price increases rather than the actual value or income generated by the securities.

• The author compares this practice to the Florida land boom, where speculators traded "binders" – rights to purchase land at a fixed price – to capitalize on rising land values, neglecting the actual use or income potential of the land.

• The author explains that margin trading allows speculators to separate the opportunity for capital gains from the burdens of ownership, such as putting up the full purchase price and dealing with the income or use of the securities.

• The author describes the intricate system of banks, brokers, and collateral that facilitates margin trading, enabling a smooth flow of funds and efficient calculation of margin requirements.

• Despite the efficiency and ingenuity of margin trading, the author argues that it should not be defended on the grounds of its contribution to market activity, but rather on its ability to accommodate and facilitate speculation.

• The author criticizes Wall Street's reluctance to acknowledge the true purpose of margin trading, fearing that admitting its role in facilitating speculation would lead to condemnation and calls for reform.

• The author concludes by comparing Wall Street's defense of margin trading to a beautiful woman forced to wear unfashionable clothing, highlighting the hypocrisy of its justification.

• The volume of brokers' loans, a good indicator of speculation, was rising rapidly in 1928.

• Brokers' loans, also known as call loans, increased from a billion to a billion and a half dollars in the early 1920s, reaching two and a half billion by early 1926.

• By the end of 1927, brokers' loans had reached 3 billion 480 million seven hundred eighty thousand dollars, an incredible sum.

• In 1928, brokers' loans continued to rise, reaching 4 billion on June 1st, 5 billion on November 1st, and exceeding 6 billion by the end of the year.

• The high demand for brokers' loans was due to their safety and liquidity, as they were backed by stocks and a cash margin.

• The interest rate on brokers' loans rose steadily throughout 1928, reaching 12% by the end of the year, attracting investors from around the world.

• Corporations also found these rates attractive, choosing to lend their surplus funds on Wall Street rather than investing in production.

• New York banks were able to borrow money from the Federal Reserve Bank at 5% and re-lend it in the call market for 12%, creating a highly profitable arbitrage operation.

• The year 1928 was a time of great prosperity and optimism, with many people seeking to get rich through speculation.

• Will Payne, in the January issue of World's Work, explained the difference between a gambler and an investor, highlighting that investment is a win-win situation where everyone involved benefits.

• The roaring boom in the stock market was destined to end, and the probability of it ending before the end of 1929 was high.

• When prices stopped rising and the supply of buyers was exhausted, ownership on margin became meaningless, leading to a precipitous fall in the market.

• The people responsible for the situation were in a precarious position, as the boom was unsustainable and a crash was inevitable.

The Federal Reserve's Dilemma: To Intervene or Not

• The text discusses the dilemma faced by authorities in 1929 regarding the booming stock market. They were unsure whether to intervene and risk a sudden collapse or let the bubble continue and face a potentially more severe disaster later.

• The author highlights the difficulty of regulating the regulators, particularly in situations where wisdom is required. He points out that some officials benefited from the boom and were reluctant to intervene, while others recognized the risks of unchecked speculation.

• The text emphasizes the responsibility of the Federal Reserve Board and the Federal Reserve Bank of New York in managing the situation. President Coolidge, despite being aware of the speculation, delegated the responsibility to the Federal Reserve Board, which was considered semi-autonomous to avoid political interference.

• The author criticizes the inaction of Andrew W. Mellon, the Secretary of the Treasury, who was a strong advocate for non-intervention.

• The text contrasts the regulation of economic activity with the more subtle and less controversial role of the central bank. The Federal Reserve System, through its control of interest rates and securities, is seen as a more dignified and less criticized form of regulation.

• The author describes the mystique surrounding central banking and the awe-inspiring role of the Federal Reserve Board in 1929, highlighting their ability to influence the economy through seemingly subtle actions.

• The Federal Reserve Board in the 1920s was characterized by incompetence, with Chairman Daniel R. Crissinger lacking the necessary expertise for the role.

• Roy A. Young, who replaced Crissinger in 1927, was more knowledgeable but cautious, avoiding any actions that could be seen as opposing the booming economy.

• The New York Federal Reserve Bank, under Governor Benjamin Strong, played a significant role in easing money rates to help Europe, a move later criticized by Herbert Hoover as contributing to inflation.

• Despite the growing speculation in the stock market, the Federal Reserve Bank, even after Strong's death and the appointment of George L. Harrison, did not take strong measures to curb it.

• The Federal Reserve's classic instruments of control, open market operations and the rediscount rate, were largely ineffective in stopping the boom.

• Open market sales of government securities were limited by the Federal Reserve's small inventory of such securities, and the board was hesitant to sell them aggressively for fear of harming legitimate businesses.

• The rediscount rate, the rate at which commercial banks borrow from the Federal Reserve, was also ineffective as commercial banks continued to lend money to the stock market.

• In January 1929, the rediscount rate at the New York Federal Reserve Bank was 5%, while the rate on brokers' loans ranged from 6% to 12%. A drastic increase in the rediscount rate would have made it unprofitable for banks to borrow from the Federal Reserve to lend to the stock market. However, such an increase would have also raised rates for businesses, consumers, and farmers.

• On February 14, 1929, the New York Federal Reserve Bank proposed raising the rediscount rate from 5% to 6% to curb speculation. The Federal Reserve Board in Washington opposed this, arguing it would only increase rates for businesses. President Hoover sided with the board against the bank, and the rate was not increased until late summer.

• The Federal Reserve authorities were hesitant to act because of the influx of funds from corporations and individuals into the stock market. Companies like Standard Oil of New Jersey and Electric Bond and Share were contributing millions of dollars daily to the call market. By early 1929, these non-banking sources of funds were equal to those from banks, and later surpassed them.

• The Federal Reserve could have taken action by asking Congress for authority to halt trading on margin by setting margin requirements. While margins were not low in 1929, an increase to 75% or even a serious proposal to do so would have forced many speculators to sell, ending the boom abruptly.

• The Federal Reserve ultimately decided to issue a letter and press release on February 2nd, stating that member banks should not use Federal Reserve credit to maintain speculative security loans. The board emphasized that it did not want to interfere with the loan practices of member banks, but it had a responsibility to act when there was evidence of speculative loans being supported by Federal Reserve credit.

• The Federal Reserve Board issued a warning about the growth of speculative credit, which caused a temporary dip in the market.

• The Federal Reserve's attempt at "moral suasion" was deemed a failure, as the market quickly recovered.

• The Federal Reserve's statement was seen as weak and lacking in conviction, as they were more concerned with avoiding responsibility for the speculation than actually curbing it.

• President Coolidge's optimistic remarks about the stock market led to a surge in prices, known as the "Inaugural Market."

• The Federal Reserve Board held a series of secret meetings in March, which caused anxiety among investors.

• The market experienced a sharp decline on March 25th, as investors began to sell their holdings in anticipation of a Federal Reserve crackdown.

• Banks also began to curtail their loans, further contributing to the market's decline.

• On March 26th, the market experienced a massive sell-off, with over 8 million shares traded.

• The ticker tape could not keep up with the volume of trades, leading to further uncertainty and panic.

• Brokers sent telegrams demanding additional margin from their clients, signaling a shift in tone from encouraging to demanding.

• The text suggests that some professional traders were selling because they anticipated a major market downturn.

• On March 26th, 1929, the call money rate reached 20%, a high point during the 1929 boom. This could have led to a panic, as falling prices would have forced more speculators to sell, further driving down prices.

• Charles E. Mitchell, head of the National City Bank, intervened to prevent a crisis. He declared that his bank would lend money to prevent liquidation and borrowed from the New York Federal Reserve Bank to do so.

• Mitchell's actions calmed the market, and the Federal Reserve remained silent, effectively conceding Mitchell's authority.

• The National City Bank later justified its actions, stating that it recognized the dangers of over-speculation but also wished to avoid a collapse of the securities market.

• Mitchell's actions were criticized by some, including Senator Carter Glass, who felt that Mitchell's loyalty to the stock market superseded his duty as a director of the New York Federal Reserve Bank.

• The Federal Reserve was also criticized for its inaction, with some arguing that it should have intervened more forcefully.

• Joseph Stagg Lawrence, a Princeton scholar, argued in his book "Wall Street and Washington" that the Federal Reserve's regulatory concerns were motivated by bias against Wall Street and its wealthy inhabitants.

• The Federal Reserve, after initially trying to curb speculation, decided to let the market run its course, believing it would eventually collapse.

• Despite warnings from figures like William Durant and Lawrence, the Federal Reserve maintained its laissez-faire approach.

• President Hoover, while expressing concern, ultimately did not take significant action to regulate the stock market, leaving the responsibility to the governor of New York, Franklin D. Roosevelt.

The Rise of Investment Trusts: A New Era of Finance

• The market experienced a surge in speculation, fueled by a belief that stocks were becoming scarce and thus valuable.

• This led to a significant increase in the number of companies issuing securities, driven by both speculative interest and the need for capital for corporate expansion.

• The period was characterized by a strong desire for investment and a willingness to provide capital without much scrutiny, as investors were optimistic about future prosperity.

• The merger movement of the 1920s was not the first, but it was unique in its scale and purpose. Earlier mergers combined companies producing similar products in the same market to reduce competition. However, the mergers of the 1920s brought together companies operating in different communities, aiming to eliminate local incompetence and inefficiency.

• Holding companies were instrumental in centralizing management and control of utilities, acquiring control of operating companies and even other holding companies.

• Corporate chains, like Montgomery Ward, Woolworth, and American Stores, expanded by establishing new outlets, replacing local ownership with central direction.

• The public's interest in industries with a promising future, like radio and aviation, led to the formation of companies with little more than a prospect.

• Investment trusts emerged as a significant factor in the market boom of 1929. They allowed investors to own stock in established companies through new entities, effectively divorcing the volume of corporate securities from the volume of corporate assets. This enabled the creation of a vast amount of securities without a corresponding increase in real capital.

• The concept of Investment Trusts, where investors pool their resources to buy stocks in a company that invests in other companies, originated in England and Scotland in the 1880s.

• Investment Trusts gained popularity in the United States in the 1920s, with a significant increase in their number from 160 in 1927 to 265 in 1929.

• Initially, American promoters were cautious about giving managers complete discretion in investing funds, but as the 1920s progressed, Investment Trusts evolved into Investment Corporations, with managers having more freedom in investment decisions.

• The New York Stock Exchange initially viewed Investment Trusts with suspicion, only allowing them to be listed in 1929.

• The secrecy surrounding the specific investments made by Investment Trusts contributed to their popularity, as investors were drawn to the promise of high returns without knowing the details of the investments.

• The number of Investment Trusts organized in 1928 was estimated at 186, with an average of one new trust being formed each business day in the early months of 1929.

• The total assets of Investment Trusts grew significantly from an estimated $8 billion in the fall of 1929, representing an 11-fold increase since the beginning of 1927.

• The creation of Investment Trusts was often sponsored by other companies, including investment banking houses, commercial banks, brokerage firms, securities dealers, and even other Investment Trusts.

• Chauncey D. Parker, head of an investment banking firm in Boston, organized three investment trusts in 1929 and sold $25 million worth of securities to the public. He subsequently lost most of the proceeds and went bankrupt.

• Sponsoring an investment trust was profitable for the sponsoring firm, as they typically received management fees and commissions on the purchase and sale of securities.

• Investment banking firms often manufactured securities to bring to market, ensuring a steady supply of business.

• The public's enthusiasm for investment trust securities led to significant premiums being paid, allowing sponsoring firms to profit from selling stock or warrants at a higher price.

• Seaboard Utilities Shares Corporation, one of Parker's ventures, issued 1.6 million shares of common stock at 10.32 cents per share, but sold them to the public at 11 to 18.25 cents per share, splitting the profit with dealers.

• J.P. Morgan and Company, along with Bond Brighton Company, sponsored United Corporation in 1929, offering a package of one share of common and one share of preferred stock to a select group of friends and partners at $75 per package.

• The price of United Corporation stock quickly rose to $92-$94 on the over-the-counter market, allowing those who purchased the stock at $75 to resell it at a significant profit.

• John J. Raskob, chairman of the Democratic National Committee, believed everyone should have access to the same investment opportunities as the wealthy.

• Raskob wrote an article in the Ladies Home Journal titled "Everybody Ought to Be Rich," advocating for investing in common stocks to build wealth over time.

• To address the perceived slow pace of wealth accumulation through traditional investing, Raskob proposed an investment trust specifically designed for the "poor man" to increase their capital.

• Raskob's plan involved a company buying stocks, with individuals contributing a small amount (e.g., $200) and the company providing additional funds to purchase a larger amount of stock.

• The individual would then pay off their debt over time, benefiting from the increase in the value of the stock.

• Raskob's plan was met with enthusiasm, being described as a "practical Utopia" and a "great vision of Wall Street."

• The text describes the rise of investment trusts in the 1920s, highlighting the public's admiration for their financial expertise and the premium placed on their "financial genius."

• Investment trusts were often valued significantly higher than the actual worth of their assets, reflecting the public's belief in the superior knowledge and skills of their managers.

• These trusts actively promoted their expertise, employing economists and professors like Edwin W. Kemmerer, Rufus Tucker, and David Friday to enhance their credibility.

• The text notes that despite the presence of these renowned figures, the investment trusts ultimately failed to predict the impending market crash of 1929.

• The text also mentions the growing reliance of new investors on the "intellect and science" of investment trusts, leading to a need to differentiate between reputable and fraudulent entities.

• Paul C. Cabot, an organizer of the State Street Investment Corporation, warned of the potential for dishonesty, inattention, inability, and greed within the investment trust industry, but these warnings were largely ignored in the optimistic climate of 1929.

• The text concludes by emphasizing that the allure of investment trusts went beyond mere financial knowledge and skill, suggesting a broader fascination with the mystique and perceived power of "financial genius."

The Magic of Leverage: Amplifying Gains and Losses

• In the summer of 1929, investment trusts were commonly referred to as "high leverage trusts," "low leverage trusts," or "trusts without any leverage."

• Leverage in investment trusts functioned similarly to the game of "crack the whip," where a small movement at the origin resulted in a significant jolt at the periphery.

• Investment trusts achieved leverage by issuing bonds, preferred stock, and common stock to purchase a portfolio of common stocks.

• When the purchased common stocks rose in value, the value of the bonds and preferred stock remained largely unaffected due to their fixed value.

• The majority of the gains from rising portfolio values were concentrated on the common stock of the investment trust, leading to a significant increase in its value.

• For example, an investment trust with a capital of $150 million, where a third was from bonds, a third from preferred stock, and the rest from common stock, could see a 150% increase in the value of its common stock with only a 50% increase in the overall asset value.

• This "magic of leverage" could be further amplified by having the common stock of one trust held by another trust with similar leverage, resulting in even greater increases in value.

• The discovery of leverage's potential led to a surge in the creation of investment trusts, with trusts sponsoring other trusts, creating a chain of leverage.

• Harrison Williams, a proponent of leverage, was believed to have significant influence over a combined investment trust and holding company system with a market value of close to a billion dollars in 1929, built upon his initial control of a small company.

• The American Founders group, a notable family of investment trusts, also utilized leverage for its remarkable growth.

• The group, initially launched with a modest capital of $500, experienced a rapid expansion in 1928 and 1929, with new firms and companies being organized to sell more stock.

• By the end of 1929, the group had 13 companies, with the largest, United Founders Corporation, having total resources of $686,165,000.

• The group's total resources had a market value of over a billion dollars, a significant achievement considering its initial capital of $500.

• A significant portion of the group's resources was represented by inter-company holdings, where one company invested in the securities of another.

• This "fiscal incest" allowed for the maintenance of control and the enjoyment of leverage.

• The long chain of holdings by one company in another effectively concentrated the value increases of 1928 and 1929 in the common stock of the original companies.

• Leverage, however, could work both ways, as not all the securities held by the founders were of the same kind.

The Rise and Fall of Investment Companies: A House of Cards

• The text describes the rise and fall of investment companies in the lead-up to the 1929 stock market crash.

• It highlights the role of leverage, where companies borrowed money to buy more stock, amplifying gains but also losses.

• The text focuses on the activities of Goldman Sachs, which launched two investment trusts, the Goldman Sachs Trading Corporation and the Shenandoah Corporation, followed by the Blue Ridge Corporation.

• The Goldman Sachs Trading Corporation was initially successful, with its stock price rising significantly, but this was partly due to the company buying its own stock.

• The Shenandoah Corporation was oversubscribed, with its stock price initially rising above the issue price, but it later fell to 50 cents.

• The Blue Ridge Corporation was launched by the Shenandoah Corporation, demonstrating the use of leverage and the interconnectedness of these investment trusts.

• The text mentions John Foster Dulles, a prominent New York attorney, as a board member of both Shenandoah and Blue Ridge, highlighting the lack of discrimination in investment decisions during this period.

• In August 1929, Goldman Sachs was heavily involved in the creation of new investment trusts, including Blue Ridge Corporation and Pacific American Associates.

• Blue Ridge Corporation offered investors the opportunity to exchange their shares of companies like American Telephone and Telegraph for shares in Blue Ridge.

• Goldman Sachs Trading Corporation acquired Pacific American Associates, a West Coast investment trust, and issued new stock to finance the merger.

• The period between August and September 1929 saw a flurry of new investment trust announcements, including Anglo-American Shares Inc., American Insurance Stocks Corporation, and several others.

• The simultaneous promotion of Shenandoah and Blue Ridge was considered the pinnacle of the "New Era Finance" movement.

• Senator Couzens questioned Mr. Sachs, a representative of Goldman Sachs, about the company's involvement in the Goldman Sachs Trading Corporation and its stock sales to the public.

The Summer of 1929: A Market on the Brink

• The summer of 1929 saw a significant rise in stock prices on Wall Street, with the Dow Jones Industrial Average gaining 77 points in June and July alone.

• Individual stocks like Westinghouse, General Electric, and Steel also experienced substantial gains during the summer months.

• Investment trusts like United Founders and Allegheny Corporation also saw significant increases in their share prices.

• The volume of trading on the New York Stock Exchange remained consistently high, often exceeding 4 million shares per day.

• The New York Stock Exchange was not the only place where stocks were traded in 1929. Many new and exciting issues were traded on the curb, in Boston, or on other out-of-town exchanges.

• While the New York Stock Exchange still had the largest share of transactions, its relative position declined in 1929.

• The volume of speculation was increasing rapidly, with brokers' loans increasing at a rate of about $400 million per month during the summer of 1929.

• The high interest rates on call loans, ranging from 7 to 12 percent, did not deter investors, who were attracted by the high returns and the perceived safety of the market.

• Despite the growing concern about the volume of brokers' loans, many prominent figures in the financial world dismissed the warnings as unfounded pessimism.

• Sheldon Sinclair Wells argued that the call market had become a new investment outlet for corporate reserves, while Chairman Mitchell of the National City Bank expressed anger at the attention being given to brokers' loans.

• The financial press also criticized those who expressed concern about the market, with the Wall Street Journal even questioning the knowledge of those who dared to discuss Wall Street.

• Some scholars, like Professor Dice, also downplayed the risks associated with the high level of brokers' loans, arguing that there was no cause for concern until loans by corporations reached $12 billion.

• The defense of the high level of brokers' loans was often tied to the defense of the market itself, with the argument that if stocks remained high and justified their prices, then there was no need to worry about the loans.

The Culture of Speculation: A Nation Obsessed with Wealth

• In 1929, despite concerns about the market, optimism prevailed. Those who expressed doubts were often met with fear and trepidation, and some were even labeled as "deconstructionists."

• Prominent figures like Bernard Baruch and numerous college professors, including Lawrence of Princeton and Irving Fisher of Yale, expressed unwavering confidence in the market's stability.

• The Harvard Economic Society, despite initial bearish predictions, eventually conceded that business might be good after all.

• Bankers, particularly those involved in securities affiliates, were also optimistic, driven by the lucrative nature of their business and their own personal speculation.

• Paul M. Warburg of the International Acceptance Bank stood out as a notable exception, warning of a potential disastrous collapse if speculation wasn't curbed. His warnings were largely dismissed and met with contempt.

• While most newspapers and magazines reported on the market's upward trajectory with admiration, a small minority of journalists remained skeptical.

• The financial columnist of the Daily News, who signed himself "The Traitor," received payment for favorable news about the market.

• John J. Levinson, a freelance operator, was paid nineteen thousand dollars in 1929 and early 1930 for promoting stocks he was interested in. He claimed the payment was a coincidence and reflected his generosity.

• William J. McMahon, a radio commentator and president of the McMahon Institute of Economic Research, received an honorarium of $250 a week from David M. Lyon for promoting stocks that pool operators were trying to boost.

• The established financial services, like Poor's and Standard Statistics Company, remained grounded in reality and warned about the stock market's delusion.

• The New York Times, under Alexander Dana Noyes, consistently reported on the market's instability and predicted a day of reckoning.

• The market's temporary breaks in 1928 and early 1929 were seen as signs of the end, but the market rebounded each time.

• The New York Times covered the Great Crash with an absence of sorrow, having long warned about the market's unsustainable growth.

• The stock market dominated the culture in the summer of 1929, with even those who previously focused on intellectual pursuits discussing stocks.

• People who had previously been considered knowledgeable about the market became oracles, their words taken as gospel by those seeking to make money.

• Much of the discourse about the market was based on speculation and a lack of understanding of the underlying factors.

• Women were increasingly participating in the stock market, with articles noting their growing interest in the "exciting capitalistic game."

The Market's Cultural Significance: A Nation's Obsession

• Women's Participation: The text highlights how women were heavily involved in stock market speculation during the 1920s. They were drawn to the idea of quick wealth and saw the stock market as a symbol of success.

• The "Cataclysmic" Investment: The text mentions an advertisement for the National Waterworks Corporation, which played on the fear of a water shortage in New York City. This advertisement exemplifies the speculative frenzy and the willingness of investors to chase unrealistic profits.

• Diverse Participation: The text describes the wide range of people involved in the stock market, from chauffeurs to window cleaners to cattle ranchers. This demonstrates the widespread interest in the market, even among those with limited financial resources.

• The Myth of Universal Participation: Despite the widespread interest, the text clarifies that the stock market was not a universal phenomenon. The majority of Americans, including workers, farmers, and white-collar workers, remained largely uninvolved.