LOCALDEV (alonovolabs)

A Succinct Treatment of a Relevant Topic 2009-08-22

Reviewer: Gord o' The Books

There was a time when leading Democrats were well-versed in literature like this. They should be able to articulate the need for government oversight of the Stock Market as though they have actually studied economics and history. Instead, they make their points in the form of sound bites. They regurgitate arguments that have been fed to them.

I began to read this book as a skeptic. I knew that Galbraith was a poster child for the Left. No, that's not fair. He was a thoughtful progressive thinker of the New Deal Era. His theories and thoughts informed every administration from Eisenhower to Carter. And since Reagan, no President has been able to avoid Galbraith's impact.

I am persuaded that government intervention is based on a sound economic model. But modern liberals seem only to know ideology and spin. I was surprised to find a fair treatment of Herbert Hoover and most people caught up in the euphoria and panic of the late 1920s. Modern Democrats still demonize Hoover.

Galbraith allows for the cyclical nature of the Stock Market. Modern liberals love a crisis that gives them cover for more government intrusions into our lives.

Galbraith sets his sights squarely where they belong - on the truly evil people and institutions that, in fact, caused the Panic and Depression.

We may disagree as to the amount of government oversight required in our economy. We have have different levels of tolerance for predictable cyclical variations in our economy.

But this classic work by John Kenneth Galbraith needs to be read, and discussed, by both Left and Right alike, respecting one another, and appreciating his monumental understanding of the subject.

What goes around comes around 2009-07-24

Reviewer: Timothy J. Graczewski

It's never a good sign when this book reappears on bookshelves across the country. First published in 1955 during a sharp recession in the Eisenhower era, "The Great Crash, 1929" has been republished during or after nearly every major market disruption ever since (1961, 1972, 1988, 1997 and now 2009).

John Kenneth Galbraith is, as I discovered, a skillful writer, especially so for a mid-twentieth century Ivy League economist. His style is fluid, sharp and often sardonic. Some may claim that his tone is too smarty, but it is difficult to look back on 1929 without poking an eye or two. Over the course of his review of that fateful year, Galbraith coins several tongue-in-cheek phrases. For example, "preventative incantation" is when elites try to talk up a failing market by emphasizing the "fundamental" soundness of the economy in general or a company in particular. "Organized support" is a euphemism that the author equates to the unquestioned faith many put in leading financial institutions to prop up a market simply because it is in their best interests to do so. And perhaps most cynical of all, the author credits president Hoover with developing the "no business meeting" that gives maximum public visibility to inane strategy sessions between senior government officials and a soigné cast of corporate titans. It is a public relations device, Galbraith says, that has been perfected over time by Hoover's presidential successors. (It should be noted that Galbraith is generally quite positive on Hoover, the man most vilified by history, noting that he was a consistent skeptic and mild critic of the 1920s bull market.)

Galbraith also spotlights many of the great myths of the era. To begin with, he claims that less than one percent of Americans were actually involved in the stock market in 1929, although the cultural obsession with Wall Street gave a far different impression. And when the end came, he argues, there was no spike in suicides in New York or elsewhere and there was certainly no increase in those who tossed themselves off of tall buildings. What the economic meltdown really exposed, he says, was corporate embezzlement. In a statement that rings true in the Bernie Maddoff era of 2009: "Should the American economy ever achieve permanent full employment and prosperity, firms should look well to their auditors. One of the uses of depression is the exposure of what auditors fail to find."

And just as the recent crash had its archetypal villain in Maddoff, the Depression had its symbolic figures of comeuppance. None were more prominent than Charles E. Mitchell, head of National City, indicted but ultimately acquitted of tax evasion charges in a sensational 1933 trial. And then there was Richard Whitney, the pauperized NYSE chief, who was convicted of grand larceny in 1938. Galbraith writes that Whitney, in particular, was to the liberal, anti-Wall Street, New Dealers as Alger Hiss was to the conservative, anti-communist, McCarthyites of a decade later: the perfect symbol of all that was suspect and hated. (As an historical aside, the federal prosecutor for both cases was future NY governor and GOP presidential nominee Thomas E. Dewey.)

So, what did cause the stock market crash of October 1929 and, more importantly, the resulting decade-long Depression? To begin with, Galbraith completely dismisses one of the most common arguments: that loose credit drove reckless market speculation via margin purchases. He says that other periods had much looser credit and yet no speculation spiral developed. However, the author does concede that margin loans were "good business" - so long as stocks continued to rise (the same could be said for sub-prime mortgages circa 2006). During the bull market margin loans were the perfect bet: they offered a solid rate of return - usually over 10% - on a loan collateralized with a highly liquid asset.

More culpable in the economic collapse, Galbraith says, were highly unequal income distributions, poor corporate governance practices, limited regulatory oversight of the market, and, above all, the utter absence of government economic policy. Interestingly, the author spreads the blame on this final point fairly broadly, politically speaking. For instance, he cites the Democratic Party platform and FDR speeches during the 1932 campaign that explicitly rejected various forms of government action in either fiscal or monetary policy.

Interesting insights into the current financial crisis. 2009-06-27

Reviewer: Kelvin R. Hartnall

I discovered this book at our local book-store, and I was motivated to read it when I noted that it was written in 1954. Currently there are many books being promoted in book-stores that are attempting to explain the cause of the 1930s depression and trying to forecast the current recession, but the analysis is biased by modern finance theory and what is occurring today. So I figured it would be really interesting to read a book about the 1930s depression written over half a century ago.

The book is easy and entertaining to read. It essentially discusses three different events: the Florida real estate boom and crash of 1926, the stock market crash of 1929, and the 1930's depression. The author's viewpoint was that these were separate events. The cause of the Florida real estate crash and the 1929 stock market crash were the same as any other historical speculative bubble: a belief that there can be effortless and free wealth. He then concluded that the cause of the 1930's depression was a separate event, mainly due to poor government policy.

As I read the book and read about previous speculative bubbles such as the South Sea bubble, the Florida real estate boom, or the 1929 stock market crash, I found myself drawing many parallels to recent bubbles. In particular, parallels between the 1929 stock market bubble and the dot-com bubble, and between the Florida real estate boom and the recent housing market bubble.

I was working as a software engineer during the build-up and subsequent crash of the dot-com bubble. Basically, any company associated with the Internet was suddenly worth billions of dollars. So [...], a company to sell pet food over the Internet, had a market cap of over a billion dollars. And any traditional company that could somehow associate themselves with the Internet were able to propel their stock-price. This seemed similar to the stories of the 1929 bubble. In one, the company `Seaboard Air Lines' which was a railroad company, enjoyed speculative gains due to the belief that with the name `Air Lines' it would enjoy high growth.

The stories about the Florida real-estate boom that crashed in 1926 didn't seem dissimilar to the recent real estate boom. Vast real estate developments started in Florida and people purchased sections purely for speculative purposes. This didn't seem too different to the recent period in New Zealand where every second person saw themselves as a property magnate. On holidays in the Far North, it appeared that every small depressed town had suddenly realised they had sea views and therefore their properties were obviously worth a million dollars each. And the adjacent fields where the horses used to graze were being turned into sections with "million dollar views". Like Florida in late 1920s, these places in the Far North sold a lot of sections that no one ever built on, and like Florida they are speculative purchases with no intention to build. I wonder if this too will follow the Florida real-estate boom of 1926; a number of years after the real-estate collapse farmers were often able to buy the properties back for grazing, and the animals would navigate around the paved streets and lamp-posts of the previous sub-division.

I think the important viewpoint of the author was that despite these two periods of folly, the depression was a separate event that was caused by government policy. In the early 1930s, both political parties in the US were promoting a balanced budget as a solution to the contracting economy. A balanced budget involved slashing spending so that tax-receipts matched spending, and they did this year after year to try to balance the budget. The Federal Reserve also failed to provide liquidity to the money supply despite the continuing chain of bank collapses. Essentially, the author agreed with the current Federal Reserve chairman Ben Bernanke that the depression was caused by monetary contraction.

In summary, the book is easy to read and interesting to have a perspective written prior to modern finance theory and the events of the past half century. And reassuring that the author concludes the two bubbles and subsequent depression were separate events. There is currently a concerted effort around the globe to increase money supply, so I don't think the current contraction in global GDP will be anywhere near as severe as the great depression.

The Great Crash 1929 2009-06-14

Reviewer: Lee M. Arbegast

They say history repeats itself. This book is a well documented historical accounting of what took place leading up to and during the crash. The recent subprime loan problem resembled too closely the "buying on margin" approach in the 1920's. I had just read the page where Herbet Hoover had stated "the fundementals of the American economy are basically sound" (just before the crash). I had the news on TV and the President was making a speech and said, "the fundementals of the American economy are basically sound".
This book is not just a history book, but a lesson in life.

There is nothing new under the sun 2009-06-10

Reviewer: T. Rodgers

This book was written 50 years ago, focuses on an event from 30 years before that, but still manages to read like the headlines. Change some names and dates, and you would be left with minor discrepancies from the news and views of today. It explains the irrational exuberance of the boom, what brings on the crash and everything that happens after.

It can't be stressed enough how this lesson from the past is so similar to the struggles of the day, and this applies to both what has happened and what may. One example....The analysis of why we are better able to avoid Depression 'now' points to the lack of income disparity. This was something that was true in 1955, when the book was written, but income disparity has never looked more like 1929 than it does today. We bail out the same banks that have gambled with our future repeatedly, while quality jobs at GM are replaced by Walmart, while the last bastions of manufacturing in the USA are raided.

I can't help but think that history is repeating itself, and there could be a long way to the end of this new chapter.