October Throwbacks

It’s the anniversary of Black Thursday today – the day in October 1929 when the market plunged 11% at the open before falling by a third over the next three weeks. Already etched into Wall Street folklore, events of that day have attracted renewed interest with the release of Andrew Ross Sorkin’s latest book, 1929.

Sorkin describes the scene:

[Exchange superintendent William] Crawford watched the chronometer tick. At exactly 10 a.m. he punched the bell to signal the opening of trading. Men began yelling and gesticulating. Phones started ringing incessantly. The bloodbath had begun… At first the sell-off was driven by brokers liquidating the accounts of customers who couldn’t meet their margin calls. But the panic soon became so pervasive that brokers were willing to sell at any price. Brokers, still behind from processing the previous night’s paperwork, struggled to keep up… By the time it ended, the turmoil of Thursday, October 24, broke records. It was the heaviest trading day in the history of the New York Stock Exchange, with brokers handling transactions of 974 different stocks, with 12,894,650 shares changing hands. The stock ticker recorded the day’s final trades at 7:08 p.m., more than four hours late.1

Sorkin doesn’t address it in his book but on his podcast tour, he’s consistently asked whether he sees parallels between the conditions that led to the crash and today’s markets. On the All-In Podcast, he characterizes Radio Corporation of America (RCA) – whose stock price rose 200-fold during the 1920s – as the Nvidia of its time. He compares how wealthy financiers gained celebrity through magazine covers then, much as they command attention through social media today. Underlying it all, he observes, speculation remains the twin of innovation. “I think there’s probably some things that are happening in our economy today that do mirror that period,” he says.

Such pattern-matching is deeply human – we instinctively search history for roadmaps to the future. Yet while there are echoes of 1929 in today’s markets, especially around retail participation in the market, it’s another historical episode that may offer even more relevant parallels. The Panic of 1907, where shadow banking created systemic vulnerabilities, captures crucial features of our current financial system that the 1929 crash doesn’t illuminate. It, too, marks its anniversary this week.

In their book, The Panic of 1907, Robert Bruner and Sean Carr describe events:

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