Editor's Letter: The discomfiting currency of 1929

last updated 8 January 2015

My copy of John Kenneth Galbraith’s The Great Crash: 1929 looks docile enough. Its soft, slim spine is aged and creased, and the pages are so worn they seem to have lost their edge. If only. Even the chapter titles—the two leading up to Chapter 5, “The Crash,” are called “The Twilight of Illusion” and “In Goldman Sachs We Trust”—convey a discomfiting currency. Looking back at the 1930s over the robust tailfins of the 1950s, Galbraith gleefully skewered the experts in Cambridge, New York, and Washington who had declared the financial system circa 1929 “fundamentally sound.” In our own autumn of margin calls and market mayhem, did John McCain utter two more fateful words than these? (Well, okay, besides “Sarah” and “Palin.”)

After the crash, gilded reputations crumbled like common stock. They haven’t fared well this time around, either. How much is the former Federal Reserve oracle, Alan Greenspan, fetching on the omniscience market these days? Robert Rubin, who led Goldman Sachs to outsize riches before commanding a boom economy as Treasury secretary, appears miniaturized in the pilothouse of yet another Titanic—Citigroup this time—going down in icy seas to a chorus of “What iceberg?” And, of course, the White House seems to have lost any ability to instill confidence in the markets. You could say Herbert Hoover wrote the book on that. In 1930, the White House’s credibility was so spent that Republican Party chairman Simeon Fess concluded that the markets were conspiring to humiliate the beleaguered president. “Every time an administration official gives out an optimistic statement about business conditions,” Fess complained, “the market immediately drops.” The record shows that Fess’ analysis was fundamentally sound.