Andrew Ross Sorkin on Market Bubbles, Banking Rules, and the Real Lessons of 1929
Andrew Ross Sorkin — journalist, CNBC anchor, and author of Too Big to Fail — joins Tyler Cowen on the publication of 1929: Inside the Greatest Crash in Wall Street History to argue that leverage, not irrational prices, was the crash’s true engine, and that the regulatory lessons of the New Deal are finally obsolete. Episode 269, recorded October 2025.
Key ideas
- The 1929 crash was a leverage crisis, not a valuation crisis. Stock prices in the late 1920s may have been directionally correct about America’s economic future — Cowen notes that investors who bought at the 1929 peak had a real return of around 6 per cent by 1959. But when stocks fell 50 per cent from their highs, investors who had borrowed ten to one were forced to liquidate not just their shares but their homes. The equity story was long-run right; the financing structure made it short-run catastrophic.
- Hoover’s great error was psychological, not analytical. Sorkin gives Hoover more credit than most historians, noting that his belief prices were irrationally depressed was not unreasonable. The mistake was thinking he could jawbone a nation out of its fear — treating a real economic crisis as a confidence problem and marrying that misdiagnosis to poor policy choices, from tariffs to the government’s refusal to flood the banking system with liquidity.
- Glass-Steagall was never the clean reform its mythology suggests. Sorkin’s archival research shows that Carter Glass’s bill was partly written by a Rockefeller family associate at Chase to disadvantage J.P. Morgan, and that Glass himself was more sympathetic to bankers than his progressive reputation implies. Neither Lehman nor Bear Stearns — the first 2008 dominoes — would have been touched by the act, which makes the Elizabeth Warren case for its restoration hard to sustain.
- John Raskob was the forgotten Elon Musk of his era. As the architect of the Empire State Building, the author of the first instalment-credit car loans at General Motors, and a proponent of democratised investing through levered mutual funds, Raskob remade consumer finance and American urban ambition. He also spent two years secretly funding a press campaign to destroy Hoover’s reputation — a likely reason, Sorkin argues, that Hoover remains so dim in public memory.
- Private credit is the unresolved systemic risk of the present. Banks now account for roughly 20 per cent of US lending; the shadow banking system — private credit funds, insurance-backed vehicles, and semi-liquid retail wrappers — accounts for the rest. These entities lack the deposit-insurance backstop, are valued largely by their own managers, and have opaque connections back to formal banks through leverage lines. Neither Sorkin nor Cowen has a confident answer for what happens if it all unravels at once.
Content
Were the 1929 prices a bubble?
Cowen opens by challenging the premise that 1929 was a speculative excess: on a 30-year horizon, buying at the peak still yielded a real return near 6 per cent, much of it concentrated in a few good years. The Great Depression and World War II were genuinely extreme events; an investor in 1929 had no reliable reason to expect both. Sorkin concedes the long-run case but defends a shorter-run reading: being right eventually is cold comfort when leverage forces liquidation along the way. Charles Merrill called a top in 1928, but between his warning and the September 1929 peak, the market rose 90 per cent — a reminder that the timing of pessimism is nearly as hard as the timing of optimism.
The same logic, Sorkin argues, applies to 2008 housing. In most US markets, prices are now well above their 2006 peaks, so the ‘bubble’ diagnosis looks wrong in retrospect. But houses that were financed at 95 per cent loan-to-value could not survive a 20 per cent price decline even temporarily. Leverage is what turns a directionally correct long-run investment into a short-run disaster.
Alternate policy responses: what would have helped
Both speakers converge on two interventions that would have mattered most. Deposit insurance — even an informal commitment to make depositors whole — would have prevented the money-supply collapse that Milton Friedman identified as the Depression’s proximate cause. Abandoning the gold standard early, as Sweden did, would have severed the international transmission of deflationary pressure. Sorkin adds a third: restrictions on margin lending. Brokerage houses were effectively offering ten-to-one leverage to any retail customer who walked in; capping that at two or three to one would have contained the cascade. Cowen is sceptical of capital requirements for the small, single-branch US banks of the era, noting they could not have raised the capital even in principle.
Ironically, deposit insurance was opposed by both parties. Hoover and Roosevelt alike feared it would backstop weak banks at the expense of strong ones — an early iteration of the too-big-to-fail argument. Carter Glass, the bill’s architect, was no progressive hero: he was, in Sorkin’s telling, a Virginia segregationist who sided with the large banks he appeared to be disciplining.
Glass-Steagall and the politics of banking reform
Cowen outs himself as sceptical that Glass-Steagall ever made sense, citing the Rajan–Kroszner empirical work showing that the conflict-of-interest story behind the bill was never supported by the data. Sorkin agrees: the first failures of 2008 — Lehman, Bear Stearns — were pure investment banks that Glass-Steagall could not have reached, and the case that Citigroup or Bank of America would have been saved by the act is marginal at best. The act’s real significance, Sorkin argues, was as political theatre shaped by competitive lobbying: the Rockefeller faction at Chase used it to hobble Morgan.
Morgan’s private securities arm was eventually spun out in 1935 to become Morgan Stanley — an accident of regulatory politics rather than a principled structural reform.
The 1920s more broadly
Asked what surprised him most in researching the decade, Sorkin reaches for Raskob. As head of General Motors, Raskob invented the instalment-credit car loan — arguably the moment when debt shifted from a moral failing to a consumer norm in America. He then built the Empire State Building (which Sorkin compares to SpaceX), proposed a five-day working week on purely economic grounds (more leisure time would sell more cars and lawnmowers), and secretly funded journalists to erode Hoover’s reputation beginning in May 1929. Raskob is now almost entirely forgotten, which Sorkin takes as a lesson in how little durable personal fame even the most consequential figures achieve.
Sorkin’s grandfather was a messenger boy in lower Manhattan in October 1929 and watched a man jump from a window. He lived to ninety-one without ever buying a share of stock. The anecdote illustrates how the crash left a generational scar that shaped retail investing behaviour for decades.
Banking regulation: where we are now
Cowen invites Sorkin to redesign US banking regulation. Sorkin’s instinct is consolidation: the Canadian model — a small number of large, federally chartered banks with branch networks everywhere — strikes him as more stable than America’s thousands of local institutions. He acknowledges the community-banking counter-argument but finds it unconvincing. Silicon Valley Bank and Signature Bank, he suggests, showed what concentrated depositor bases and inadequate diversification do inside smaller institutions.
Both speakers are more troubled by what lies outside the regulated banking system. Private credit funds now dominate corporate lending; semi-liquid retail wrappers are being opened to ordinary investors; stablecoins under the GENIUS Act will be backed by Treasury bills, pulling T-bills out of circulation and tightening the supply of the safe asset the whole system depends on. Cowen notes that formal banks are now roughly 20 per cent of total lending — and that imposing more capital requirements on them simply makes the unregulated 80 per cent larger. Neither has a satisfying answer. The GENIUS Act’s T-bill backing, Sorkin suspects, is a first step that will be loosened once stablecoins are normalised — a pattern familiar from every prior financial innovation.
Fed independence and fiscal reality
Sorkin’s reading of the Fed’s 1929 diaries reveals a central bank already deeply anxious about political consequences. Board members remembered the 1920–21 rate rises that prompted Congressional anger, and they could not bring themselves to raise rates enough in 1928–29 to genuinely cool speculation. The Fed as a politically neutral institution, Sorkin concludes, is largely mythology — always has been.
Cowen’s concern runs to the fiscal side: with $37–38 trillion in federal debt, some inflation is probably inevitable and possibly appropriate. Trump’s desire for a political majority on the Board is objectionable in principle, but the deeper problem is a Congress that has no evident plan for the fiscal position it has created. Sorkin agrees on the diagnosis, expresses no optimism on the cure, and invokes the Wall Street 2 line — asked for his number, the hedge-fund villain says simply: ‘More’ — as the perennial explanation for why self-regulation fails.
Related
- Andrew Ross Sorkin — speaker
- Tyler Cowen — host
- What Makes a Great Investor — theme; the leverage-versus-time-horizon tension Sorkin and Cowen debate is central to how great investors think about risk and valuation
- Value Investing — concept; the episodic market mispricing argument (long-run prices right, short-run path ruinous) sits directly in the value-investing tradition