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Charles Mitchell and the 1929 stock crash

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Re: Charles Mitchell and the 1929 stock crash

#11

Post by photochemsyn »

melling wrote: post #8
photochemsyn wrote: post #6

> "What Is the Glass-Steagall Act? The Glass-Steagall Act, passed in 1933, forced commercial banks to refrain from investment banking activities in order to protect depositors from potential losses caused by bank speculation in stocks. Glass-Steagall was largely repealed in 1999..." https://www.investopedia.com/articles/03/071603.asp As far as this headline, it's the worst kind of nonsense, comparable to "This is the…

Didn’t repealing it make the 2008 financial crisis worse?

Yes indeed. Probably the best cinematic take on that is in the movie Margin Call - here's the senior partners meeting:

https://www.youtube.com/watch?v=Hhy7JUinlu0

Essentially, the dissolution of Glass-Steagall allowed investment banks to create complex financial packages, each one constructed out of dozens if not hundreds of home mortgages. Each individual mortgage was graded but the packages were built out of a mixture of low-grade and high-grade mortgages. Since trading (gambling) with these packages was very lucrative, the investment banks worked with shady mortgage brokers to increase the number of packages by pushing adjustable-rate mortgages on gullible people who probably were not that familiar with compound interest calcululations. These unlikely-to-succeed mortgages were mixed in with the high-qulaity mortages to create a wide variety of highly leveraged financial products, and then bets were placed on the outcomes of trading in these products (derivative markets, synthetic CDO squared nonsense, etc.). Once people realized that many of these mortgages were not going to be paid off, then the avalanche of collapse began.

Glass-Steagall, if retained, would have made all of that impossible.

Re: Charles Mitchell and the 1929 stock crash

#12

Post by bogota »

bruce511 wrote: post #10

The crash didn't happen because of 1 banker, but it did happen because of things he, and his contemporaries dreamed up. Basically bankers make money when money flows. It flows only when "there is something better". So to keep making money there always has to be "something better" and ultimately that becomes unsustainable. 1929 was a re-adjustment, where all the bullshit is cleaned away. It was perhaps the first time…

Really today its crypto? The tiny market and not the massively overpriced tech stocks trading way way above earnings. They have just slightly corrected from the covid mania but many are still trading at ridiculous multiples that everyone justifies with “they will keep growing”

Re: Charles Mitchell and the 1929 stock crash

#13

Post by fshbbdssbbgdd »

photochemsyn wrote: post #11
melling wrote: post #8

Earlier quoted context omitted.

Didn’t repealing it make the 2008 financial crisis worse?

Yes indeed. Probably the best cinematic take on that is in the movie Margin Call - here's the senior partners meeting: https://www.youtube.com/watch?v=Hhy7JUinlu0 Essentially, the dissolution of Glass-Steagall allowed investment banks to create complex financial packages, each one constructed out of dozens if not hundreds of home mortgages. Each individual mortgage was graded but the packages were built out of a mixt…

All of the activity you described here was legal under Glass-Steagall.

Mortgage-backed securities have existed for over 50 years.

Glass-Steagall separated commercial banking from investment banking.

The movie Margin Call depicts an investment bank that sells mortgage-backed securities. I don’t remember anything in the movie about commercial banking.

Re: Charles Mitchell and the 1929 stock crash

#14

Post by Vt71fcAqt7 »

fshbbdssbbgdd wrote: post #13
photochemsyn wrote: post #11

Earlier quoted context omitted.

Yes indeed. Probably the best cinematic take on that is in the movie Margin Call - here's the senior partners meeting: https://www.youtube.com/watch?v=Hhy7JUinlu0 Essentially, the dissolution of Glass-Steagall allowed investment banks to create complex financial packages, each one constructed out of dozens if not hundreds of home mortgages. Each individual mortgage was graded but the packages were built out of a mixt…

All of the activity you described here was legal under Glass-Steagall. Mortgage-backed securities have existed for over 50 years. Glass-Steagall separated commercial banking from investment banking. The movie Margin Call depicts an investment bank that sells mortgage-backed securities. I don’t remember anything in the movie about commercial banking.

Any more info on this? I'd like to read more.

Re: Charles Mitchell and the 1929 stock crash

#15

Post by photochemsyn »

fshbbdssbbgdd wrote: post #13
photochemsyn wrote: post #11

Earlier quoted context omitted.

Yes indeed. Probably the best cinematic take on that is in the movie Margin Call - here's the senior partners meeting: https://www.youtube.com/watch?v=Hhy7JUinlu0 Essentially, the dissolution of Glass-Steagall allowed investment banks to create complex financial packages, each one constructed out of dozens if not hundreds of home mortgages. Each individual mortgage was graded but the packages were built out of a mixt…

All of the activity you described here was legal under Glass-Steagall. Mortgage-backed securities have existed for over 50 years. Glass-Steagall separated commercial banking from investment banking. The movie Margin Call depicts an investment bank that sells mortgage-backed securities. I don’t remember anything in the movie about commercial banking.

Indeed, but how about derivatives market for mortgage-backed securities? That was created by the abolition of Glass-Steagall. Heavily promoted by 'ol Alan Greenspan at the time, wasn't it? Free-market deregulation ideology in the name of international competitiveness was how it was sold as I recall.

Re: Charles Mitchell and the 1929 stock crash

#16

Post by wsc981 »

bruce511 wrote: post #10

The crash didn't happen because of 1 banker, but it did happen because of things he, and his contemporaries dreamed up. Basically bankers make money when money flows. It flows only when "there is something better". So to keep making money there always has to be "something better" and ultimately that becomes unsustainable. 1929 was a re-adjustment, where all the bullshit is cleaned away. It was perhaps the first time…

No post body was provided.

Re: Charles Mitchell and the 1929 stock crash

#17

Post by fshbbdssbbgdd »

photochemsyn wrote: post #15
fshbbdssbbgdd wrote: post #13

Earlier quoted context omitted.

All of the activity you described here was legal under Glass-Steagall. Mortgage-backed securities have existed for over 50 years. Glass-Steagall separated commercial banking from investment banking. The movie Margin Call depicts an investment bank that sells mortgage-backed securities. I don’t remember anything in the movie about commercial banking.

Indeed, but how about derivatives market for mortgage-backed securities? That was created by the abolition of Glass-Steagall. Heavily promoted by 'ol Alan Greenspan at the time, wasn't it? Free-market deregulation ideology in the name of international competitiveness was how it was sold as I recall.

Credit default swaps and collateralized debt obligations also predate the repeal of Glass-Steagall.

I think Glass-Steagall got somewhat mythologized after the financial crisis, because there was a desire to hold related political figures responsible. It meant that people who endorsed the repeal had their fingerprints on the Great Recession.

There’s some truth to the claim - Lehman was both an investment bank and a commercial bank, so it wouldn’t exist in its final form without Glass-Steagall repeal. Lehman’s demise didn’t seem to be closely related to its commercial banking activity, but that increased the blast radius.

Neither AIG nor Bear Stearns did commercial banking at all.

Re: Charles Mitchell and the 1929 stock crash

#18

Post by bruce511 »

bogota wrote: post #12
bruce511 wrote: post #10

The crash didn't happen because of 1 banker, but it did happen because of things he, and his contemporaries dreamed up. Basically bankers make money when money flows. It flows only when "there is something better". So to keep making money there always has to be "something better" and ultimately that becomes unsustainable. 1929 was a re-adjustment, where all the bullshit is cleaned away. It was perhaps the first time…

Really today its crypto? The tiny market and not the massively overpriced tech stocks trading way way above earnings. They have just slightly corrected from the covid mania but many are still trading at ridiculous multiples that everyone justifies with “they will keep growing”

Not exclusively crypto, but when I see adverts for crypto on TV, and hear it pitched over radio, then I wonder.

At that point it's appealing to the least sophisticated investors, which to me is the first signal of a bubble.

The nature of a ponzi scheme is that it starts small, but then has to appeal to an ever larger group. This ends with mass advertising to reach the biggest group of all. Then what?

Couple this with the tone. Crypto is being marketed as an investment, not as a utility, not as a currency. Its sole appeal is "it will go up".

Crypto itself is mostly a solution looking for a (legal) problem. While the killer app is facilitating illegal activity (which has some value for moral, but illegal activity - alas a minority of the actual use case) that's a hard sell. Finding a legal killer app though is proving elusive. Most things it _can_ do are already done better/faster/cheaper/simpler another way.

Of course it has some utility, but nowhere near the hype levels.

Tech stocks - yes, they are high, and will likely correct some. But apple, Google, Microsoft, amazon, Facebook and friends are all generating huge amounts of revenue and profit. Their stock values are massive, but their profit levels are unprecedented.

Startups get a lot if attention, but from VCs which is not public money, and not traded to the public, so is a different kind of bubble, unrelated to the 1929 depression etc.

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