The Financial Mistake We Keep Making and How to Stop

The Oprah Podcast

In this episode of The Oprah Podcast, host Oprah Winfrey sits down with financial journalist Andrew Ross Sorkin to discuss his book '1929: Inside the Greatest Crash in Wall Street History and How

Key takeaways

• The 1929 crash was not just an economic event but a collapse of awareness and collective judgment.
• Women outperform men as investors, especially during crises, suggesting gender diversity in finance could lead to better outcomes.

Main topics

• The 1929 stock market crash and its historical context
• The role of credit in shaping consumer behavior and financial culture

Notable quotes

"What stays with me is not just the collapse of a market, it was the collapse of awareness."

"We will always have a crash." "You can't tell you when and I can't tell you how deep, but I can assure you that we will have a crash."

Conclusion

The episode underscores that while financial crashes are inevitable, the real danger lies in our collective

Transcript preview

Speaker 5 (0:00) What stays with me is not just the collapse of a market, it was the collapse of awareness. I Speaker 4 (0:06) wanted to tell the drama. I wanted to tell the soap opera of what actually happened in 1929. Speaker 5 (0:11) So many lessons, I thought, that parallel where we are now. That's why for me it felt like looking in a mirror. After doing all this exhaustive research, you concluded that America would have been better off if women had been in Speaker 4 (0:24) charge. Yes, this is true. Speaker 4 (0:30) Women outperform men as investors and women outperform men, especially in a crisis. Speaker 5 (0:37) You said, I can't tell you when and I can't tell you how deep, but I can assure you that we will have a crash. Speaker 4 (0:42) We will always have a crash. Speaker 5 (0:45) Hi there, everybody. I'm so happy to welcome you to the Oprah podcast. And my guest is somebody who is well known for helping us understand the power of money, the forces that control it and why it matters. And I know money matters to all of us. So Andrew Ross Sorkin is a bestselling author. He is a financial columnist. He is founder of Dealbook for The New York Times and co-anchor of Squawk Box. on CNBC, where he reports on the most crucial business news of the day. So I have to say, you're a multi-hyphenate. You are. Is Speaker 4 (1:23) it a hyphenate or a slash these days? Speaker 5 (1:25) No, it's a multi-hyphenate. You are. What are Speaker 4 (1:28) you? You're a multi-hyphenate. Speaker 5 (1:29) Well, you know what? I don't know finance the way you do. And I will have to say this, that when I saw your book, 1929, inside the greatest crash in Wall Street history and how it shattered a nation. So when I saw that this. you know, immediately went to number one on the New York Times bestseller. I was so happy for you. Thank you. Really so happy for you. And I thought, yeah, I'm really happy for him, but I don't know if I can read that book. Oh, no. And then I got the book and I thought it's like over 500 pages. I don't know if I can read that book. But let me tell you, this isn't just I don't it doesn't feel like you're just looking back words. It feels like you're looking in a mirror when you're reading this book. I think you did such an excellent job of creating something that feels like a novel, but is really social history and brings us so much information. And what stays with me is not just the collapse of a market, but it was the collapse of awareness. How are you able to do this? Speaker 4 (2:36) Well, it took eight years. Took eight years. Took eight years. That's one of the ways I was able to do it. Yeah. I wanted to tell the drama. I wanted to tell the soap opera of what actually happened in 1929. Speaker 5 (2:46) Yeah, I Speaker 4 (2:46) can't Speaker 5 (2:47) wait to see the Speaker 4 (2:47) movie. Because we had all heard that something very terrible happened in 1929. And it's always our reference point for what we think a financial calamity would be. Right. And people used to ask me about it all the time after I wrote Too Big to Fail. Yes. And I never had a good answer for them. Speaker 3 (3:05) about what what had happened so i went Speaker 4 (3:06) on this journey yeah to try to find through memos and letters and notes and transcripts who these people were and what was motivating them and what was incentivizing them and uh that they were the most colorful interesting personalities and so many of them mirror so many of the personalities that we read about today i Speaker 5 (3:25) know that's why This is not just a story about money. It's a story about human nature and all the hubris and egos on full display, what people were thinking at the time. And for the first time, I understand why the Roaring Twenties were so roaring. I mean, it was, it was, people were like giddy. Speaker 4 (3:45) The phrase FOMO didn't exist in the 1920s. Yes. But it could have. It could have. That was what was driving so much of it. Everybody was watching everybody else get rich, and everybody else was like, I got to get in. The train is leaving the station. If I don't get on, I'm going to miss it. And, of course, everybody got on the train just when it was going over the cliff. Yeah, going Speaker 5 (4:08) off the tracks. But here's the thing, not even off the tracks, over the cliff. But here's the thing. I didn't know. It hadn't even occurred to me until reading 1929. that credit wasn't even available. It wasn't even a thing. That people were living in rural areas and that if you needed something, you would have to, like, borrow money. And so the fact that General Motors in 1919 let people get their first cars on credit and people were like, oh, so you don't have to have all the money? It was Speaker 4 (4:36) considered immoral. It was considered immoral to take on credit. I mean, the idea that we all have credit cards today and mortgages, that was proper. People did not do that. Prior to 1919, culturally, we didn't do it. And it was in 1919. So Speaker 5 (4:51) you had Speaker 4 (4:51) to Speaker 5 (4:51) either have the money. Speaker 4 (4:52) You had to have the money. And if you were taking a loan, that meant that you. Yes. You know, you weren't. You were inadequate. You were inadequate. Yes. And in 1919, General Motors, desperate to sell more cars, a guy named John Raskob, who's running that company, is thinking, how can I get more people to buy cars? Says, I will loan them the money. So they can buy the cars. And that flipped the whole switch because then all of a sudden all the merchants, Sears Roebuck says, okay, I clock what's going on. I know, it's a Sears Roebuck. We'll start lending people money. So if you want to buy an appliance, you can buy an appliance with credit. And then, of course. But Speaker 5 (5:27) what you painted such a beautiful picture is that people were coming from the rural areas and not even, not only the rural areas, but people. were buying things they didn't even know they needed. You know, appliances, when, you know, dishwashers and toasters and those things were coming, people were like, well, I never knew I needed a toaster, but then you heard this newfangled thing and everybody was just like, I got to get that, I got Speaker 4 (5:50) to get that, I got to get that. And you could, because everybody was willing to lend you the money to do it almost sight unseen. And then, of course, Wall Street clocked what was happening and said, okay. We'll lend you money, too, so you can buy stock. And it really changed, I would even argue, the American dream, the whole idea of, you know, getting rich slowly or getting rich quick. And the whole idea of everybody now had an opportunity, they thought, to get that lottery ticket. To get rich quick. The problem was, you know, that lottery ticket, most people lose. Speaker 5 (6:21) Yeah. So many lessons, I thought, that parallel where we are now. That's why for me it felt like looking in a mirror. Were you trying to create a mirror for this time and that time? To Speaker 4 (6:32) be honest, not on purpose. When I started the project, I just thought I was telling this story. But then as I was writing, I would be working on news stories in the newspaper, on TV, in the press that you all read, and thinking, oh my goodness, this is exactly like 1929. You know, this whole idea we're Speaker 2 (6:51) going Speaker 4 (6:51) to democratize finance, you've been hearing that a lot. Remember when GameStop happened, this crazy, crazy trade. Speaker 5 (6:59) In 2021, thousands of everyday investors organized together online to buy massive amounts of GameStop stock, which sent the price soaring. The move forced some Wall Street hedge funds to buy back shares at much higher prices, which caused those hedge funds to lose billions. Speaker 4 (7:16) I said, oh, my goodness, that's like 1929. All of a sudden we have tariffs. That's like 1930. There were so many things. Everybody's excited about AI and NVIDIA. Well, back then, the stock of the day was RCA, radio. Radio was like the meme stock of its era. And everybody was so excited to buy RCA. A meme stock is a stock Speaker 5 (7:40) that goes viral online, attracting waves of everyday investors who drive up its price. often far beyond what traditional financial analysis would suggest it's worth. What are the lessons that we most need to heed from that time? Speaker 4 (7:58) Well, I think the biggest lesson is humility. I think oftentimes people just get overconfident and they're desperate, as I said. They're sort of following that FOMO piece of it. Everybody wants that piece and they don't really look at their own, you know, what the real risks are. But I also think the biggest issue that led to the crash in 1929 is debt. I mean, we're also willing to take on debt. Nobody was really doing the math. Yeah. even on their own finances, to appreciate, you know, what the real risk was. Because what happened was the stock market starts falling and all of a sudden you're getting a call from the bank and they're saying, we're taking your home. Speaker 5 (8:38) Were there voices of caution back then that were dismissed and that people were just unwilling to hear them or not? Speaker 4 (8:47) Oh, 100%. And by the way, Speaker 2 (8:49) there Speaker 4 (8:49) are voices today. Yeah, of course. So there are always, this is the tough part, there are always Cassandras in the room who say, look, it's all going to go wrong. Speaker 5 (8:58) In stock market terms, a Cassandra is a metaphor for an investor or analyst who sees a potential financial disaster looming long before everybody else, when even the media or financial world doesn't pay attention until the damage is done. Speaker 4 (9:12) There was a guy named Charles Merrill. Charles Merrill was the co-founder of Merrill Lynch. Now, he told everybody to get out of the market in 1928. The problem was that the stock market from 1928 to September of 1929 went up 90%. And so you could be out there today, we'd say Charles Merrill looks like he was right. Yeah. But in that moment, boy, did he look wrong. Yeah. And everybody was like, not me. I'm going to keep making money. We're going to keep making money. And that's always the challenge. Do you Speaker 5 (9:44) believe that systems fail more from corruption or from overconfidence? It's Speaker 4 (9:53) complicated. I think it's a little bit that people get overconfident and then are willing to overlook the corruption. Yeah. Meaning when everything seems like it's working, you're willing to look the other way. And you don't want to know what's under the covers if, in fact, there's a problem. Speaker 5 (10:12) First of all, when you first started to engage with all of these stories and the hubris and egos behind it, were you fascinated yourself? And did it change the way Speaker 4 (10:22) you wanted to write? Speaker 5 (10:24) I Speaker 4 (10:24) was fascinated by the people. I was fascinated by whether they were good people, bad people. We think about morality, you know. There's a lot of things that today we would argue look like corruption back then. Yes, yes. There was no regulators. The SEC didn't exist. Insider trading was legal. People were doing all sorts of... Speaker 5 (10:47) Those were Speaker 4 (10:47) the good Speaker 5 (10:47) old days. Speaker 4 (10:49) People were doing very crazy things back then that today we would look back and say... That was corrupt. That's corrupt and that's wild. One of the things that's interesting is... While I was writing this book, I was looking for contemporaneous evidence of people in that moment who said, I don't want to participate in this because this is