A History of the United States in Five Crashes: Stock Market Meltdowns That Defined a Nation
June 20, 2017
Scott Nations has produced a history of the United States "seen through the lens of the stock market."
What do the San Francisco earthquake, the rise of corporate trusts, and Teddy Roosevelt's trust-busting have to do with the Panic of 1907? What role did the invention of the radio, the popularity of investment trusts, and perpetually low interest rates, and the specter of war with Iran play in the crash of 1929? How about greeting cards, the invention of portfolio insurance, leveraged buyouts (otherwise known as hostile takeovers) and Congress's attempts to rein them in, and their effect on Black Monday in 1987?
These are all events that CNBC contributor Scott Nations ties together in his new book, A History of the United Stated in Five Crashes. And the level of detail he provides in documenting these financial crises is impressive. He takes you inside the meetings J.P. Morgan held with other titans of finance to the charge he led combatting the Panic of 1907, into the Federal Reserve's Board of Governor's meetings and misguided response to the rampant speculation of the 1920s, and onto the stock floor on Black Monday. The threads and storylines he ties together form a great arch of financial history of America. It is not without his own informed opinion, and it is incredibly well-written.
The final two crashes in the book, the financial meltdown of 2008 and the flash crash of 2010, are recent. The first took years to recover from, and the second was confined within a day—though Nations' telling of it includes a history of the Greek economy dating back to its 1830 independence from Turkey, even as it includes a minute-by-minute, blow-by-blow account of went down across the world that day. What they all teach us, is how much things have changed, and how much they stay the same:
[T]he crashes are similar despite spanning more than a century; they might not repeat themselves, but they rhyme. That's because at their heart, it's not about money or numbers or individual stocks but about fear and greed. There is almost always too much greed. There is rarely enough fear …
I often think the narrative of the increased speed of our lives is a bit overblown, but that seems to be the one thing that has changed the most in finance. After the San Francisco earthquake, the London banks that held the majority of fire insurance policies in San Francisco had to load boats full of gold and ship them to the other side of he world to cover those policies. By 2010, financial firms could complete a trade in 20 milliseconds. That has obvious advantages, but an incredibly dangerous downside. As Nations reminds us, crashes and their outcomes have much more to do with what John Maynard Keynes once dubbed "animal spirits" than a lack of safeguards. In fact, instruments introduced to safeguard against risk have a history of ultimately triggering more risk rather than limiting it.
A History of the United Stated in Five Crashes is a call to remain vigilant in valuing safety over speed, and a sobering reminder of the inevitability that the stock market will crash again.