The Great Crash, 1929 (Penguin business)

Galbraith writes with great wit and erudition about the perilous actions of investors and the curious inaction of the government. He notes that the problem wasn't a scarcity of securities to buy and sell: "The ingenuity and zeal with which companies were devised in which securities might be sold was as remarkable as anything." Those words become strikingly relevant in light of revenue-negative start-up companies coming into the market each week in the 1990s, along with fragmented pieces of established companies, like real estate and bottling plants. Of course, the 1920s were different from the 1990s. There was no safety net below citizens, no unemployment insurance or Social Security. And today we don't have the creepy investment trusts--in which shares of companies that held some stocks and bonds were sold for several times the assets' market value. But, boy, are the similarities spooky, particularly the prevailing trend at the time toward corporate mergers and industry consolidations--not to mention all the partially informed people who imagined themselves to be financial geniuses because the shares of stock they bought kept going up. --Lou Schuler, Amazon.com

With the recent experience of seeing a market mania, I came away more impressed with this book than before. Professor Galbraith does a fine job of capturing the psychology that builds into and sustains a mania. He also writes like a novelist rather than like an economist. That talent makes the message easy to grasp and appreciate.

I was also impressed by how our popular perceptions of 1929 are so often wrong. For example, most people believe that many "broken" speculators committed suicide. Although some did, there was no significant rise in the suicide rate compared to a general trend in that direction.

Economists often like to fault the Federal Reserve for the crash. That blame seems somewhat misplaced when you learn that there was very little government debt that the Fed could repurchase to create liquidity. Had the Fed acted differently, the crash might have come a little sooner and not been quite so severe . . . but the fundamentals would probably not have changed too much.

Another misperception is that everyone was speculating. By even the most generous measures, the speculators probably never numbered over a million people.

Although this is a history, Professor Galbraith takes on the economic question of how the crash contributed to the Depression. Although we know very little about the economic details of 1929, I was impressed by the point about how much consumer spending was concentrated in the wealthiest people. As they lost vast sums, both spending for consumer goods and savings for capital were decimated. With the broader income distribution of today, such a cataclysm would not be so harmful (as we saw in the aftermath of the dot-com crash).

There is an excellent parallel discussion of the land boom in Florida earlier in the 1920's that is very rewarding. I was intrigued by the ways that ever increasing ways of extending leverage were created so that both bubbles could climb higher. In Florida, people didn't actually buy the land. They bought options to buy the land, and traded those. In the stock market, holding companies sold stock and then floated new holding companies. These were capitalized with common stock, preferred and debt so that all of the appreciation would accrue to the common holders. Naturally, the opposite occurred on the way down. Many stocks fell by over 99 percent, as a result.

Everyone who is tempted to buy any item primarily because it is thought to represent an opportunity for a quick buck should read this book.

Look for true value in all that you do!