Scoundrel or scapegoat? A month after the Crash of ’29, Senator Carter Glass (D-VA) placed the blame for the disaster squarely on the shoulders of Charles Mitchell. Mitchell at the time was the Chairman of National City Bank (today Citibank), and had brazenly loaned out $25 million specifically for investment. The Fed at the time was begging people not to speculate – today a buyer can purchase a stock with 50% down – this is called ‘buying on margin.’ Back then, a buyer could get a stock on a 10% margin. Buying with only 10% down is great when the Bulls are running; but in a downturn, a few thousand dollar investment could cost the buyer hundreds of thousands.
A Different View
More recent scholars hold that Charles Mitchell was following a not unreasonable path, and there were other overwhelming factors that forced the Crash; for example the fiscal policy of the Fed (which Mitchell had a say in). In any event, ‘Sunshine Charley’ had lost his charm among the investing world and faced trial in 1933 for tax evasion, which he basically admitted to. He didn’t go to jail, but he did fork over $1 million to the government. Senator Glass, obsessing on Mitchell’s activities, put his name to the Glass-Steagall Act which separated investment banking from commercial banking and created the Federal Deposit Insurance Corporation (FDIC). Years later, Mitchell chaired another investment bank, repaid his debts and a bit of his good reputation in the market.
TODAY’S PARALELL: Margin debt is pretty freaking high right now, it was at an all-time high in June, 2021 and is just below that level now. Corporate debt to GDP is the highest ever. A slip in production was the match to the fuse in 1929 – today if corporate earnings slip a little it will be harder to address this outstanding debt crisis. In other words, a downturn as bad as 1929 could be as soon as Ford Motors underperforming in a quarter.
Read how scary the parallels are between 1929 and right now in our book “Speaker of the Street.”