We've Been Here Before: Goldman Sachs, 1929 & 2009

The distinguished economist John Kenneth Galbraith wrote a definitive study of the last great market implosion titled The Great Crash, 1929. In it, he discusses the root causes, both financial and psychological, for the crash.

It is a comprehensive work that ranges far and wide in seeking answers, from the “easy money” made in the Florida real estate bubble of the 1920s which he notes established “... the conviction that God intended the American middle classes to be rich," to the flow of funds from a war-devastated Europe to the US, to the “escape into make believe” that led to an unparalleled increase in trading on margin. Hmmm. Real estate that only goes up, US government debt being financed by foreign inflows of capital, and the use of leverage to increase return – and risk. That does sound vaguely familiar...

In addition to these, Galbraith devotes an entire chapter titled “In Goldman, Sachs, We Trust,” specifying what he called “large-scale corporate thimblerigging” that Goldman (NYSE:GS) and other Wall Street firms practiced in the 1920s (though none quite as aggressively as Goldman). Primarily he talks about the “investment trusts” foisted upon the public by Goldman and others – effectively, the hedge funds of their day. These trusts never divulged what it was they did or didn’t own – sort of like Bernie Madoff.

As Galbraith writes:

To reveal the stocks they were selecting might, it was said, set off a dangerous boom in the securities they favored. Historians have told with wonder of one of the promotions at the time of the South Sea Bubble. It was 'For an Undertaking which shall in due time be revealed'. The stock is said to have sold exceedingly well.

As promotions the investment trusts were, on the record, more wonderful. They were undertakings the nature of which

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Geopolitical analyst, speaker, writer. Former professor, retired Brigadier General, Special Ops and Intelligence. I invest for myself and the world's best clients. You are welcome to join us.

Published or reviewed Wall Street Journal, Strategic Review, American Thinker, Forbes, others. I write for my own pleasure and your feedback on SA, my SA blog and on SA Marketplace site, The Investor's Edge. Author of the investment book "Bringing Home the Gold." I also write geopolitical commentary at "On Point -- National and Global Issues and Intrigues." You can see these essays gratis at https://josephlshaefer.substack.com/.

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