After nearly a decade studying the most famous stock market crash in history, financial journalist Andrew Ross Sorkin warns that today’s Wall Street echoes the market of 1929, when highs preceded a massive crisis, leading to the Great Depression.
Artificial intelligence and technology have contributed to a remarkable growth in recent years. But, Sorkin said, today’s economy is buoyed by the AI boom, and it’s too early to tell whether it’s a sugar rush, a short-term, unsustainable boost for markets. But Sorkin is convinced a crash is coming.
“I just can’t tell you when, or how deep,” he said. “But I can assure you, unfortunately, I wish I hadn’t said this, we’re going to have a crash.”
The Roaring Twenties
Despite falling this Friday, Wall Street stocks have surged in recent months. Still, some investors are weakening, fearing stocks are overheating. Sorkin, author of “1929: Inside the Greatest Crash in Wall Street History – and How It Shattered a Nation,” published Oct. 14, says the United States is in a wild new decade, the 2020s, with stocks hitting record highs, just like in the 1920s.
Today’s market highs are making him anxious.
“I’m concerned that we’re at prices that don’t seem sustainable. And what I don’t know is that either we’re experiencing some kind of boom that’s remarkable and partly driven by artificial intelligence and technology and all that, or it’s all too expensive,” he said.
60 minutes
The 1929 market was fueled by widespread speculation, including by ordinary investors unaware of the growing risks, and by massive borrowing. Wall Street bankers and other stock thugs lured people of modest means into investing using what was then a novel concept: credit. This was called buying on margin. All you had to do was deposit 10% of the stock price and borrow the rest from your banker.
Before 1919, most people did not take out credit or debt, influenced by religious views and moral standards against borrowing money, Sorkin said. That changed when General Motors, in 1919, began lending people money so they could afford to buy the company’s cars. This has changed the way Americans buy.
“And then the bankers realize what’s going on, and they realize that they can lend money so more people can buy stocks. All of that was kind of wrapped in the flag of democratizing access,” Sorkin said. “And in good times, when stocks go up, it’s like free money. In bad times, you’re hooked, and you’re hooked in a really bad way.”
Today, hundreds of billions are being invested in AI, and some investment professionals are warning of a possible bubble as stocks soar to stratospheric highs, even amid significant economic uncertainty, such as Friday’s plunge after President Trump threatened to tax China more.
“I think it’s hard to say we’re not in some kind of bubble,” Sorkin said. “The question is always, when will the bubble burst?
Protecting consumers in the marketplace
When the situation spiraled out of control in 1929, frightened traders sold their stocks while investors lost their businesses and homes. Since then, laws, regulations and agencies have been put in place to protect investors.
Some of these barriers to preventing exploitation are now falling, Sorkin said. The U.S. Securities and Exchange Commission’s rules have become less strict and “the Consumer Protection Bureau virtually no longer exists.”
“That’s what concerns me,” Sorkin said. “It’s not that we’re going to collapse tomorrow. It’s that there’s speculation in the market today, there’s a growing amount of debt in the market today, and all of this is happening in the context of the safeguards disappearing.”
These guardrails include those that only allow the wealthy to invest directly in less regulated private companies, such as AI startups before going public.
Over the past few decades, people who could invest in private equity and venture capital outperformed investors who couldn’t. These types of assets, generally reserved for wealthy investors, are potentially more profitable, but also more risky.
“After the SEC was created, public companies were required to have all sorts of disclosure rules so that the public could understand what was going on in them. Private companies don’t have that,” Sorkin said. “But historically, the average American wasn’t really allowed to invest in private companies. But in this flag of democratization of finance, there are a lot of people who want access to it.”
Some people believe elite investors have better access, while others are unable to seize opportunities quickly, Sorkin said. The Trump administration and the financial industry have worked to open the market to more people.
But this would also require moving the guardrails intended to protect people.
“They protected a lot of people, but some would say they kept people from getting rich,” Sorkin said.
Push Today to Democratize Investing
In his latest annual letter to investors, BlackRock CEO Larry Fink suggested opening 401(k) pensions to riskier private investments in the name of democratizing investing. He said there were investment opportunities in AI or data centers.
Currently, fund managers are barred from investing in these types of assets in many retirement products, but the Trump administration is changing that, Fink said.
The new investment opportunity carries risks.
“But everything is risky other than keeping your money in a bank account overnight,” Fink said.
60 minutes
Fink, who once called bitcoin the domain of money launderers and thieves, also wants to add crypto to investment portfolios.
“Markets teach you, you always have to review your assumptions,” he said. “Crypto has a role in the same way as gold, that is, it is an alternative.”
He sees it, like AI, as an opportunity to add diversity to a portfolio.
But Sorkin says some crypto products, like coins, can be abused in a way similar to 1929, with speculators driving the value of cryptocurrencies soaring before they collapse. Sorkin has his own personal example involving a television appearance with Fink.
“He makes a joke, I think, that there should be a Sorkin coin. Well, two hours later, someone makes a Sorkin coin. And all of a sudden, this Sorkin coin is now worth millions of dollars. And I’m looking at it,” Sorkin said.
Sorkin coin peaked at $170 million in transactions in one day.
“And I think today it makes something like $20 or $21 a day,” Sorkin said.