In 1955, the Senate Committee on Banking and Currency decided a stock market study was in order. The big concern was whether the market was euphoric and what to do about if it was. They didn’t want a repeat of ’29.

So they rounded up all the big names to expound on the market. Ben Graham was one of those people who offered his enlightening two cents.

John Kenneth Galbraith was another.

I think the senators were hoping for a way to stop the market mid-boom – shut the euphoria off like a garden hose spigot – without an ensuing crash. Galbraith didn’t mince words on that possibility and who would be blamed for it:

As I say, once the boom is well underway it cannot be arrested. It can only be collapsed. And the unfortunate feature of that is that the person who does the collapsing is terribly visible.

Shocking that a bunch of elected politicians hated that outcome. Continue Reading…

Irving Fisher summed up the attitude of the late 1920s perfectly. His “permanently high plateau” epitomized the euphoria of the time and called for the end of financial cycles.

There was a lot to be excited about.

The ’20s economy offered only brief, mild recessions with exceptional growth and an extended bull market. One new innovation after another led a belief that scientific invention would cure all of life’s problems…and it was right around the corner.

And new financial “innovations” – investment trusts (new for the U.S.) and buying on margin (investors and trusts could buy stocks for 10-20% down with the other 80-90% paid back after selling for a tidy profit) – made it easier for average people to profit from the stock market.

In the heat of it all, some of the smartest financial minds, business leaders, and politicians were certain the 1920s brought about a new economic age. Continue Reading…