Introduction
There are many great books out there and often the question is where to start. The truth is it doesn’t matter. I decided that one of the first books I would like to read is The Great Crash 1929 by John Kenneth Galbraith. Professor Galbraith gives us an outstanding overview of the times and the economic background behind the crash. Most importantly, it’s written in a manner that makes it both easy to read and memorable. The introduction by his son is well worth reading.
The Crash
The crash was the result of a great number of factors, all heading in the same direction. A train wreck in the making. The signs were ignored by many. But perhaps most disconcerting was the the whole thing seemed like the story of the The Pied Piper of Hamelin.
It was the year 1284 when a strange and wondrous figure arrived in Hameln. He was attired in a coat of many colours and was taken to be a rat catcher, as he promised to free the town of a plague of rats and mice for a fixed sum of money.
The citizens pledged to pay him his fee, so the visitor produced a pipe and began to play. Soon all the rats and mice came running out of the houses and gathered around the Pied Piper in a teeming mass. Once convinced that each and every one followed, he went out of the town straight into the River Weser where the vermin plunged after him and drowned.
The townspeople, however, now freed of the plague, regretted their promise and refused to pay the Piper, who left Hameln in a bitter mood.
On the 26th of June in that year he returned, this time dressed as a huntsman, wearing a grim countenance and a wondrous red hat. While the townsfolk were assembled in the church, he again sounded his pipe in the streets.
But it was not rats and mice who came out this time, but children! A great many boys and girls older than four came running and were led through the Ostertor gate into the very heart of a hill where they all disappeared. Only two children returned because they could not keep up: one was blind and could not show where the others had gone, the other dumb and not able to tell the secret. A last little boy had come back to fetch his coat and so escaped the calamity. Some tell that the children were led into a great cavern and reappeared in Transylvania. A total of 130 children were lost.
The stock market played the role of the pied piper. Looking for easy wealth in the end the investors were led astray never to be seen again. And so it was that thousands went from riches to rags.
Financial Engineering
The events surrounding the Great Crash 1929 spawned a new financial genie-the financial engineer. In those early days the financial engineers were hard at work developing the leveraged investment trusts. Leverage was used to enhance returns and entice investors. When it was good, it was very, very good. But when the music stopped for the game of musical chairs on holding investment trusts shares, it was very very bad. Prices dropped precipitously and investors were wiped out.
We have been unable to get the genie back in the bottle.
Academics
Academics played a key role is adding fuel to the fire. many were beguiled by the promise of easy riches for a wide swath of the population. You’ll see that even when the markets continued to crumble, many professors from many notable universities continued to try and calm the population. Even today, in our cynical world, we continue to place great weight of the opinions of our academics. I, however, believe that the voice of academia should be taken in context-people who are surrounded by people like them. Sometimes people who are out of touch with the real world, in my opinion. For centuries we have looked to their wisdom and knowledge and for centuries we have found them wanting. It’s not that they don’t have a contribution to make to the discussion, but they are just one voice. Sometimes I think that they are ostriches with their heads stuck in the sand.
Conclusion
An interesting read with much for us to learn from history. And remember, those that don’t learn from history are doomed to repeat it. When investing we need to ensure that we are not simply following the pied piper-the financial engineers, the commentators on the business news channels, and others who would lead us astray for our main objective: investing in sound, growing businesses.
Heresnothing 
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