Are we sleepwalking towards another financial disaster? Financial expert Andrew Ross Sorkin, after a decade of studying the 1929 stock market crash, is sounding the alarm: he sees chilling parallels between today's Wall Street and the pre-crash market that plunged the world into the Great Depression. He believes a crash is coming. The big question: When? And how bad will it be?
Sorkin, author of the upcoming book "1929: Inside the Greatest Crash in Wall Street History – and How It Shattered a Nation," argues that we're living in a new "Roaring Twenties," mirroring the inflated stock prices and speculative frenzy of the 1920s. While technology, especially artificial intelligence, has fueled remarkable growth, Sorkin questions its sustainability. "I'm anxious that we are at prices that may not feel sustainable," he admits. "And what I don't know is we are either living through some kind of remarkable boom…or everything's overpriced." Is the current boom a legitimate surge fueled by innovation, or simply an AI-driven sugar rush destined to end in a crash? Only time will tell.
But here's where it gets controversial... Sorkin points to the rampant speculation and easy credit that characterized the 1929 market. Back then, ordinary people, lured by Wall Street's promises, invested heavily on margin – borrowing money to buy stocks. You only needed to put down 10% of the stock price. Before 1919, taking on debt was largely frowned upon, influenced by religious and moral beliefs. But that all changed. General Motors started offering loans to people so they could buy cars. Bankers then realized they could lend money for stock purchases, masking it as “democratizing access" to the market. It seemed like free money when stocks were rising, but when the market turned, many were left financially ruined.
Today, the AI boom is fueled by hundreds of billions in investment, raising concerns of a potential bubble. Even amid economic uncertainties, stock prices are soaring to levels that some experts find unsustainable. "I think it's hard to say we're not in a bubble of some sort," Sorkin warns. "The question is always when is the bubble going to pop?"
Following the 1929 crash, regulations and agencies were established to protect investors. But Sorkin argues that these safeguards are now being eroded. SEC rules have become less stringent, and "the Consumer Protection Bureau practically doesn't exist anymore." This worries Sorkin because it leaves the market vulnerable to the same speculative excesses that led to the Great Depression. "It's not that we're going off a cliff tomorrow," he clarifies. "It's that there's speculation in the market today, there's an increasing amount of debt in the market today, and all of that's happening against the backdrop of the guardrails coming off."
And this is the part most people miss... The dismantling of these "guardrails" includes loosening restrictions on who can invest in private companies, like AI startups, before they go public. Historically, these opportunities were reserved for wealthy investors, who often reaped significant rewards. Public companies, regulated by the SEC, are required to disclose information to the public. Private companies don't have this requirement. The push to "democratize finance" aims to give ordinary investors access to these potentially lucrative, but also highly risky, investments. Some argue that these regulations protected people from getting rich, while others maintain they protected them from devastating losses.
BlackRock CEO Larry Fink, in his annual letter to investors, even suggested opening retirement 401(k)s to riskier private investments, including AI and data centers. He sees it as a way to diversify portfolios, arguing that "everything is risky other than keeping your money in a bank account overnight." Fink, who once criticized Bitcoin, now advocates for adding crypto to investment portfolios as an alternative asset, similar to gold.
Sorkin, however, draws parallels between the cryptocurrency craze and the speculative mania of 1929. He recounts an anecdote where Fink jokingly suggested a "Sorkin coin" during a television appearance. Within hours, someone created the coin, and its value briefly surged to millions of dollars before plummeting. This illustrates how easily speculative bubbles can form and burst, leaving ordinary investors with nothing.
Sorkin's warnings raise crucial questions: Are we repeating the mistakes of the past? Is the pursuit of democratizing finance worth the risk of dismantling investor protections? Is the AI boom a sustainable engine of growth, or a speculative bubble waiting to burst? What measures, if any, should be taken to protect ordinary investors from the potential fallout? What do you think? Are we headed for another crash, or is this time different? Share your thoughts in the comments below.
