To: Sun Tzu who wrote (2836 ) 11/17/2021 4:24:24 PM From: Sun Tzu Respond to Q : Most investors today seem to believe that the banking and credit problems witnessed in the past two years are unique, yet a study of Livermore’s era seem to show that investors 100 years ago faced many of the same concerns. Why do you think that every generation seems to confront the same problems of credit excesses, and it is possible for the cycle to ever be truly smoothed out by better understanding of economics and business processes?Jones : That is a very interesting question, and I would be reluctant to think that men will ever be smart and farsighted enough to avoid the next bubble unless man’s basic greed can be excised. We know wars are not good, but they seem to be a permanent staple of humanity. Why not bubbles? It seems pretty clear that excess leverage ultimately leads to a very painful unwind. But is this new news? The extreme type of leverage we saw in the 1920s certainly contributed to the stock market crash, and partly in response, Congress over the next decade passed the Securities Act of 1933, the Securities Exchange Act of 1934, and the Glass-Steagall Act in 1933. These laws were designed to prevent the extreme types of leverage that we had in the 1920s, and for over 60 years they worked beautifully until 2000, when Congress, at the behest of the brokerage and banking lobby, decided to repeal aforementioned critical elements of this historical and well-functioning regulatory infrastructure. This legislation never would have made it to the Senate floor had it been opposed by our leading financial regulators or officials. But they, like their counterparts in the Hoover administration of the late 1920s, generally believed in the perfection of the free market system and the inviolate sanctity of noninterference. And that’s in large part why we are where we are today. Because there will always be a powerful contingent of very well connected and very wealthy power brokers who, probably innocently, believe it will be different this time. It will take a fundamental change in human nature to ever truly control this.
