STREET DOGS

From Morgan Housel at Collaborative Fund: he Great Depression began with a stock market crash. October 24 1929. That’s the story, at least.

It makes for a good story because it’s a specific event on a specific day. But if you were to go back to October 1929, during the crash, the average American might seem unfazed. Only 2.5% of Americans owned stocks in 1929.

The huge majority of Americans watched in amazement as the market collapsed, and perhaps lost a sense of hope that they, too, might someday cash in on Wall Street. But that was all they lost: a dream. They did not lose any money because they had no money invested.

The real pain came nearly two years later, when the banks started to fail. Just over 500 US banks failed in 1929. Twenty-three hundred failed in 1931.

When banks fail, people lose their savings. When they lose their savings they stop spending. When they stop spending businesses fail. When businesses fail, banks fail. When banks fail people lose their savings. And so on endlessly.

The stock market crash wasn’t a relevant lesson to the vast majority of Americans who didn’t own stocks in 1929 and likely never would. But the bank failures upended the day-to-day lives of tens of millions of Americans. That’s the real story of how the Depression began.

As we look back at the Depression 90 years later, you might think the main lesson is “don’t let the banks fail”. And it’ sa good lesson.

But it’s also a lesson that’s not useful to many people today.

I’m not a banker or a regulator. So what can I do with a lesson like “don’t let the banks fail”?

I don’t know.

[Which is why] the important lessons from history are [really only] about things that are likely to apply to you.

T