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A History of the United States in Five Crashes: Stock Market Meltdowns That Defined a Nation
In this absorbing, smart, and accessible blend of economic and cultural history, Scott Nations, a longtime trader, financial engineer, and CNBC contributor, takes us on a journey through the five significant stock market crashes in the past century to reveal how they defined the United States today
The Panic of 1907: When the Knickerbocker Trust Company failed, after a brazen attempt to manipulate the stock market led to a disastrous run on the banks, the Dow lost nearly half its value in weeks. Only billionaire J.P. Morgan was able to save the stock market.
Black Tuesday (1929): As the newly created Federal Reserve System repeatedly adjusted interest rates in all the wrong ways, investment trusts, the darlings of that decade, became the catalyst that caused the bubble to burst, and the Dow fell dramatically, leading swiftly to the Great Depression.
Black Monday (1987): When "portfolio insurance," a new tool meant to protect investments, instead led to increased losses, and corporate raiders drove stock prices above their real values, the Dow dropped an astonishing 22.6 percent in one day.
The Great Recession (2008): As homeowners began defaulting on mortgages, investment portfolios that contained them collapsed, bringing the nation's largest banks, much of the economy, and the stock market down with them.
The Flash Crash (2010): When one investment manager, using a runaway computer algorithm that was dangerously unstable and poorly understood, reacted to the economic turmoil in Greece, the stock market took an unprecedentedly sudden plunge, with the Dow shedding 998.5 points (roughly a trillion dollars in valuation) in just minutes.
The stories behind the great crashes are filled with drama, human foibles, and heroic rescues. Taken together they tell the larger story of a nation reaching enormous heights of financial power while experiencing precipitous dips that alter and reset a market where millions of Americans invest their savings, and on which they depend for their futures. Scott Nations vividly shows how each of these major crashes played a role in America's political and cultural fabric, each providing painful lessons that have strengthened us and helped us to build the nation we know today.
A History of the United States in Five Crashes clearly and compellingly illustrates the connections between these major financial collapses and examines the solid, clear-cut lessons they offer for preventing the next one.
The Panic of 1907: When the Knickerbocker Trust Company failed, after a brazen attempt to manipulate the stock market led to a disastrous run on the banks, the Dow lost nearly half its value in weeks. Only billionaire J.P. Morgan was able to save the stock market.
Black Tuesday (1929): As the newly created Federal Reserve System repeatedly adjusted interest rates in all the wrong ways, investment trusts, the darlings of that decade, became the catalyst that caused the bubble to burst, and the Dow fell dramatically, leading swiftly to the Great Depression.
Black Monday (1987): When "portfolio insurance," a new tool meant to protect investments, instead led to increased losses, and corporate raiders drove stock prices above their real values, the Dow dropped an astonishing 22.6 percent in one day.
The Great Recession (2008): As homeowners began defaulting on mortgages, investment portfolios that contained them collapsed, bringing the nation's largest banks, much of the economy, and the stock market down with them.
The Flash Crash (2010): When one investment manager, using a runaway computer algorithm that was dangerously unstable and poorly understood, reacted to the economic turmoil in Greece, the stock market took an unprecedentedly sudden plunge, with the Dow shedding 998.5 points (roughly a trillion dollars in valuation) in just minutes.
The stories behind the great crashes are filled with drama, human foibles, and heroic rescues. Taken together they tell the larger story of a nation reaching enormous heights of financial power while experiencing precipitous dips that alter and reset a market where millions of Americans invest their savings, and on which they depend for their futures. Scott Nations vividly shows how each of these major crashes played a role in America's political and cultural fabric, each providing painful lessons that have strengthened us and helped us to build the nation we know today.
A History of the United States in Five Crashes clearly and compellingly illustrates the connections between these major financial collapses and examines the solid, clear-cut lessons they offer for preventing the next one.
352 pages, Hardcover
First published June 13, 2017
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Displaying 1 - 30 of 175 reviews
November 7, 2018
Incredibly fascinating look at five stock market crashes and how it impacted the US socially, politically and financially. Scott Nations goes deep into the causes, looking at events and new "tools" implemented years or decades in advance of a crash that no one could have predicted as causing a meltdown. In every case, it's the Law of Unintended Consequences at work.
The narrator did an outstanding job, but I really need to go back and actually read this book instead of listening to it. There is simply so much data that I need to see it in order to wrap my mind around it.
The narrator did an outstanding job, but I really need to go back and actually read this book instead of listening to it. There is simply so much data that I need to see it in order to wrap my mind around it.
August 15, 2017
I love both American history and financial crashes, but this book was terribly dull. I read it and learned a bit, but not enough to recommend it to anyone.
April 23, 2018
This book describes the 1907, 1929, 1987, 2008, and 2010 stock market crashes. Scott Nations' thesis is that crashes tend to follow a pattern where some new financial construct causes investors to let their guard down. The false sense of security allows for a rapid market run, then some event triggers it to come crashing back down. The introduction of algorithms and computer-directed trading has also sped up this process and created new vulnerabilities in the market.
The 2010 Flash Crash doesn't fit as well into the formula as the others. The market quickly recovered and did not have the lasting impact that the other four had. It probably could have been left out of the book.
This book was an interesting read with details from all five crashes that I was unaware of. At times Nations goes back into events decades ahead of a crash to thoroughly explain how everything came into place. It is a different approach from books that tend to focus on economic or technical aspects of market crashes.
The 2010 Flash Crash doesn't fit as well into the formula as the others. The market quickly recovered and did not have the lasting impact that the other four had. It probably could have been left out of the book.
This book was an interesting read with details from all five crashes that I was unaware of. At times Nations goes back into events decades ahead of a crash to thoroughly explain how everything came into place. It is a different approach from books that tend to focus on economic or technical aspects of market crashes.
June 5, 2017
I received this book compliments of William Morrow through the Goodreads First Reads program.
"Step right up, folks. I've got a great opportunity to make me - ha ha, I mean You - to make your investment grow. How? Well, it's new and not easy to explain. But, hey, professors figured it out and they know what they're doing, right?
Uh, yes, ma'am, that does look like an iceberg right ahead, but we're going to sail right past it - no problems and a great return on your money. How much you wanna invest?"
Scott Nations ably lays out how people have convinced themselves and others that new financial contraptions can't sink. In a perfect environment that might be true, but in the real world there are earthquakes, oil spills, nations in danger of defaulting and they affect financial markets. If those markets aren't rock solid (and they often aren't) there is a crash. Nations sees a pattern in these five stock market meltdowns. He gives a detailed picture of the elements leading up to each crash - the history, the mechanics and some of the personalities. Yes, you can pick out repetition with variation throughout, but each chapter is a fascinating story. I didn't expect this book to be a page turner, but there were times I didn't want to put it down. You needn't be well versed in economics to follow. The author does a fine job of explaining things like what a credit default swap is and why it was so alluring to parts of the financial world and what went wrong. That there will be more crashes in the future is a given. That each crash in this book happened more quickly than the one before and the Flash Crash of 2010 was measured in minutes, not only gives one pause, but strains the imagination to come up with something faster. We'll just have to wait and see.
"Step right up, folks. I've got a great opportunity to make me - ha ha, I mean You - to make your investment grow. How? Well, it's new and not easy to explain. But, hey, professors figured it out and they know what they're doing, right?
Uh, yes, ma'am, that does look like an iceberg right ahead, but we're going to sail right past it - no problems and a great return on your money. How much you wanna invest?"
Scott Nations ably lays out how people have convinced themselves and others that new financial contraptions can't sink. In a perfect environment that might be true, but in the real world there are earthquakes, oil spills, nations in danger of defaulting and they affect financial markets. If those markets aren't rock solid (and they often aren't) there is a crash. Nations sees a pattern in these five stock market meltdowns. He gives a detailed picture of the elements leading up to each crash - the history, the mechanics and some of the personalities. Yes, you can pick out repetition with variation throughout, but each chapter is a fascinating story. I didn't expect this book to be a page turner, but there were times I didn't want to put it down. You needn't be well versed in economics to follow. The author does a fine job of explaining things like what a credit default swap is and why it was so alluring to parts of the financial world and what went wrong. That there will be more crashes in the future is a given. That each crash in this book happened more quickly than the one before and the Flash Crash of 2010 was measured in minutes, not only gives one pause, but strains the imagination to come up with something faster. We'll just have to wait and see.
October 11, 2021
A fascinating read, start to finish. The author details the five major stock market crashes of the twentieth and twenty first centuries. We learn what the catalysts were that triggered the crashes, as well as their impact on the greater world economy and business in general. We also are introduced to several major characters in the world of finance who had a large part to play in the five crashes. Overall, a very good read.
August 3, 2018
I feel like the genesis of every business history includes this conversation:
Editor: These facts about interest rates are all very well, but you must engage the reader.
Author: What if I described men's facial hair?
Editor: Hmmm...it's a start.
Author: And maybe descriptions of incidental characters' childhoods'?
Editor: Good, good.
Author: Oh, I've got it--long descriptions of everyone's education!
Editor: Yes! There you go! If there's one thing I know in this crazy business, it's that people want to read about CEO's degrees!
Editor: These facts about interest rates are all very well, but you must engage the reader.
Author: What if I described men's facial hair?
Editor: Hmmm...it's a start.
Author: And maybe descriptions of incidental characters' childhoods'?
Editor: Good, good.
Author: Oh, I've got it--long descriptions of everyone's education!
Editor: Yes! There you go! If there's one thing I know in this crazy business, it's that people want to read about CEO's degrees!
April 23, 2021
Understanding the market crashes is essential to understanding the current market. As Mark Twain says "History does not repeat itself, but it rhymes". If we want to summarize all the 5 major market crashes that are described in this book, we can simplify all the stories into a single pattern:
Smart financers invent a new financial product to create money without actually producing value. They then experiment this product on a small scale, and when it works, they start using it at larger scales. The overuse of this product lead to poorly calculated consequences and a major crash. And finally, the government interferes (usually late and not improving the situation) and put some regulations to forbid this product. We then start again years later with another financial product and so on...
Despite believing in capitalism and the free market, I do realize that the lack of regulations, and the absence of personal consequences, allow such financers to invent these financial products, earn huge amounts of money, lead to crashes and hundreds of thousands of lives destroyed, and, almost in all cases, walk out without getting any punishment (or the worst they get is losing some of their earnings).
In the conclusion of the book, the author summarizes the charecteristics of the market (and the crashes) in few simple statements:
- The market is most vulnerable when it's over extended
- Liquidity dries up when it's much desired
- New financial products might seem to solve an immediate problem, while creating a much larger one in the future when stressed
Overall, the book is good and offers a lot of information. However, based on my previous knowledge about the studied crashes (and I admit my knowledge is not at all thorough), I got a feeling that the author focused on some factors while missing others. In addition, the writing is kind of confusing and does not flow logically.
Smart financers invent a new financial product to create money without actually producing value. They then experiment this product on a small scale, and when it works, they start using it at larger scales. The overuse of this product lead to poorly calculated consequences and a major crash. And finally, the government interferes (usually late and not improving the situation) and put some regulations to forbid this product. We then start again years later with another financial product and so on...
Despite believing in capitalism and the free market, I do realize that the lack of regulations, and the absence of personal consequences, allow such financers to invent these financial products, earn huge amounts of money, lead to crashes and hundreds of thousands of lives destroyed, and, almost in all cases, walk out without getting any punishment (or the worst they get is losing some of their earnings).
In the conclusion of the book, the author summarizes the charecteristics of the market (and the crashes) in few simple statements:
- The market is most vulnerable when it's over extended
- Liquidity dries up when it's much desired
- New financial products might seem to solve an immediate problem, while creating a much larger one in the future when stressed
Overall, the book is good and offers a lot of information. However, based on my previous knowledge about the studied crashes (and I admit my knowledge is not at all thorough), I got a feeling that the author focused on some factors while missing others. In addition, the writing is kind of confusing and does not flow logically.
November 21, 2017
Crashes usually occur late in a decade 1929, 87, 98, 2008 so thank goodness next year is.. wait.... Luckily we don't have any over inflated asset classes that have left many people vulnerable to sudden rises in interest rates...wait.. nor do we have any new financial products with no actual fundamental value like a made up currency that is ballooning in value...wait... Nor do we have any erratic leaders in charge of large economies....
November 18, 2018
This is a great book, along my expectations on getting to know a bit more what I knew around stock market crashes. Obviously, it is aimed and should mostly be of interest to anyone interested in reading on the stock market and on History. If this is not your case, do yourself and the author a favor and please don't pick it up…!
I am an active stock exchange investor and have read countless books in the hope I will better enlightened on my investment decisions. The process of learning to be a good investor, like in many other aspects of life, can only be facilitated and conducive to a better understanding of the stock market - both the present and, most importantly, the future - if you pay attention to the lessons History offers you. Thus, for someone who is investing from the mid-90's, I believe I know a lot of about the 2008 meltdown and I happenned to be in the middle of the 2010 flash crash (just happenned to work at one of the companies mentioned by the author). Any other crash, my awareness could be classified as total ignorance (had never heard of the 1907 crash) to some general knowledge of the 1929.
The most interesting bits I got from this whole piece of history are the similarities with what you continue to observe in this industry. Be it called "Dutch tulip craze" of around 3 centuries ago or the ".com mania burst" just a couple of decades ago, they all look the same, sound the same and, yep, end up the same way. Just my luck I had to go to work to a country still at civil war one month before the Enron story (should it be history by now?) burst, when I decided it would be safer to liquidate all my positions, April 2001 :-).
Great reading, quick and wit, good financial vocabular, not too technical but also not too simplified.
I am an active stock exchange investor and have read countless books in the hope I will better enlightened on my investment decisions. The process of learning to be a good investor, like in many other aspects of life, can only be facilitated and conducive to a better understanding of the stock market - both the present and, most importantly, the future - if you pay attention to the lessons History offers you. Thus, for someone who is investing from the mid-90's, I believe I know a lot of about the 2008 meltdown and I happenned to be in the middle of the 2010 flash crash (just happenned to work at one of the companies mentioned by the author). Any other crash, my awareness could be classified as total ignorance (had never heard of the 1907 crash) to some general knowledge of the 1929.
The most interesting bits I got from this whole piece of history are the similarities with what you continue to observe in this industry. Be it called "Dutch tulip craze" of around 3 centuries ago or the ".com mania burst" just a couple of decades ago, they all look the same, sound the same and, yep, end up the same way. Just my luck I had to go to work to a country still at civil war one month before the Enron story (should it be history by now?) burst, when I decided it would be safer to liquidate all my positions, April 2001 :-).
Great reading, quick and wit, good financial vocabular, not too technical but also not too simplified.
August 12, 2018
Clear and methodical. I like the structure with which he tells this story.
This book is in many ways akin to fx "The big short" and "When Genius Failed" except that this book is shorter and more concise and doesn't deal the the interpersonal dramas as the other books. This book explains simply the mechanisms by which the financial markets have crashed 5 times.
When done you will have learned most crashes have similar components like oblique products, overleveraged participants, exogenous shocks, overconfidence in overly "beautiful models" (models that doen't take real world complexities into considerations) and thus leads to massive build up of risk that they don't even know exists. And more.
This book is very good in many ways, but it doesn't say any thing new, thus "only" 4 stars.
This book is in many ways akin to fx "The big short" and "When Genius Failed" except that this book is shorter and more concise and doesn't deal the the interpersonal dramas as the other books. This book explains simply the mechanisms by which the financial markets have crashed 5 times.
When done you will have learned most crashes have similar components like oblique products, overleveraged participants, exogenous shocks, overconfidence in overly "beautiful models" (models that doen't take real world complexities into considerations) and thus leads to massive build up of risk that they don't even know exists. And more.
This book is very good in many ways, but it doesn't say any thing new, thus "only" 4 stars.
October 31, 2025
A History of the US in 5 Crashes: Stock Market Meltdowns
Very well written and researched, this is a sobering indictment of human nature with regard to money and free markets and how we manage to make our lives worse by being reckless. I hope we learn from this!
Very well written and researched, this is a sobering indictment of human nature with regard to money and free markets and how we manage to make our lives worse by being reckless. I hope we learn from this!
October 27, 2018
So so. Didn't learn as much as I thought I would have. I think the book will be more interesting for non-finance people.
December 8, 2020
Very detailed and well researched. A full picture is given of each moment in time. A bit dry, but well worth it
March 25, 2025
I’m proud of myself for finishing this but can’t say how much I understood… good thing I don’t get paid for this! Oh wait I do
January 6, 2026
1907:
1. The External Shock: The San Francisco "Gold Drain"
The crisis didn't start on Wall Street; it started with the 1906 San Francisco earthquake.
The Insurance Ripple: Most insurers were British. Paying out claims required shipping massive amounts of gold to the U.S.
The Reaction: To stop their gold reserves from depleting (24% drop), the Bank of England hiked interest rates to 6%.
The Result: This sucked global liquidity back to London, starving the over-leveraged NYC financial system of its "fuel" (gold) right when it needed it most.
2. The Internal Villain: The Trust Companies (Shadow Banks)
Trust companies were the "unique invention" that created hidden leverage in the system.
Regulatory Arbitrage: Trusts functioned like banks but were not legally banks. While NYC banks held 25% cash reserves, Trusts held as little as 5%.
The Leverage: This low reserve requirement allowed Trusts to fund risky corporate takeovers and stock market "corners" (like the failed United Copper scheme).
The Unwinding: When the Knickerbocker Trust collapsed, it triggered a "contagion of fear." Because there was no deposit insurance or branch system to spread risk, a bank run on one trust became a run on the entire city.
3. The Political Factor: Disruption of the "Rule of Law"
The market was already brittle, but Teddy Roosevelt’s "Trust-Busting" era added a layer of valuation uncertainty.
Changing Rules: Aggressive enforcement of the Sherman Antitrust Act meant the government could declare a business model illegal overnight.
Valuation Vacuum: As you noted, no one could determine the "intrinsic value" of a business if the rules of the game were constantly shifting. This lack of a predictable legal framework removed the "floor" from the market—when the crash started, there was no logical point to "buy the dip."
4. The Resolution: The "Human Fed"
J.P. Morgan: With no central bank, Morgan had to step in. He locked the titans of NYC banking in his library and forced them to use their own capital to backstop the failing Trusts.
Legacy: This near-total collapse proved that relying on one man's intervention was too dangerous. It was the direct catalyst for the Federal Reserve Act of 1913.
1929:
1. The Macro-Trigger: The "Rock and a Hard Place" (Nations)
Nations identifies a geopolitical trap that Sorkin largely treats as background noise.
The Dilemma: The NY Fed (Benjamin Strong) kept interest rates artificially low to prevent gold from flowing out of London. This was a "secret pact" to save the British Pound.
The Result: This "cheap money" became the oxygen for the U.S. stock bubble. By the time the Fed realized they needed to raise rates to stop speculation, doing so threatened to bankrupt the UK. They were paralyzed by international diplomacy while their domestic house was made of dry tinder.
2. The Structural Villain: "Investment Trusts" (Nations)
While Sorkin focuses on the people running the trusts, Nations focuses on the math of the trusts.
Leverage on Leverage: These trusts were the "Shadow Banks" of 1929. They used borrowed money to buy stocks, and then the public used margin (more borrowed money) to buy the trust shares.
The Nuclear Unwinding: When the market dipped, it triggered a chain reaction. A 5% drop in a stock caused a 10% drop in the trust, which triggered an immediate margin call for the retail investor. This was a "positive feedback loop" in reverse.
3. The Institutional Failure: "Unit Banking" (Your Context)
This is the piece Sorkin missed and Nations touches on briefly: the architecture of the banks themselves.
The NYC Model: Fragile, "Unit" banks (single-location) that were hyper-exposed to local shocks. If the boardroom panicked, the bank failed.
The Giannini Contrast: As you noted, the Bank of America (branch) model in the West was inherently more resilient. Because it was diversified across different towns and "Average Joe" depositors, it could survive the "boardroom myopia" that killed the NYC banks.
1987:
1. The New Tool: Portfolio Insurance
The "villain" of 1987 wasn't a bank or a trust, but a mathematical formula designed to protect big institutional investors.
• How it worked: "Portfolio Insurance" used computer programs to automatically sell S&P 500 futures contracts if the market dropped. The idea was to "hedge" a portfolio so it would never lose more than a certain amount.
• The Flaw: It relied on the assumption that there would always be a buyer on the other side. Nations argues this created a false sense of security, encouraging investors to take on more risk because they thought they had a "guaranteed" exit.
2. The Mechanical Unwinding: The "Feedback Loop"
On October 19, 1987, the market didn't just fall; it cascaded.
• The Chain Reaction: As the market dipped, the Portfolio Insurance computers began selling futures. This drove the market down further, which triggered more automated selling.
• The Decoupling: The "plumbing" of the New York Stock Exchange (NYSE) and the Chicago futures market broke. The prices in Chicago were way lower than in New York, but because of the volume, no one could arbitrage the difference. The "Ticker Tape" lag you saw in 1929 returned in the form of computer lag.
3. The Geopolitical Match: The "Rock and a Hard Place" (Again)
Just like in 1907 and 1929, an international currency dispute acted as the trigger.
• The G7 Tension: Treasury Secretary James Baker was in a public spat with West Germany over interest rates and the value of the Dollar.
• The Trigger: Over the weekend before Black Monday, Baker suggested the U.S. might let the Dollar slide. International investors panicked and started selling U.S. assets. This provided the "push" that started the computer-driven slide
2008:
Nations frames this not just as a housing crisis, but as a total failure of the "plumbing" that connected global capital to local mortgages.
1. The Villain: The Securitization Machine (CDOs)
Just as the Trust Companies (1907) and Investment Trusts (1929) acted as unregulated middle-men, the 2008 crisis was driven by Collateralized Debt Obligations (CDOs).
• The Process: Wall Street took thousands of individual mortgages, bundled them together, and sliced them into "tranches." They convinced the market that while one mortgage might fail, a thousand mortgages wouldn't all fail at once.
• The "Ghost" Diversification: This was the same "Illusion of Liquidity" you saw in 1987. Investors thought they were diversified, but they were actually just holding highly leveraged bets on a single asset class: American housing.
2. The New Leverage: Credit Default Swaps (CDS)
Nations explains that the leverage in 2008 wasn't just bank loans; it was "Synthetic Leverage."
• CDS as Insurance: Large institutions (like AIG) sold "insurance" on these mortgage bundles.
• The Multiplier Effect: Because people could buy a CDS without actually owning the underlying mortgage, the "bet" on the housing market became many times larger than the housing market itself. When the "blood was in the water," the payout requirements for these swaps instantly bankrupted the "insurers."
3. The Unwinding: Breaking the "Unit" System
You’ve noted before how the West Coast branch system was more resilient than the NYC "Unit" system. In 2008, the entire global banking system had become one giant, interconnected "Unit."
• Counterparty Risk: Because every bank was tied to every other bank through these complex derivatives (CDS/CDO), the failure of one "Unit" (Lehman Brothers) threatened to take down the entire global network.
• The Liquidity Freeze: Just like in 1907, banks didn't stop lending because they were broke; they stopped because they didn't know if the bank on the other side would exist tomorrow.
4. The "Rule of Law" and the Ultimate Intervention
This chapter brings your theme of "changing the rules" to its peak.
• The Pivot: Initially, the government let Lehman Brothers fail (trying to enforce the "rules" of the free market).
• the Panic: When they saw the global system starting to unwind, they completely changed the rules overnight with TARP (The Troubled Asset Relief Program) and Quantitative Easing.
• The Result: The government became the "Lender of Last Resort" for everything—not just banks, but money market funds and even auto companies.
2010:
In this chapter, Nations argues that 2010 was a crisis of "Algorithm vs. Reality." If 1987 was about computers following human formulas, 2010 was about computers interacting with other computers in a way no human could monitor.
1. The New Villain: High-Frequency Trading (HFT)
The "middleman" had changed again.
• The Speed Advantage: HFT firms used ultra-fast computers to trade in milliseconds. They were the "new market makers," but they had no legal obligation to stay in the market (unlike the old NYC "specialists").
• The "Hot Potato" Effect: When the selling started, algorithms began passing contracts back and forth to each other at lightning speed. This created the illusion of massive volume without any actual "buying" taking place.
2. The Trigger: The $4.1 Billion Sell Order
• The Event: A single mutual fund (Waddell & Reed) executed a massive sell order of 75,000 E-Mini S&P 500 contracts.
• The "Rock and a Hard Place": This order hit a market already fragile due to the Greek Debt Crisis. Just as in 1929 (UK Gold) and 1987 (German rates), an international European crisis provided the initial spark.
• The Unwinding: As the HFTs realized the volume was real, they did something terrifying: they simply turned off. Liquidity evaporated in seconds. Blue-chip stocks like Accenture traded for $0.01, while others spiked to $100,000.
3. The Resolution: The "Circuit Breaker"
• The Fix: The crash was so fast that it actually "fixed" itself when the Chicago Mercantile Exchange (CME) triggered a 5-second pause. That "human breath" allowed the algorithms to reset and the "Average Joe" traders to realize the prices were absurd.
• The Lesson: The system was now so fast that human oversight was impossible. The "Rules of the Game" had to be automated with circuit breakers to prevent the machine from eating itself.
1. The External Shock: The San Francisco "Gold Drain"
The crisis didn't start on Wall Street; it started with the 1906 San Francisco earthquake.
The Insurance Ripple: Most insurers were British. Paying out claims required shipping massive amounts of gold to the U.S.
The Reaction: To stop their gold reserves from depleting (24% drop), the Bank of England hiked interest rates to 6%.
The Result: This sucked global liquidity back to London, starving the over-leveraged NYC financial system of its "fuel" (gold) right when it needed it most.
2. The Internal Villain: The Trust Companies (Shadow Banks)
Trust companies were the "unique invention" that created hidden leverage in the system.
Regulatory Arbitrage: Trusts functioned like banks but were not legally banks. While NYC banks held 25% cash reserves, Trusts held as little as 5%.
The Leverage: This low reserve requirement allowed Trusts to fund risky corporate takeovers and stock market "corners" (like the failed United Copper scheme).
The Unwinding: When the Knickerbocker Trust collapsed, it triggered a "contagion of fear." Because there was no deposit insurance or branch system to spread risk, a bank run on one trust became a run on the entire city.
3. The Political Factor: Disruption of the "Rule of Law"
The market was already brittle, but Teddy Roosevelt’s "Trust-Busting" era added a layer of valuation uncertainty.
Changing Rules: Aggressive enforcement of the Sherman Antitrust Act meant the government could declare a business model illegal overnight.
Valuation Vacuum: As you noted, no one could determine the "intrinsic value" of a business if the rules of the game were constantly shifting. This lack of a predictable legal framework removed the "floor" from the market—when the crash started, there was no logical point to "buy the dip."
4. The Resolution: The "Human Fed"
J.P. Morgan: With no central bank, Morgan had to step in. He locked the titans of NYC banking in his library and forced them to use their own capital to backstop the failing Trusts.
Legacy: This near-total collapse proved that relying on one man's intervention was too dangerous. It was the direct catalyst for the Federal Reserve Act of 1913.
1929:
1. The Macro-Trigger: The "Rock and a Hard Place" (Nations)
Nations identifies a geopolitical trap that Sorkin largely treats as background noise.
The Dilemma: The NY Fed (Benjamin Strong) kept interest rates artificially low to prevent gold from flowing out of London. This was a "secret pact" to save the British Pound.
The Result: This "cheap money" became the oxygen for the U.S. stock bubble. By the time the Fed realized they needed to raise rates to stop speculation, doing so threatened to bankrupt the UK. They were paralyzed by international diplomacy while their domestic house was made of dry tinder.
2. The Structural Villain: "Investment Trusts" (Nations)
While Sorkin focuses on the people running the trusts, Nations focuses on the math of the trusts.
Leverage on Leverage: These trusts were the "Shadow Banks" of 1929. They used borrowed money to buy stocks, and then the public used margin (more borrowed money) to buy the trust shares.
The Nuclear Unwinding: When the market dipped, it triggered a chain reaction. A 5% drop in a stock caused a 10% drop in the trust, which triggered an immediate margin call for the retail investor. This was a "positive feedback loop" in reverse.
3. The Institutional Failure: "Unit Banking" (Your Context)
This is the piece Sorkin missed and Nations touches on briefly: the architecture of the banks themselves.
The NYC Model: Fragile, "Unit" banks (single-location) that were hyper-exposed to local shocks. If the boardroom panicked, the bank failed.
The Giannini Contrast: As you noted, the Bank of America (branch) model in the West was inherently more resilient. Because it was diversified across different towns and "Average Joe" depositors, it could survive the "boardroom myopia" that killed the NYC banks.
1987:
1. The New Tool: Portfolio Insurance
The "villain" of 1987 wasn't a bank or a trust, but a mathematical formula designed to protect big institutional investors.
• How it worked: "Portfolio Insurance" used computer programs to automatically sell S&P 500 futures contracts if the market dropped. The idea was to "hedge" a portfolio so it would never lose more than a certain amount.
• The Flaw: It relied on the assumption that there would always be a buyer on the other side. Nations argues this created a false sense of security, encouraging investors to take on more risk because they thought they had a "guaranteed" exit.
2. The Mechanical Unwinding: The "Feedback Loop"
On October 19, 1987, the market didn't just fall; it cascaded.
• The Chain Reaction: As the market dipped, the Portfolio Insurance computers began selling futures. This drove the market down further, which triggered more automated selling.
• The Decoupling: The "plumbing" of the New York Stock Exchange (NYSE) and the Chicago futures market broke. The prices in Chicago were way lower than in New York, but because of the volume, no one could arbitrage the difference. The "Ticker Tape" lag you saw in 1929 returned in the form of computer lag.
3. The Geopolitical Match: The "Rock and a Hard Place" (Again)
Just like in 1907 and 1929, an international currency dispute acted as the trigger.
• The G7 Tension: Treasury Secretary James Baker was in a public spat with West Germany over interest rates and the value of the Dollar.
• The Trigger: Over the weekend before Black Monday, Baker suggested the U.S. might let the Dollar slide. International investors panicked and started selling U.S. assets. This provided the "push" that started the computer-driven slide
2008:
Nations frames this not just as a housing crisis, but as a total failure of the "plumbing" that connected global capital to local mortgages.
1. The Villain: The Securitization Machine (CDOs)
Just as the Trust Companies (1907) and Investment Trusts (1929) acted as unregulated middle-men, the 2008 crisis was driven by Collateralized Debt Obligations (CDOs).
• The Process: Wall Street took thousands of individual mortgages, bundled them together, and sliced them into "tranches." They convinced the market that while one mortgage might fail, a thousand mortgages wouldn't all fail at once.
• The "Ghost" Diversification: This was the same "Illusion of Liquidity" you saw in 1987. Investors thought they were diversified, but they were actually just holding highly leveraged bets on a single asset class: American housing.
2. The New Leverage: Credit Default Swaps (CDS)
Nations explains that the leverage in 2008 wasn't just bank loans; it was "Synthetic Leverage."
• CDS as Insurance: Large institutions (like AIG) sold "insurance" on these mortgage bundles.
• The Multiplier Effect: Because people could buy a CDS without actually owning the underlying mortgage, the "bet" on the housing market became many times larger than the housing market itself. When the "blood was in the water," the payout requirements for these swaps instantly bankrupted the "insurers."
3. The Unwinding: Breaking the "Unit" System
You’ve noted before how the West Coast branch system was more resilient than the NYC "Unit" system. In 2008, the entire global banking system had become one giant, interconnected "Unit."
• Counterparty Risk: Because every bank was tied to every other bank through these complex derivatives (CDS/CDO), the failure of one "Unit" (Lehman Brothers) threatened to take down the entire global network.
• The Liquidity Freeze: Just like in 1907, banks didn't stop lending because they were broke; they stopped because they didn't know if the bank on the other side would exist tomorrow.
4. The "Rule of Law" and the Ultimate Intervention
This chapter brings your theme of "changing the rules" to its peak.
• The Pivot: Initially, the government let Lehman Brothers fail (trying to enforce the "rules" of the free market).
• the Panic: When they saw the global system starting to unwind, they completely changed the rules overnight with TARP (The Troubled Asset Relief Program) and Quantitative Easing.
• The Result: The government became the "Lender of Last Resort" for everything—not just banks, but money market funds and even auto companies.
2010:
In this chapter, Nations argues that 2010 was a crisis of "Algorithm vs. Reality." If 1987 was about computers following human formulas, 2010 was about computers interacting with other computers in a way no human could monitor.
1. The New Villain: High-Frequency Trading (HFT)
The "middleman" had changed again.
• The Speed Advantage: HFT firms used ultra-fast computers to trade in milliseconds. They were the "new market makers," but they had no legal obligation to stay in the market (unlike the old NYC "specialists").
• The "Hot Potato" Effect: When the selling started, algorithms began passing contracts back and forth to each other at lightning speed. This created the illusion of massive volume without any actual "buying" taking place.
2. The Trigger: The $4.1 Billion Sell Order
• The Event: A single mutual fund (Waddell & Reed) executed a massive sell order of 75,000 E-Mini S&P 500 contracts.
• The "Rock and a Hard Place": This order hit a market already fragile due to the Greek Debt Crisis. Just as in 1929 (UK Gold) and 1987 (German rates), an international European crisis provided the initial spark.
• The Unwinding: As the HFTs realized the volume was real, they did something terrifying: they simply turned off. Liquidity evaporated in seconds. Blue-chip stocks like Accenture traded for $0.01, while others spiked to $100,000.
3. The Resolution: The "Circuit Breaker"
• The Fix: The crash was so fast that it actually "fixed" itself when the Chicago Mercantile Exchange (CME) triggered a 5-second pause. That "human breath" allowed the algorithms to reset and the "Average Joe" traders to realize the prices were absurd.
• The Lesson: The system was now so fast that human oversight was impossible. The "Rules of the Game" had to be automated with circuit breakers to prevent the machine from eating itself.
September 20, 2026
The book is divided into the story of each crash and it’s “just the facts ma’am,” with very little in lessons or reflections. It’s a little difficult for me to judge because I grew up in a family that subscribed to the Wall Street Journal and have an MBA, but I think the book is understandable to the average person.
The author defines many of the terms used and explains how the stock market works, explaining the different players and different kinds of trades. He perhaps could have explained how central banks work a little bit more.
At one point I looked up the history of the gold standard to match dates to what was going on in the stock market because he just talked about gold without saying anything, he doesn’t even use the term “gold standard” to give a confused reader a fighting chance to know what to look up. So there is a tip to the reader – if you don’t know what the gold standard was, look it up before reading this book. There was also a silver standard, which he mentions in passing once.
Now I will divide into the five crashes, highlighting the author’s sparce reflections and adding my own.
1907
This chapter gets lightly into the court cases that made up Roosevelt’s trust breaking. And then how the 1906 San Francisco Earthquake lead to the 1907 crash.
I have an interest in the earthquake and have read several books and somehow didn’t know any of this – Through an accident of history most San Francisco insurance was from UK companies. 14% of all the gold in the UK ended up being shipped to San Francisco! And it still wasn’t enough so UK’s central bank raised the interest rate to borrow more gold. This set off a world wide interest rate rise leading to the crash. Who knew!
The author also puts a definition of what causes a crash in here: “forces overwhelm the ability to know what value is.”
I wonder if it would be possible for there to be an urban disaster big enough to cause a crash now? There have been some big ones. I suspect it would take a nuclear bomb.
1929
Okay, hold onto your hats, this echoes so many things that have obvious parallels here in September 2026. Shoot, starting with the month of September! Here’s a list:
Absent (and chummy) leaders – the head of the UK central bank and the head of the US central bank’s interest rate setting both had serious illnesses and were often absent from their roles for up to a year! They were also close friends and made decisions to benefit each other that didn’t necessarily benefit their countries. Meanwhile, at one point Roosevelt is asked about a bank issue and he replies with a list of all the animals he killed hunting that weekend.
A new technology requiring huge spending to come up to speed – In 1929 it was radio. Over $16 million was spent in 1922 alone on consumer purchases of radios. (1) One of the final investment frauds was a scheme to pump up the value of RCA.
Fear of raising interest rates – The US regulator made a statement about what would happen if he were to be to blame for destroying the economy that was almost exactly what a regulator has said more recently. And yet, in 1929 that exactly destroyed the economy! Also, the US was keeping rates down because buddy buddy from the UK asked.
Private interest rates diverging from government rates – There wasn’t enough government money and couldn’t be more because of the gold standard and the interest rate deal with the UK buddy, so private lending filled the gap and at a much higher rate. One you’ve trained people to accept these higher rates, you have no control over the economy because what does it matter if you raise rates.
Population trained to become “investors” – In 1929 it was the War Bonds push that had brought a large percentage of the population that never thought of themselves as investors into investment. Now they were ready to buy into stock investment trusts. By the end, 99% of all new shares on the market were in investment trusts.
Stock trading nosing in everywhere – Near the end, Cunard put broker rooms on their ships. A temporary office was set up the Pebble Beach Golf Tournament.
He also gives more on his idea of fundamental causes of a crash. In this case, “friction never overcomes tension.”
1. Isn’t this an interesting pre-history of planned obscellescence? If everyone needs to buy a thing for the first time, that doesn’t come into the picture yet. But how do you get the second purchase if you don’t plan from day 1 that the thing will destroy itself? This is what killed InstantPot, for example.
1987
This crash was people thinking they were clever, but it was also caused by their computerized cleverness and ultimately brought under control by humans overcoming those same computers.
Puts – Puts (insurance against stock losses) were illegal because they were considered too risky. Some academics came up with a stand in that worked great in models that were missing some key elements from the real world. Did that stop them? No.
Leveraged Buyouts – Kicking off with Gibson greeting cards purchased by RCA where about $300K in lead to $70 million out.
Iran – The weekend before Black Monday was an exchange of bombing between Iran and the United States.
Black Monday – Opened 1 hour early but nothing moved because it was all sell orders. By 11AM eight of the Dow Industrials still had not traded.
Human Interventions – A human stopped putting through sell orders from his company’s computer algorithm because it was going to drive the price to zero. This human is unnamed, and IMO choices like this of humans to make decisions above and in control of computers need to be celebrated as a moral example to others. This didn’t happen in 2010. We need a book about this person.
Also everyone at brokerages, banks, and government got on the phone and talked to corporations about doing buy backs of their own stock.
According to the book, at one point the future of the stock market hinged on a $100 million overdraft. The person in the office was only authorized for $10 million. A massive future hinged on $90 million. The man’s boss “happened” to walk through the office at just the right time, but this may have been a time for humane disobedience as well!
And one more marker of a crash: “The history of modern stock market crashes inevitably includes some theoretically sophisticated yet poorly understood financial contraption that mutates when stressed pushing an already weakened system closer to the cliff.”
2008
Again too much cleverness:
-Credit default swaps, such as used to cover Exxon for the expenses of the Valdez oil spill, combined with,
-Alan Greenspan figuring out he could hide economic weakness behind a strong mortgage market, combined with
-Clinton goal to get people who couldn’t afford houses into housing without actually spending any money accomplished by reducing regulatory limits on getting everyday people into debt, combined with
-Complex financial products to trade the mortgage market as it ballooned to one-third of the entire US economy (!!!)
-Lead to a solution (TARP) where the banks were required to become indebted to the government to save the people of this country and they had to be blackmailed into taking the money
My Notes:
-FLASHING WARNING SIGN- we have a real estate guy in the White House. There’s a lot of additional issues of course, but we probably don’t pay this one enough attention.
-We talk a lot about Biden’s part as a senator in increasing the debt burden on regular people and decreasing their protections, but not about Clinton. I would be very interested in a book that focus on these two topics combined.
-What else becomes an overly bloated part of the economy with a lot of hidden inside financial dealings? Real estate right now, of course, and also LLM/ML (so called “AI).
2010
The flash crash that only lasted 25 minutes and took out 9.2% of US stock market value. Elements:
-a trigger, in this case the Greek national debt melt down
-one company setting up electronic trading that created a feedback loop
-overwhelming the trading computer systems and destroying liquidity, the human interventions noted in 1987 were gone
The author makes a few lessons from this event:
-You don’t have a right to liquidity. In fact, lack of liquidity is part of what holds up the stock market. And no advanced products can force liquidity to happen.
-Everything is speeding up. The time from a trigger to a crash and the time from the start to the end of a crash are sped up.
-Speed is sought at the expense of safety. Greed (for speed) overcomes fear (for safety). Stock market crashes are always about too much greed and not enough fear.
A personal note - I grew up on a rural cattle ranch. I heard about Black Monday on the radio on the school bus that morning. When I got to junior high school I used the pay phone to call the ranch and let them know. That was the last crash that happened at that kind of slowness.
MY PREDICTION
After reading this book, here is my crash prediction: The trigger for the AI bubble crash will be an AI trading error. Those two major military errors (and so many smaller military and police ones) are the warning shots.
The author defines many of the terms used and explains how the stock market works, explaining the different players and different kinds of trades. He perhaps could have explained how central banks work a little bit more.
At one point I looked up the history of the gold standard to match dates to what was going on in the stock market because he just talked about gold without saying anything, he doesn’t even use the term “gold standard” to give a confused reader a fighting chance to know what to look up. So there is a tip to the reader – if you don’t know what the gold standard was, look it up before reading this book. There was also a silver standard, which he mentions in passing once.
Now I will divide into the five crashes, highlighting the author’s sparce reflections and adding my own.
1907
This chapter gets lightly into the court cases that made up Roosevelt’s trust breaking. And then how the 1906 San Francisco Earthquake lead to the 1907 crash.
I have an interest in the earthquake and have read several books and somehow didn’t know any of this – Through an accident of history most San Francisco insurance was from UK companies. 14% of all the gold in the UK ended up being shipped to San Francisco! And it still wasn’t enough so UK’s central bank raised the interest rate to borrow more gold. This set off a world wide interest rate rise leading to the crash. Who knew!
The author also puts a definition of what causes a crash in here: “forces overwhelm the ability to know what value is.”
I wonder if it would be possible for there to be an urban disaster big enough to cause a crash now? There have been some big ones. I suspect it would take a nuclear bomb.
1929
Okay, hold onto your hats, this echoes so many things that have obvious parallels here in September 2026. Shoot, starting with the month of September! Here’s a list:
Absent (and chummy) leaders – the head of the UK central bank and the head of the US central bank’s interest rate setting both had serious illnesses and were often absent from their roles for up to a year! They were also close friends and made decisions to benefit each other that didn’t necessarily benefit their countries. Meanwhile, at one point Roosevelt is asked about a bank issue and he replies with a list of all the animals he killed hunting that weekend.
A new technology requiring huge spending to come up to speed – In 1929 it was radio. Over $16 million was spent in 1922 alone on consumer purchases of radios. (1) One of the final investment frauds was a scheme to pump up the value of RCA.
Fear of raising interest rates – The US regulator made a statement about what would happen if he were to be to blame for destroying the economy that was almost exactly what a regulator has said more recently. And yet, in 1929 that exactly destroyed the economy! Also, the US was keeping rates down because buddy buddy from the UK asked.
Private interest rates diverging from government rates – There wasn’t enough government money and couldn’t be more because of the gold standard and the interest rate deal with the UK buddy, so private lending filled the gap and at a much higher rate. One you’ve trained people to accept these higher rates, you have no control over the economy because what does it matter if you raise rates.
Population trained to become “investors” – In 1929 it was the War Bonds push that had brought a large percentage of the population that never thought of themselves as investors into investment. Now they were ready to buy into stock investment trusts. By the end, 99% of all new shares on the market were in investment trusts.
Stock trading nosing in everywhere – Near the end, Cunard put broker rooms on their ships. A temporary office was set up the Pebble Beach Golf Tournament.
He also gives more on his idea of fundamental causes of a crash. In this case, “friction never overcomes tension.”
1. Isn’t this an interesting pre-history of planned obscellescence? If everyone needs to buy a thing for the first time, that doesn’t come into the picture yet. But how do you get the second purchase if you don’t plan from day 1 that the thing will destroy itself? This is what killed InstantPot, for example.
1987
This crash was people thinking they were clever, but it was also caused by their computerized cleverness and ultimately brought under control by humans overcoming those same computers.
Puts – Puts (insurance against stock losses) were illegal because they were considered too risky. Some academics came up with a stand in that worked great in models that were missing some key elements from the real world. Did that stop them? No.
Leveraged Buyouts – Kicking off with Gibson greeting cards purchased by RCA where about $300K in lead to $70 million out.
Iran – The weekend before Black Monday was an exchange of bombing between Iran and the United States.
Black Monday – Opened 1 hour early but nothing moved because it was all sell orders. By 11AM eight of the Dow Industrials still had not traded.
Human Interventions – A human stopped putting through sell orders from his company’s computer algorithm because it was going to drive the price to zero. This human is unnamed, and IMO choices like this of humans to make decisions above and in control of computers need to be celebrated as a moral example to others. This didn’t happen in 2010. We need a book about this person.
Also everyone at brokerages, banks, and government got on the phone and talked to corporations about doing buy backs of their own stock.
According to the book, at one point the future of the stock market hinged on a $100 million overdraft. The person in the office was only authorized for $10 million. A massive future hinged on $90 million. The man’s boss “happened” to walk through the office at just the right time, but this may have been a time for humane disobedience as well!
And one more marker of a crash: “The history of modern stock market crashes inevitably includes some theoretically sophisticated yet poorly understood financial contraption that mutates when stressed pushing an already weakened system closer to the cliff.”
2008
Again too much cleverness:
-Credit default swaps, such as used to cover Exxon for the expenses of the Valdez oil spill, combined with,
-Alan Greenspan figuring out he could hide economic weakness behind a strong mortgage market, combined with
-Clinton goal to get people who couldn’t afford houses into housing without actually spending any money accomplished by reducing regulatory limits on getting everyday people into debt, combined with
-Complex financial products to trade the mortgage market as it ballooned to one-third of the entire US economy (!!!)
-Lead to a solution (TARP) where the banks were required to become indebted to the government to save the people of this country and they had to be blackmailed into taking the money
My Notes:
-FLASHING WARNING SIGN- we have a real estate guy in the White House. There’s a lot of additional issues of course, but we probably don’t pay this one enough attention.
-We talk a lot about Biden’s part as a senator in increasing the debt burden on regular people and decreasing their protections, but not about Clinton. I would be very interested in a book that focus on these two topics combined.
-What else becomes an overly bloated part of the economy with a lot of hidden inside financial dealings? Real estate right now, of course, and also LLM/ML (so called “AI).
2010
The flash crash that only lasted 25 minutes and took out 9.2% of US stock market value. Elements:
-a trigger, in this case the Greek national debt melt down
-one company setting up electronic trading that created a feedback loop
-overwhelming the trading computer systems and destroying liquidity, the human interventions noted in 1987 were gone
The author makes a few lessons from this event:
-You don’t have a right to liquidity. In fact, lack of liquidity is part of what holds up the stock market. And no advanced products can force liquidity to happen.
-Everything is speeding up. The time from a trigger to a crash and the time from the start to the end of a crash are sped up.
-Speed is sought at the expense of safety. Greed (for speed) overcomes fear (for safety). Stock market crashes are always about too much greed and not enough fear.
A personal note - I grew up on a rural cattle ranch. I heard about Black Monday on the radio on the school bus that morning. When I got to junior high school I used the pay phone to call the ranch and let them know. That was the last crash that happened at that kind of slowness.
MY PREDICTION
After reading this book, here is my crash prediction: The trigger for the AI bubble crash will be an AI trading error. Those two major military errors (and so many smaller military and police ones) are the warning shots.
December 23, 2018
Given the stock market slump of late 2018, this book perked my interest. As of mid- December the S&P 500 is down 17% off of its highs, 5% of that decline occurred as I was reading the book. A good review of how some (not all ) stock market crashes occur. The author looks at 5 crashes (1907, 1929, 1987, 2008 and 2010). His basic theory is that these crashes all were preceded by untested complex financial instruments that people used to enhance their wealth. Greed led to widespread use of these instruments and all went well - until it didn't and everyone wanted to cash their stock. The financial instruments fail, and the crowd runs for the financial doors as market valuation falls, liquidity dries up and companies and people go bankrupt. Private and Government organizations try to prop up the market - which sometimes helps (2008) and sometimes does not (1929).
I enjoyed the author's discussion of people and financial products. He took care to explain technical financial concepts in a way that should be understood by people with general financial knowledge. I also enjoyed how he introduces us to the characters who affected the crashes - both negatively and positively. If you haven't bought stock or mutual funds or ever read the Wall Street Journal- you may not find this book interesting or understandable.
I was disappointed that he didn't address crashes that occurred without any new financial instruments. He didn't address 1946(S&P down 21.4%), 1962 (down 2.17%), late 60s (down 29.3%), 1973/1974 (down 42.6%) and the dot.com bust 2000 (down 44.7%). These crashes were equally damaging but appear to correlate with political (Watergate), international(Cuban missile crisis, Vietnam), social(civil rights movement), regulatory (margin trading controls) and economic (OPEC Oil embargo & inflation) instability. This makes a look at 20th and 21st-century market crashes incomplete.
This book certainly has changed my thoughts on what to do in the next crash. All the advisors tell you to buy and hold, dollar cost average, ignore the news. I'm wondering if that is really wise advice when instability sets in.
Perhaps the author could address these crashes from instability in a future volume after the current market downturn concludes. It appears that the potential 2018/2019 crash may be similar to those not listed in this book.
An excellent book.
I enjoyed the author's discussion of people and financial products. He took care to explain technical financial concepts in a way that should be understood by people with general financial knowledge. I also enjoyed how he introduces us to the characters who affected the crashes - both negatively and positively. If you haven't bought stock or mutual funds or ever read the Wall Street Journal- you may not find this book interesting or understandable.
I was disappointed that he didn't address crashes that occurred without any new financial instruments. He didn't address 1946(S&P down 21.4%), 1962 (down 2.17%), late 60s (down 29.3%), 1973/1974 (down 42.6%) and the dot.com bust 2000 (down 44.7%). These crashes were equally damaging but appear to correlate with political (Watergate), international(Cuban missile crisis, Vietnam), social(civil rights movement), regulatory (margin trading controls) and economic (OPEC Oil embargo & inflation) instability. This makes a look at 20th and 21st-century market crashes incomplete.
This book certainly has changed my thoughts on what to do in the next crash. All the advisors tell you to buy and hold, dollar cost average, ignore the news. I'm wondering if that is really wise advice when instability sets in.
Perhaps the author could address these crashes from instability in a future volume after the current market downturn concludes. It appears that the potential 2018/2019 crash may be similar to those not listed in this book.
An excellent book.
May 16, 2026
Quite interesting.
Men repeatedly come up with creative ways to come up with derivative products that no one understands, leading to the next crash, leading to more regulation.
1907
1929
1987
2008
2010
After reading this, I lost interest in reading the more popular book: 1929: Inside the Greatest Crash in History – and How It Shattered a Nation. Five Crashes is both broader coverage and shorter in length.
Men repeatedly come up with creative ways to come up with derivative products that no one understands, leading to the next crash, leading to more regulation.
1907
1929
1987
2008
2010
After reading this, I lost interest in reading the more popular book: 1929: Inside the Greatest Crash in History – and How It Shattered a Nation. Five Crashes is both broader coverage and shorter in length.
April 21, 2018
If I offered you a loan and told you, up front, your monthly payments would make it so you could never repay the loan, would you take the loan? The obvious answer is no, right? Unless, of course, I called it a negative amortization mortgage. In that case, you might get swindled like so many Americans did back in 2008. I’m guessing, the fine print on those mortgages wasn’t so clearly explained.
Aside from 2008, Scott Nations, goes into great depth on the more familiar crashes of 1929 and 1987, as well as shedding light on a few not so well known, like the flash crash of 2010. The author did a terrific job of maintaining the narrative and tying together the varied reasons for each crash to a central component present in each crash.
I found this book to be both enlightening and entertaining. Thoroughly researched, and timely content, make this a must read for anyone with an interest in business, investing, or the nuances of herd behaviour.
4 stars.
Aside from 2008, Scott Nations, goes into great depth on the more familiar crashes of 1929 and 1987, as well as shedding light on a few not so well known, like the flash crash of 2010. The author did a terrific job of maintaining the narrative and tying together the varied reasons for each crash to a central component present in each crash.
I found this book to be both enlightening and entertaining. Thoroughly researched, and timely content, make this a must read for anyone with an interest in business, investing, or the nuances of herd behaviour.
4 stars.
July 21, 2023
A History of the United States in Five Crashes takes a look at the causes and effects of some of the big stock market movements throughout US history, starting with the panic of 1907.
While I understand that learning about the causes of prior crashes is instructive in understanding the present and future, the delivery here comes off duller than a ham sandwich. If you enjoy reading about meaningless stock market numbers and lengthy backgrounds of CEOs, then this is your jam. Otherwise, Nations fails to extract the most important and interesting information from each crash, which makes this a difficult read to push through.
While I understand that learning about the causes of prior crashes is instructive in understanding the present and future, the delivery here comes off duller than a ham sandwich. If you enjoy reading about meaningless stock market numbers and lengthy backgrounds of CEOs, then this is your jam. Otherwise, Nations fails to extract the most important and interesting information from each crash, which makes this a difficult read to push through.
April 18, 2018
This really readable, play-by-play account of five major market crashes of the last 100 or so years points to symptoms the all seemed to have in common. Greed is always first and foremost, there is often an elevated market and a new financial contraption or technology which pushes it even further past reasonable levels, there is hubris and sometimes complacency, and finally, a catalyst. Because these traits and tendencies seem to be woven into our DNA, the market will crash again.
May 18, 2021
There is little new in the world of investing because speculation has been around for most of mankind’s existence. These books show how financial crises are all similar but we fail to learn the telltale signs: an asset class starts growing in value, which brings in more looking to make a killing and everyone agrees this time it’s different until it goes all off with a bang and everyone asks how come no one saw it coming.
Highly recommendable read with some great lessons.
Highly recommendable read with some great lessons.
October 23, 2020
Gets a little deep, but the content is good. So good, in fact, that after reading it you realize the current state of economic affairs sounds very similar... but, overall great read. Very educational.
November 24, 2018
"Confirmation that our stock market will crash again can be found in the understanding that markets continue to crash, even though the five modern stock market crashes are strikingly similar and should teach us something."
The stock market is, for me and most, hopelessly complicated to understand and quite difficult to play beyond managing a simple retirement account. I've read several books on the topic and still cannot give you a simple, clear answer as to what the end-of-the-day Dow Jones Industrial Average means or how it is computed. Something about a selection of handpicked stocks and their price average and so forth.
However, in the broadest terms, the stock market can be predictable. You can tell at any given time whether it's in a bull or bear cycle, and certain indicators usually precede the shifting from one to the other. Markets crash, too, and the big crashes usually have more in common than you think.
Enter Scott Nations, who makes a living understanding and commenting on the markets. Nations' "A History of the United States in Five Crashes" examines the stock market meltdowns that took place in 1907, 1929, 1987, 2008, and 2010 and identifies the factors they each had in common.
Takeaways? ...
1. "Every modern stock market crash has an external catalyst at its heart" – in 1907: the San Francisco earthquake; in 1987 and 2010: geopolitical strife; in 1929: shady characters doing shady things.
2. "Each collapse has been fueled by a new, poorly understood financial contraption that introduces leverage into a system that is already unstable" – in 1907: trusts; in 2008: bundled subprime mortgage assets.
3. "Every crash has a catalyst" -- in 2010: street protests in Greece; in 1929: collapse of three brokerages in London.
4. "The history of modern stock market crashes invariably includes some theoretically sophisticated yet poorly understood financial contraption that mutates when stressed, pushing an already weakened system closer to the cliff" – in 1929: the levered investment trust; in 1987: portfolio insurance; in 2008: the credit default swap.
It's a little embarrassing to admit, but I was quite surprised at how much I had forgotten (or never learned or (more appropriately) repressed) about the crash of 2008. (In the interest of full disclosure, yours truly owned a home that flipped underwater during that debacle.) In its complexity and its impact, 2008 is the reigning king of financial meltdowns. Whether we knew it or not, we really were on the knife-edge during that time – with a presidential election in the balance, too! Whew.
On the whole, Nations does a good enough job explaining the why and how of each of these financial disasters, augmenting them with some timely political and sociological context. That said, a better writer could have expanded on this work (it's too short), lessened the statistical burden (it's a little too heavy on the numbers), and further augmented the historical context (providing a little more insight into the main players for each crash). And as a key theme of the book is that these crashes are a bit linear in nature, the five sections of the book could have been more linear, as well.
Nevertheless, it's a worthwhile book – well-researched and sourced, and ably written. Spoiler alert – the warning signs of the next financial meltdown are already beginning to emerge.
The stock market is, for me and most, hopelessly complicated to understand and quite difficult to play beyond managing a simple retirement account. I've read several books on the topic and still cannot give you a simple, clear answer as to what the end-of-the-day Dow Jones Industrial Average means or how it is computed. Something about a selection of handpicked stocks and their price average and so forth.
However, in the broadest terms, the stock market can be predictable. You can tell at any given time whether it's in a bull or bear cycle, and certain indicators usually precede the shifting from one to the other. Markets crash, too, and the big crashes usually have more in common than you think.
Enter Scott Nations, who makes a living understanding and commenting on the markets. Nations' "A History of the United States in Five Crashes" examines the stock market meltdowns that took place in 1907, 1929, 1987, 2008, and 2010 and identifies the factors they each had in common.
Takeaways? ...
1. "Every modern stock market crash has an external catalyst at its heart" – in 1907: the San Francisco earthquake; in 1987 and 2010: geopolitical strife; in 1929: shady characters doing shady things.
2. "Each collapse has been fueled by a new, poorly understood financial contraption that introduces leverage into a system that is already unstable" – in 1907: trusts; in 2008: bundled subprime mortgage assets.
3. "Every crash has a catalyst" -- in 2010: street protests in Greece; in 1929: collapse of three brokerages in London.
4. "The history of modern stock market crashes invariably includes some theoretically sophisticated yet poorly understood financial contraption that mutates when stressed, pushing an already weakened system closer to the cliff" – in 1929: the levered investment trust; in 1987: portfolio insurance; in 2008: the credit default swap.
It's a little embarrassing to admit, but I was quite surprised at how much I had forgotten (or never learned or (more appropriately) repressed) about the crash of 2008. (In the interest of full disclosure, yours truly owned a home that flipped underwater during that debacle.) In its complexity and its impact, 2008 is the reigning king of financial meltdowns. Whether we knew it or not, we really were on the knife-edge during that time – with a presidential election in the balance, too! Whew.
On the whole, Nations does a good enough job explaining the why and how of each of these financial disasters, augmenting them with some timely political and sociological context. That said, a better writer could have expanded on this work (it's too short), lessened the statistical burden (it's a little too heavy on the numbers), and further augmented the historical context (providing a little more insight into the main players for each crash). And as a key theme of the book is that these crashes are a bit linear in nature, the five sections of the book could have been more linear, as well.
Nevertheless, it's a worthwhile book – well-researched and sourced, and ably written. Spoiler alert – the warning signs of the next financial meltdown are already beginning to emerge.
December 19, 2024
Scott Nations has written an authoritative, informative, and quite engaging history of five stock market crashes in US history that shed light on the nature of American greed and fear, high finance, and the development of technology.
I appear to be on a bit of an economics kick right now and this book scratched a narrative itch in learning about finance that I haven't had satisfied since I listened to Andrew Ross Sorkin's Too Big To Fail, which I absolutely loved as a Game of Thrones-style retelling of the 2008 crash.
Nations' book however is much broader but tighter focused. The crashes of 1907, 1929, 1987, 2008, and 2010 are his target, but within each, Nations focuses on the particular background and circumstances of the economic and political machinations of the US leading up to the crash. I find this history and analysis fascinating. Nations then follows this up with a dramatic but accurate description of each crash as systems fail, investors panic, and numbers start to drop.
While this is certainly an entertaining and informative read, I hope readers of this book come in with a strict understanding that the stock market is merely an indicator of economic health, not the cause of it. Sometimes it is a rather misinformed indicator at that, as this book should prove. But the main lessons one should take from this are nicely summed up in the epilogue: the combination of greed and fear, coupled with the invention of new and poorly understood financial tools that fail a test of their usefulness in a crash, and spurred on by sometimes years of economic, corporate, and government malfeasance, leads to stock crashes. It is unfortunately a cycle that will be repeated time and again as long as powerful and rich people continue to insist on pushing for more innovation, speed, and profit out of the stock market that is less seen as an information market on the value of companies and instead as yet another vehicle for increasing portfolio wealth.
A very high recommend for anyone with an interest in financial history and the mechanics of stock market crashes!
I appear to be on a bit of an economics kick right now and this book scratched a narrative itch in learning about finance that I haven't had satisfied since I listened to Andrew Ross Sorkin's Too Big To Fail, which I absolutely loved as a Game of Thrones-style retelling of the 2008 crash.
Nations' book however is much broader but tighter focused. The crashes of 1907, 1929, 1987, 2008, and 2010 are his target, but within each, Nations focuses on the particular background and circumstances of the economic and political machinations of the US leading up to the crash. I find this history and analysis fascinating. Nations then follows this up with a dramatic but accurate description of each crash as systems fail, investors panic, and numbers start to drop.
While this is certainly an entertaining and informative read, I hope readers of this book come in with a strict understanding that the stock market is merely an indicator of economic health, not the cause of it. Sometimes it is a rather misinformed indicator at that, as this book should prove. But the main lessons one should take from this are nicely summed up in the epilogue: the combination of greed and fear, coupled with the invention of new and poorly understood financial tools that fail a test of their usefulness in a crash, and spurred on by sometimes years of economic, corporate, and government malfeasance, leads to stock crashes. It is unfortunately a cycle that will be repeated time and again as long as powerful and rich people continue to insist on pushing for more innovation, speed, and profit out of the stock market that is less seen as an information market on the value of companies and instead as yet another vehicle for increasing portfolio wealth.
A very high recommend for anyone with an interest in financial history and the mechanics of stock market crashes!
September 8, 2024
For those of us who didn't study finance at any point, a fun review of the 1907, 1929, 1987, 2008, and 2010 US stock market crashes. The author did a good job reviewing the personalities and events leading up to and through crashes in a "just the facts" manner. My complaint (primarily with the epilogue) was the idea that there are identifiable things leading up to each crash. The problem: those identifiable factors predict 13 of the last 5 crashes (too many false positives to be useful). I'd have to look at the numbers to see if the Covid drop in the market would qualify for his definition of "crash" - if so, it would also be problematic as many of his stated causes didn't really play into it.
It is interesting to consider the timelines involved. The first several crashes unfolded over months - the last discussed here (the flash crash of 2010) took minutes and unfolded in microseconds. I did appreciate his explanation of the '07 crash - not only did it help that I at least recognized some of the players, but I finally (kind of) understand how the mortgage backed securities and other novel financial instruments interacted to cause it.
One other glaring exclusion: while he talks about the crashes, there is absolutely no mention of just how much the post-crash recoveries, well, recovered (and while he talks about how the crashes follow huge run-ups, there is no discussion how, as a result, they aren't as impactful for the disciplined long-term investors). It's helpful to remember when he talks about the DOW going from ~2700 to ~ 1700 that as of the time of this reading it's over 40,000 (of course, that discounts inflation).
Overall: an enjoyable listen. I would definitely recommend it to anyone who is casually involved/interested in finance - but if you have studied financial history, I doubt you will find much new content.
It is interesting to consider the timelines involved. The first several crashes unfolded over months - the last discussed here (the flash crash of 2010) took minutes and unfolded in microseconds. I did appreciate his explanation of the '07 crash - not only did it help that I at least recognized some of the players, but I finally (kind of) understand how the mortgage backed securities and other novel financial instruments interacted to cause it.
One other glaring exclusion: while he talks about the crashes, there is absolutely no mention of just how much the post-crash recoveries, well, recovered (and while he talks about how the crashes follow huge run-ups, there is no discussion how, as a result, they aren't as impactful for the disciplined long-term investors). It's helpful to remember when he talks about the DOW going from ~2700 to ~ 1700 that as of the time of this reading it's over 40,000 (of course, that discounts inflation).
Overall: an enjoyable listen. I would definitely recommend it to anyone who is casually involved/interested in finance - but if you have studied financial history, I doubt you will find much new content.
March 13, 2026
I picked up A History of the United States in Five Crashes by Scott Nations because I have always been interested in finance. My dad used to trade stocks in Oregon for a period of his life, and growing up around that made me curious about how markets actually work> When he gave me his book, I expected a typical finance book full of complicated numbers, but it ended up being much more interesting because it connects stock market crashes directly to major moments in American history. What stood out most to me was how the author shows that market crashes are not just financial events but turning points that reshape the entire country. Nation walks through five major crashes, from the panic of 1907 to the 2008 financial crisis, and explains how each one changed government policy, regulation, and the way people think about money. I liked that the book focuses on the human decisions behind these events instead of just listing statistics. It made the market feel less than a random system and more like something shaped by psychology, risk, and mistakes.
I recommend this book to anyone interested in finance, economics, or American history, especially students who want to understand the stock market beyond basic investing advice. It's also a great read for people who are curious about how financial crises affect everyday life, not just Wall Street. However, readers looking for a simple "how to make money in the market" guide might not enjoy it as much, since the book focuses more on a historical analysis than investing strategies. Overall, A History of the United States in Five Crashes is a really engaging look at how financial disasters have shaped the country and why understanding them still matters today.
I recommend this book to anyone interested in finance, economics, or American history, especially students who want to understand the stock market beyond basic investing advice. It's also a great read for people who are curious about how financial crises affect everyday life, not just Wall Street. However, readers looking for a simple "how to make money in the market" guide might not enjoy it as much, since the book focuses more on a historical analysis than investing strategies. Overall, A History of the United States in Five Crashes is a really engaging look at how financial disasters have shaped the country and why understanding them still matters today.
August 24, 2019
Be warned: this is not an eminently readable book. Nations loves to rattle off numbers, and I found the constant stream of ticker-tape readings pretty distracting, but the portrayals of the rascals and barons behind the last century of financial shenanigans were engaging, and I found the book very useful.
Read a few books on the 2008 crash and you'll instantly see parallels in Nations' descriptions of the 1907 or 1929 crashes: someone with more brains or greed than sense will concoct an arcane financial scheme that purports to deliver outsized returns at a low risk. Regulators are either hoodwinked or in on the deal, and the creators pump as much borrowed money as possible into the scheme before it goes bust. If it is a big enough bubble to jeopardize the health of the entire financial system, they'll get bailed out and live to scheme again.
The mortgage-backed securities from the early 2000's bear a strong resemblance to the land-backed schemes of the 1890's, the highly-leveraged banking schemes of the early 1900's, where an investor would borrow against his equity in one bank to purchase another, and then daisy chain the newly-acquired bank's equity for yet more acquisitions; or the banking trusts of the 1920's that juiced stock prices by trading among themselves, and then unloaded the stock when the spike in demand induced the public to jump onboard. In the 1980's we had hostile corporate takeovers, where speculators like Pickens or Icahn would borrow huge sums of money to acquire ever larger companies, inducing a run-up in the stock price to pay off the debt.
History doesn't repeat itself, but it definitely rhymes. The question is, where is the next bubble?
Read a few books on the 2008 crash and you'll instantly see parallels in Nations' descriptions of the 1907 or 1929 crashes: someone with more brains or greed than sense will concoct an arcane financial scheme that purports to deliver outsized returns at a low risk. Regulators are either hoodwinked or in on the deal, and the creators pump as much borrowed money as possible into the scheme before it goes bust. If it is a big enough bubble to jeopardize the health of the entire financial system, they'll get bailed out and live to scheme again.
The mortgage-backed securities from the early 2000's bear a strong resemblance to the land-backed schemes of the 1890's, the highly-leveraged banking schemes of the early 1900's, where an investor would borrow against his equity in one bank to purchase another, and then daisy chain the newly-acquired bank's equity for yet more acquisitions; or the banking trusts of the 1920's that juiced stock prices by trading among themselves, and then unloaded the stock when the spike in demand induced the public to jump onboard. In the 1980's we had hostile corporate takeovers, where speculators like Pickens or Icahn would borrow huge sums of money to acquire ever larger companies, inducing a run-up in the stock price to pay off the debt.
History doesn't repeat itself, but it definitely rhymes. The question is, where is the next bubble?
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