The story of 1929 is not just a story of a financial crash.

It's actually the story of 1929, 1930, 1931, 1932, 1933.

The crash was really the first domino and then a series of terrible policy errors along the way that made things extraordinarily worse.

[MUSIC PLAYING] Hello, and welcome to GZERO World.

I'm Ian Bremmer.

And with all due respect to the late great Prince, we do not, in fact, want to party like it's 1999, or 2009, or 1929.

Because once again, there's reason to worry that a financial crisis looms ahead.

My guest, New York Times journalist and CNBC anchor Andrew Ross Sorkin.

He's best known for his definitive account of the 2008 financial crisis, "Too Big to Fail."

But he's out now with another showstopper, this book about the 1929 crash, the lessons unlearned from a century ago.

Don't worry, it's not all doom and gloom.

I've also got your puppet regime.

Have the Democrats been spineless or Machiavellian?

We asked two experts on the subject.

But first, a word from the folks who help us keep the lights on.

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And... Are we in an AI bubble?

Bill Gates, what say you?

We need to define bubble.

A bit pedantic, but go on.

If what we mean is like tulips in the Netherlands, that they went, you look back and said, what the heck?

There was nothing there.

Those were just tulips.

No, that's not where we are.

Did the man just say tulips?

Turn back the clock.

In the 1630s, Dutch traders bid tulip bulbs to absurd heights, buying and selling promises of future bulbs rather than the flowers themselves, until confidence vanished and prices collapsed almost overnight.

It was the first major speculative crash in recorded history, and they even made a movie about it in 2017, starring Dame Judi Dench.

Tulip business.

I think it's the answer to my problems.

>> Never heard of tulip fever?

Might have something to do with its 10% rotten tomato score.

But enough about bygone botanical bulb bubbles and big screen bombs.

Let's fast forward to the Dot Com crash of the early 2000s, when manic investors poured billions into flashy startups with no profits.

And reality finally caught up to the hype.

Could that be where AI is heading now?

Short answer is maybe.

The Dot Com craze had more meat on the bone than tulip fever.

The internet was real.

It was just wildly overvalued.

That crash cleared out the likes of pets.com, but left the Amazons and Ebays standing tall.

The internet transformed the world.

And along the way, a lot of people lost a lot of money.

And that's the thing to remember about the AI hype.

It's the real deal, and it's a lot of fluff.

Back to Bill.

>> AI is the biggest technical thing ever in my lifetime.

I mean, it is so profound, and therefore its influence is hard to overstate.

Just sit with that for a second.

That's the founder of Microsoft saying that AI is the biggest technical innovation in his lifetime.

And yet, that doesn't mean he's going all in on, say, AI toothbrushes.

>> Go pro with the new Oral-B Genius AI, equipped with motion sensors and powered by artificial intelligence.

There's one more cause for concern.

AI is extraordinarily resource intensive.

AI data centers consume vast amounts of electricity and water to train and run large models.

Those infrastructure investments could become money pits for Wall Street and raise energy costs for consumers.

So if we are indeed in an AI bubble, the question we should be asking is, how much real value will remain once the air comes out?

Here to talk about all that and more is a man who just wrote a book on another speculative crash, think 1929, New York Times' Andrew Ross Sorkin.

Andrew Ross Sorkin, it's good to see you, man.

It's so good to see you.

1929, you are spending a lot of time talking about that right now.

I saw you just recently on the floor of the New York Stock Exchange ringing the bell for a book about the biggest crash.

>> I know.

It looked like a lot of fun, but isn't that kind of like turkeys cheering for Thanksgiving?

What's happening there?

I am hoping that we were celebrating the publication of a book that will prevent us from having another crash, that there are so many lessons embedded in the story of what I've been working on for eight years now, that the folks on this floor of the exchange and folks in Washington start to understand really what happened then, and maybe we can avoid it the next time.

- So there's a difference between hope and optimism, right?

I mean, hope means you recognize the possibility, optimism means you believe that something is actually likely to occur.

Where do you sit on this one?

- Somewhere in between.

But tending towards?

I like to think that actually we're not going to have another 1929, but I think it's very possible.

Actually, I would argue it's almost impossible for us not to have another 1999.

- How about that?

- Which was a pretty major crash.

Which was a crash.

There was a bubble that burst.

It wasn't 2008, like a financial crisis of that magnitude, but it was a significant and major correction in the system.

So, I mean, here we are, our studios, just half a block off of Madison Square Park, which was like, you know, kind of ground zero for go-go, boom-boom, Gilded Age, and it just topped out.

And you can see that architecturally and physically, but you could feel the manifestation of that here in New York and across the country and around the world.

Share what that trajectory felt like at the time.

Well, look, the 1920s, it's not as if they were the roaring 20s.

It was the most transformational time, transformational decade, perhaps, in the entire century and possibly in American history in so far as you had really the emergence of the automobile.

You had telecommunications.

You had radio.

I mean, this really was the future.

You had media.

I mean, all of this was shifting, and all of it was being powered in large part by debt, by credit.

For the first time in America, people, ordinary Americans, were taking on credit.

They were -- they were -- They were participating in the market.

They were participating, not just in the market, but in buying cars.

Prior to 1919, it was a moral sin in America to get a loan.

People didn't get loans.

That was like for the dregs.

You did not get a loan.

That was not that was not cool.

People sort of decided in 1919 when General Motors wanted to sell more cars and they said, how are we going to do that?

We'll start loaning people money so they can buy the cars.

And for whatever reason, Americans thought that was OK.

And then Sears Roebuck said, oh, well, we can do that, too.

And then the bankers said, well, we can do that, too.

And we will loan you money so that you can buy stock in the market under the guise of democratizing finance.

And all of these people, especially farmers, are coming to New York City.

They're seeing the elites.

The inequality is real.

And I would argue this was also a moment of the shift in even the American dream from sort of a Horatio Alger story to everybody now wants the lottery ticket.

And as you're going through this research, I mean, you know how the story ends.

>> Yes.

>> But are there moments where you're thinking, "Oh, they could have, here's an obvious off ramp.

Here's a place where if only."

Oh, for sure.

And by the way, I think there were moments where there were Cassandras in the room.

So you know, the biggest question is, could have you prevented a crash from happening in 1929?

And then, if you didn't prevent it, what were you supposed to do in the moments after to prevent it from getting worse?

So to me, the story of 1929 and this book is not just a story of a financial crash.

It's actually the story of 1929, 1930, 1931, 1932, 1933, because it was a series of dominoes.

The crash was really the first domino and then a series of terrible policy errors along the way that made things extraordinarily worse that ultimately ended in 25% unemployment in 1932 and the stock market declining in 1932 by 90%.

And so the question is, if you're standing there in 1929, what could have you done?

So Hoover, President Hoover only becomes the president in March 4th, 1929.

He doesn't have a lot of time to jump in front of the train.

The Federal Reserve back then knew there was a problem.

They were all the debates.

You could see in the diaries and the memos that I found, they're all worried out of their minds that things are getting completely out of control.

But they're so scared about the political ramifications of if they were to, for example, raise interest rates to try to tamp all this down, that they would somehow topple over the rest of the economy.

And so what were you supposed to do?

Now, I think the answer is you should have tried to just raise interest rates like crazy and try to effectively probably change the way the margin loans were being made.

You could have prevented them.

By the banks.

By the banks.

I mean, the banks were loaning you.

You put down a dollar, they'd give you 10.

So you could have come in and said, you know, nobody can take on more than two times leverage or something like that.

Maybe that would have stopped it.

But it wasn't just that.

It was then you have this crash, which oddly enough, and this was a surprise for me, takes the stock market down between October and by November 13th down about 50%.

But by the end of the year, oddly enough, was only down about 17, 18%.

So it's a correction at that point.

It's a correction at that point, except that all of America had done this with loaned money.

So when the stock dropped 50%, it wasn't just they had lost the 50% value of the equity that they owned.

It was that they lost everything.

All of a sudden, they're having to mortgage their home.

They're having to sell their home.

They have nothing.

And so it almost created a sort of generationally scarring moment.

And nobody had enough money to put it back in the market when it went up to only get to that 17 percent down moment.

>> So who are the predators in this environment?

>> Well, predators are an interesting sort of turn of phrase.

Charlie Mitchell was a guy who ran National City, becomes Citigroup, largest bank in the country at the time.

And he really invented the idea of credit and lending people money to buy stock.

They called him Sunshine Charlie.

He said, you know, finance should be demystified.

He believed you should be able to sell stock the way you sell a necktie.

That was his phrase.

>> It wouldn't work on me, but I get you.

>> He really did push this idea forward more than just about anybody else.

Now, the question is, was he a predator?

That's a question mark still for me to some degree.

And the reason I say that is, uniquely, unlike actually a lot of the financial crises that we've lived with in panics and busts and things in the last, call it, 50 years, most of the people, at least in the immediate aftermath of the crash of '29, didn't actually blame the bankers.

They blamed themselves.

You know, a lot of people like to do finger pointing.

We finger-- a lot of finger pointing after 2008, the banks, subprime mortgages, they shouldn't have predatory this and that.

It wasn't really till '31, '32, '33 as the economy really took a toll that the sort of public bloodlust around the bankers even emerged.

Is it because of that transformation that you talk about that it wasn't even okay to take a loan?

So suddenly all these people who remember that, say "my stupidity, mea culpa."

>> I think a lot of people thought you know that it was on them.

>> So when we turn the clock forward, you said you believe that we have hopefully can learn some lessons that will allow us to avoid a massive crash.

When I think about America's fiscal environment, the lack of any decision to balance the budget, just out, irrespective of, we know that these bills are coming due, we see the costs of the interest service.

Where do you think the Americans really need to buckle it up, buckle on that?

Okay, so there's two issues here.

So one is a political question and a fiscal question about the country.

>> Right.

>> So uniquely, by the way, there was a budget surplus in 1929, mind you.

So we had very little debt back then.

So any problem, any crash or crisis that we might have in the markets today.

Will become more complicated than ever, given our own debt, because the thing we did learn from 1929 is when you have a crisis, what do you do?

The lesson was you throw money at the problem.

That's how you save the system.

However, if you continue to keep doing that, you are going to have a different problem, and we are possibly in that problem, and given sort of our own debt, you can't take on -- at what point do bondholders in the world say, you know what, America, I like you.

I'll continue, you know, lending money to you, but you're going to have to pay me a lot more for the risk that I'm taking because I'm not sure whether you people are going to pay me back.

And I think that's a fundamental question.

So that's the backdrop of all of this.

The other problem is sort of where is the leverage in the system today?

Every financial crisis is a function of leverage.

Too much debt.

It's the match that lights the fire.

What I don't know about today is I don't think we even have a good handle on where all the leverage is because post-financial crisis 2008, so much of the lending in America moved from the banks.

It's not at the banks anymore.

It's all in these private credit vehicles.

And there's no disclosure.

And so we have no real conception there.

And then there's a question of how connected or disconnected these private credit vehicles actually are even from the banks.

Some of the banks are actually financing and leveraging up, helping the private credit folks.

So that's where it all gets complicated, and it's all against the backdrop of this euphoric moment, which actually is demonstrably exciting, as exciting as telecommunications and radio was in the late '20s, called AI.

And yet, I'm easily as excited as you are about the underlying AI technologies and what they can accomplish.

I'm really concerned of what appears to be the business model of the lead AI companies in the United States right now.

I think there's a real question about the economics of what's going on.

I don't think if you really spend time talking to these CEOs, and most of them will not say it on TV, there is no way to truly pencil out the math right now in what they're doing.

This is almost religious in terms of the sort of scale of the investment.

And there is a level of indiscriminate spending.

And so invariably, it seems to me, not that we won't have AI in 20 years, just like the internet.

We will have-- in the late '90s, we had the internet.

And people used the internet.

And people used the internet.

So it's not-- this is not a-- But a lot of those companies went under.

But a lot of the companies went under.

So there's a whole ecosystem of companies right now.

And the question is, how many of those will still be here in five or 10 years from now?

And will there be a hiccup or worse along the way?

And I think it's hard to believe that there won't be.

We're in a moment where the U.S.

government is turning away from reportable data.

>> Yeah.

>> It's making it harder to get information you believe in, where the banks and BlackRock and others are saying, well, here's what we think is going on because we want you to at least have something as a proxy.

What would be your clarion call?

These are some regs we need right now because otherwise we're heading for peril.

I think we need demonstrable independent data coming out of the government.

That's a clear and present danger if we do not have that.

You just need people to believe, I mean not like a religion, but you need to believe that the folks who are running these things are doing these things independently.

So start there.

I think that especially as the private credit, private equity, venture capital, crypto markets become a bigger component and feature of our economy, that there is real disclosure around those things, especially as they become part of people's pension plans and retirement plans.

I mean, that's a sort of unique new element that's being sort of added into our universe.

And I think we need to understand some of these transactions even that are happening now with the government and some of the chip makers and some of the different transactions are happening between the large language models and the chip makers and how all of these things even work.

Most people don't really understand it because they can't understand it because there is not enough data.

How much does the international environment complicate and undermine what the Americans can do?

Well, the question longer term is, are we going to be living in a G-Zero world, as you would say?

And how much of the world are we sort of putting walls up around ourselves?

And how bifurcated is the world when all is said and done?

And if it's completely bifurcated, and we are basically an island unto ourselves, that means that invariably things will cost more, there'll be less competition.

But in terms of thinking about like a China or our relations with the Middle East or others, where all of their money comes from, I think becomes more and more interesting.

How much leverage do they have in their systems becomes important.

But again, it depends on how interconnected or not we really are.

Before we close, I want to talk a little bit about you as an observer and participant in all this, because the people actually participating in the markets at the highest level see you every morning.

So they kind of feel like they know you a little bit.

And you interview them, so they reach out to you.

So you've written this big book, and you're clearly concerned about what a lot of these market participants are saying publicly and the way that they act.

So what have they been saying to you since they've read the book?

Oh my goodness.

I think, look, the truth is most of them see these parallels.

And the truth is, by the way, I wrote this book, I started it eight years ago, not knowing that there was going to be these parallels.

That was not really the intention.

I wish I had finished it earlier and maybe it wouldn't have been these problems.

But I think most people who've been reading this book say, oh, my goodness, Andrew, this feels a little too similar.

But I'll tell you something that I really worry about today, which is different.

Most CEOs are really unwilling to say anything.

They'll talk to you privately.

>> Absolutely.

>> But publicly, unless they're going to be in praise of what's ever happening in Washington, if they have a concern, if they have a question, they are not willing to raise their hand and say, "This is a problem."

And so the biggest concern I have is, if in fact we ever get to a moment where there is a crisis or we're on the precipice or we need to make some very difficult decisions, are there going to be leaders who are going to be willing to stand up and explain what needs to happen if whatever those steps are are counter to whatever's coming out of this White House?

And is Jamie Dimon that guy?

I mean, obviously a lot of the corporates see him as that guy.

Do you think that he would, would he do that?

>> I like to believe that somebody like Jamie Dimon in that moment would do that.

I think there are some people who may.

It would be interesting to see whether some of the tech leaders would.

I don't know.

It's so interesting to me, you know, the public, I think, to the extent that there are people who have questions about what's happening in Washington today and are frustrated or upset about it, and they say to themselves, you know, where are the business leaders, especially the billionaire business leaders, aren't they protected?

If anybody could raise their hand, shouldn't they be the ones to raise their hand?

But what's so unique, I think, and this goes to the human story of even 1929, everybody ultimately, there's an insecurity that drives almost everybody in some way.

And so I kind of think that no matter how much money you have in your bank account or what business title you have on your business card, I don't think it's like emotional armor, weirdly enough.

And so I think a lot of these people still don't know their own station in life or feel secure enough to raise their hand.

And the truth is, I think that what's happening in Washington now, there are real reasons why you would feel insecure, because if you do raise your hand, you... We've seen cases of them being pointed out.

We know what can happen.

>> Yeah.

>> Now, interestingly to me at least, I remember during the pandemic, what did the Trump administration do?

It flooded the system with money.

Remember, the treasurer secretary, that's what they did.

And uniquely, the country did not squawk about it at all.

So unlike the 2008 bailouts, when people were out of their minds about bailing out banks and all of the different things.

The automotive companies.

Automotive companies.

You know, in 2020, for the most part, people were very happy about PPE loans.

And it was a lot more money.

It was a lot more money.

Nobody seemed to get upset when the airlines were being bailed out.

Because everyone was getting some.

It was literally everyone.

And so maybe that's the answer.

Maybe everyone was getting some.

But I think it'll be very interesting to see, and hopefully it'll just be interesting.

I hope it's only interesting if there is another crisis.

Hope you're right.

Andrew Ross Sorkin, thanks for being on the show.

Thank you for having me.

Now for something a little lighter than peering over the brink of financial collapse, I've got your Puppet Regime.

Eight Democrats have voted with Republicans to reopen the government.

Have the Democrats been spineless or Machiavellian?

We asked two experts on the subject.

First, a spine.

It was spineless.

The Republicans were getting blamed for a shutdown that was hurting millions of people.

The Democrats gave up that leverage and for what?

A Republican promise to hold a vote?

Thank you for that.

And now for the Machiavellian perspective, we go to Florentine philosopher, Nicholas Machiavelli.

Look, let's be honest, okay?

The Republicans were never going to compromise on these health care subsidies as a part of the shutdown deal, okay?

But now the Democrats, they are going to force the Republicans separately to go on the record voting specifically against these very popular subsidies next year.

And this is going to happen ahead of the midterms, okay?

So this is smart.

Is it Machiavellian?

No, it's good enough.

I give them tre stelle su cinque.

That's our show this week.

Come back next week and if you like what you've seen, or even if you don't, but you have your own financial crisis brewing, I've got two pieces of advice for you.

One, don't tell your spouse.

And two, take your mind off of it by checking us out at gzeromedia.com.

[music] Funding for GZERO World is provided by our lead sponsor, Prologis.

Every day, all over the world, Prologis helps businesses of all sizes lower their carbon footprint and scale their supply chains.

With a portfolio of logistics and real estate and an end-to-end solutions platform addressing the critical initiatives of global logistics today.

Learn more at prologis.com.

And by Cox Enterprises is proud to support GZERO.

Cox is working to create an impact in areas like sustainable agriculture, clean tech, health care, and more.

Cox, a family of businesses.

Additional funding provided by Carnegie Corporation of New York, Koo and Patricia Yuen, committed to bridging cultural differences in our communities.

And... (upbeat music)