** 18-Jun-2022 World View: The Principle of Maximum Ruin
I've posted the following quote from John Kenneth Galbraith's book
The Great Crash - 1929 several times in the past, but it's
worth repeating now.
I've referred to this in the past as The Principle of Maximum Ruin --
the maximum number of people were ruined to the maximum extent
possible.
Please read the following carefully.
> "In the autumn of 1929 the New York Stock Exchange,
> under roughly its present constitution, was 112 years old. During
> this lifetime it had seen some difficult days. On September 18,
> 1873, the firm of Jay Cooke and Company failed, and, as a more or
> less direct result, so did fifty-seven other stock exchange firms
> in the next few weeks. On October 23, 1907, call money rates
> reached 125 percent in the panic of that year. On September 16,
> 1920 -- the autumn months are the off season in Wall Street -- a
> bomb exploded in front of Morgan's next door, killing thirty
> people and injuring a hundred more.
> A common feature of all these earlier troubles [[previous panics]]
> was that having happened they were over. The worst was reasonably
> recognizable as such. The singular feature of the great crash of
> 1929 was that the worst continued to worsen. What looked one day
> like the end proved on the next day to have been only the
> beginning. Nothing could have been more ingeniously designed to
> maximize the suffering, and also to insure that as few as possible
> escaped the common misfortune.
> The fortunate speculator who had funds to answer the first margin
> call presently got another and equally urgent one, and if he met
> that there would still be another. In the end all the money he
> had was extracted from him and lost. The man with the smart
> money, who was safely out of the market when the first crash came,
> naturally went back in to pick up bargains. ... The bargains then
> suffered a ruinous fall. Even the man who waited out all of
> October and all of November, who saw the volume of trading return
> to normal and saw Wall Street become as placid as a produce
> market, and who then bought common stocks would see their value
> drop to a third or fourth of the purchase price in the next
> twenty-four months. ... The ruthlessness of [the stock market was]
> remarkable. ...
> Monday, October 28, was the first day on which this process of
> climax and anticlimax ad infinitum began to reveal itself.
> It was another terrible day. Volume was huge, although below the
> previous Thursday -- nine and a quarter million shares as compared
> with nearly thirteen. But the losses were far more severe.
> ... Indeed the decline on this one day was greater than that of
> all the preceding week of panic. Once again a late ticker left
> everyone in ignorance of what was happening, save that it was bad.
> On this day there was no recovery."
As placid as a produce market. The Principle of Maximum Ruin.
