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1-Page Summary of Makers and Takers

Overview

In 1929, the stock market crashed and many investors lost their savings. This led to a long period of unemployment that lasted for years. Politicians vowed to prevent such an event from happening again. However, in 2008, history repeated itself with another major financial crisis.

The author will discuss how the financial industry controls our economy and why we’re in a new crisis. He’ll explain how politics tried to tame finance, but that it didn’t work because the behemoths of finance knew how to resist.

You’ll also learn about how credit cards were developed, who the culprit was behind their invention, why Goldman Sachs loves to move around aluminum, and how money-focused management at GM contributed to 124 deaths.

Big Idea #1: Like the Great Depression, our own Great Recession was triggered by a flawed financial system.

The Great Depression in the 1930s and the 2008 economic crisis have some key similarities. Both followed a boom period, during which debt was mounting and consumer credit was growing rapidly.

Debt is another form of credit. The more debt there is, the larger the financial sector becomes. When I was writing Makers and Takers, the financial sector had not reached its largest size in history as it did then.

Credit is rampant in the United States. In fact, Americans used credit to gain access to around 75% of major household items before and during the Great Depression. Credit was also used to mask severe income inequality that resulted from declining workers’ wages and skyrocketing stock market profits.

The economy was booming in the 1920s, as people were investing more and more money. This led to huge profits for banks such as the National City Bank of New York, which sold stocks that they claimed would be a good investment. Eventually this created an economic bubble that burst in 1929 and caused the stock market crash of October 29th. However, bankers weren’t held accountable for their actions during these times; instead, Charles Mitchell was forced to testify before Congress but returned to Wall Street after his testimony ended—he never spent a day in jail.

The same goes for the bankers responsible for our financial crisis. They continue to work in the financial sector at Matrix Advisors and Legend Securities.

Both the financial crisis of 2008 and the Great Depression occurred in America. Therefore, it’s logical to ask whether we’ve learned anything from history. The next point will discuss how this happened.

Big Idea #2: In the decades after the Great Depression, financial rules were loosened again to meet demands for credit.

After the 1929 stock market crash, bankers were no longer allowed to engage in risky trading. They had to keep their commercial and investment banking separate. However, they soon found a way around these regulations by introducing the negotiable certificate of deposit (CD), which blurred those boundaries even further.

Commercial banks have always managed bank accounts, but in the past they were for rich people. Nowadays, commercial banks sell CDs to others who want to make a profit from them.

The Glass–Steagall Act was a law that made it illegal for commercial and investment banks to merge. But in 1967, credit cards were invented, which helped bankers get rid of the act because they allowed people to borrow money from their banks without having to go through them directly. Banks began merging with one another after this invention, and then politicians played an even bigger role in helping them do so by deregulating interest rates altogether. This deregulation led banks to create more complex financial products like derivatives (which are basically contracts between two parties whose values depend on other underlying assets), which made it almost impossible for regulators to control what the banks did.