The Crisis of '29 and the Fortunes of Texas

Once upon a time there was a Great Depression; the greatest in history. During this time, a group of venturesome entrepreneurs in the U.S. with little to no money created the greatest generation of wealth in the first half of the 20th century with the expansion of the Texan petroleum market. To this day little is known about these individuals in spite of the fact that two of them became, in time, the richest men in the country. The most famous of the group is remembered indirectly: Glenn McCarthy (1907-1988) inspired the character of Jett Rink, played by James Dean in the film “Giant.”

The story of the petroleum men from Texas could serve as hindsight to consider what will happen to the economies of various countries during and soon after the current crisis. Conventional knowledge says they became rich in spite of the Depression. Wrong. Having benefited from the creative destruction of capitalism, they became rich because of the Depression. Without it, perhaps they would have ended up working for someone else instead of for themselves.

Since the first years of the 20th century, Texas had been prospering from phenomenal discoveries of petroleum, but the economic crisis of the 30’s pulled the plug on the banks, paralyzed investments from big business and presented an opportunity for the most tenacious individuals. Only one of these businessmen had a rich father whereas two (Howard Hunt and McCarthy) had come out of bankruptcy gambling on cards or horse races. Another went broke and relied on a manager of a cafeteria to answer the telephone with the phrase, “Office of Sid Richardson.” After becoming a millionaire, he bought the cafeteria and gave it to his friend.

The crisis of the 30’s, like that of today, paralyzed credit and inhibited investments. The Texans came out back on top having struck black gold and resorted to loans from small banks validated on a hand-shake. One of them even started paying employees with groceries. The crisis of 2008 broke the foundation of an arrogant and corpulent system guided by centralized and impersonal analyzes of risk based on divine faith in the market and the pure science of computation. (One great hedge fund was advised by chess champions). This world has come to an end.

In Brazil, a financial oligopoly prospered, breastfeeding off the Coporn Bolsa. The drop in interest rates is exposing the irrationality of the rates charged by some banks and revealing the failed system of pure intermediation of government loans.

Both in the U.S. and Brazil the capitalist hero of the future will live off the faith in his or her business potential. Bernard Maddoff symbolized the craziness of the end of the century by stealing the money from numerous philanthropic organizations. Roy Cullen (1881-1957), a millionaire recluse from Texas that donated 93% of his fortune and made Houston a center of medical excellence, slaved away in the streets before amassing the first million dollars. (He was a generous financier of extreme-right groups, although nobody is perfect).

We may never know how the ferocious spirit of capitalism recuperated the market nor which activities will help jump start the economy. One thing is certain: the financial system that made fortunes in the past years has forever come to an end. Nothing new so far, but it could be the beginning of a new era in Brazil with more Texans and less bankers. (Later the Texans became bankers and some of them went broke, but that’s a different story).