3c hapter - Index of

Blue Skies, Pipe Dreams, and the Lure of Easy Money 21
The law required any company selling stock, bonds, or securities
of any kind in Kansas to fi le a detailed application with the bank commissioner,
who had broad discretion to approve or reject the application.
Dolley is said to have approved just 7 percent of the applica tions
fi led the fi rst year. 3 Those who got the green light had to fi le twiceyearly
fi nancial updates with the commissioner’s offi ce.
The common- sense law was controversial at the time, with opponents
arguing that it was paternalistic and would create “a nation of
fools and weaklings,” according to one account. But Dolley’s argument,
that the law would keep “Kansas money in Kansas” and help
local farmers and small businesses rather than enriching “New York
Stock Exchange speculators and gamblers,” prevailed. 4
Other states followed suit. By the early 1930s, every state save
for Nevada had its own “Blue Sky” laws. The laws varied, but the intent
was the same: preventing unscrupulous salesmen from promising
unrealistic returns and misleading investors about risk. The Blue
Sky laws were the bane of the fast- money men, but speculation
didn’t dry up. It simply moved to more legitimate theatres. During
the latter half of the Roaring ’20s, the action was on the stock market.
Installment loans had recently been introduced, giving people
a chance to buy, for the fi rst time, big- ticket items like appliances
and cars on credit. The newfound taste for credit carried over to
the stock market, where investors leveraged themselves to the hilt,
buying stocks on margin. Why not? Stock prices were rising and,
like all leadups to massive speculative crashes, a collective delusion
had taken hold that risk no longer existed and markets would rise
inexorably. (Sound familiar?)
Two Tiers of Investors
The stock market crash of October 29, 1929, began America’s
rapid descent into the Great Depression. The Hoover administration’s
ineffective response to this national tragedy led to the election
of Franklin Delano Roosevelt. Within days of assuming offi ce
in March 1933, Congress passed his administration’s Emergency
Banking Act of 1933, which took immediate measures to restore
calm to a nation gripped by a bank panic.