Episode 605: 'What Goes Up' : Planet Money In 1929, one man correctly predicted the great stock market crash, for totally the wrong reason.
NPR logo

Episode 605: 'What Goes Up'

  • Download
  • <iframe src="https://www.npr.org/player/embed/387775871/387813382" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Episode 605: 'What Goes Up'

Episode 605: 'What Goes Up'

  • Download
  • <iframe src="https://www.npr.org/player/embed/387775871/387813382" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

STACEY VANEK SMITH, BYLINE: Hey, NPR recommends the All Songs Considered podcast. Each week, Bob Boilen, Robin Hilton, and NPR's music team share their favorite new songs and artists. Find all songs on iTunes, Stitcher or however you listen to your podcasts.

DAVID KESTENBAUM, HOST:

Hello, and welcome to PLANET MONEY. I'm David Kestenbaum. I was driving home the other week listening, of course, to podcasts, and I heard this one that just made me cheer out loud. It was an episode of a podcast called The Memory Palace, which I'm a big fan of. It's by this guy Nate DiMeo. Nate tells these little perfect stories from history. They are sweet and funny and sad and smart - not all at once but, you know. And this one in particular made me cheer out loud because it was a PLANET MONEY topic. It was on financial forecasting. It's the story of a guy who made a very, very bold prediction and got it right. He correctly forecast really one of the biggest things you could imagine predicting. It's the story of how he did that and what happened to him.

(SOUNDBITE OF SONG, "FALLING")

YUNA: (Singing) I keep falling. I keep falling.

UNIDENTIFIED WOMAN: A quick shout out to thank our sponsor, Emma, who offers tools for email marketing. With Emma, you can create sophisticated automated email campaigns and deliver targeted messages to your audience. The interface is super intuitive so your team can create great looking emails in a drag-and-drop editor and track the results easily using an interactive click map that shows where people are clicking in your email. Emma's great for marketing teams of all sizes or agencies who want a better way to manage multiple clients under one roof. Give them a try at myemma.com.

KESTENBAUM: We're going to play Nate's story for you today, and then, well, I won't spoil it. The story is called The Rise and Fall of Rising and Falling.

NATE DIMEO, BYLINE: The world zigged and zigged and zigged, and zigged again. Roger Babson zagged - that's how he did things. He was a maverick, or so he'd tell anyone who would listen. He didn't take no for an answer. He'd turn no's to yeses. He'd flip the script. He'd think outside of the box, or whatever it was that people said back when he was cutting his teeth in the investment business at the turn of the last century. He was an iconoclast. He had been. He would tell anyone who would listen since one day he when he was a boy and his sister drowned in the salty water of a tidal river that flowed into Ipswich Bay in Gloucester, Mass.

Her death gave him a purpose and a drive that led him to MIT and Wall Street. And when he was a young man a doctor told him that he had tuberculosis and that he should quit the business and move to the Southwest where the desert air would revive him, Roger Babson zagged. Instead, he moved to the top of the Wellesley Hills outside of Boston. Theorizing that he didn't need drier air, he needed higher air. And he needed a lot of it. Everyone did. He founded a company that did statistical analysis of financial markets. It was the kind of Wall Street work one could do without actually working on Wall Street. His office was not only outside of New York, it was outside. He thought fresh air was good. And in winter, he and his employees would wear sweaters and layers and tap away at adding machines with freezing fingers that poked through holes they'd cut in their gloves. This was the late 1920s. And as this is, at least in part, a story of Wall Street. You know that the crash is coming, but here's the thing - so did Roger Babson.

Throughout 1928 in the first half of 1929 when the markets kept climbing, Roger Babson was telling people to sell. It kept zigging and zigging up and up. And Roger Babson was one of the only - literally - one of maybe two people out there telling people to zag. There was going to be a crash. He told anyone who would listen. And then there was. And Roger Babson made a fortune because not only was he one of the few major investors who still had any money at all, the people who just lost all of theirs looked out over the landscape littered with bankrupt ziggers and they saw one financial firm still standing. And so they looked to Babson as an Oracle, as a Warren Buffett or at least a Jim Cramer. And more money rolled in.

Now he didn't sell off before the crash merely because he was a zagger constitutionally. He sold off because he had a theory about the way the markets worked. And investors love a theory. It went like this - Babson had poured over decades' worth of stock market data and he saw a pattern that no one else had seen. The markets went up and they went down. Others noticed that too, of course. Big spikes in the market were unsustainable, markets corrected, investors made adjustments - market capitalism. But Roger Babson saw a different force at work. As a boy, he'd read Isaac Newton. He knew that there was an equal and opposite reaction for every action, so why wouldn't the rules that bring order to the physical world also apply to the financial world? Why wouldn't a rise in stock or commodity or real estate prices not eventually yield to a reactive decline? It was physics. It was the forces of gravity at work. Except that it wasn't, because it's not the forces of gravity at work because his theory is terrible. But when people who just lost their shirts turn to just about the only guy with a shirt, they like the sound of Newton. Newton was scientific. Roger Babson was a man of science, and they asked Roger Babson to handle their money. They bought his books, they paid to hear him speak. And though his theory as to why the markets work the way they do was totally wrong, he made a lot of money, even if he had no idea why.

And then it came time to spend it all. He had an enemy, and that enemy was gravity. Because it was gravity, he theorized, that caused his tuberculosis. He had this theory that was crazy about how heavy air settled into your lungs when you were at low altitudes. And it was gravity, he wrote in a 1948 essay titled, gravity our enemy number one, that held his sister beneath the surface of the water all those years ago. They said she was drowned, he wrote, but that was not true. She was unable to fight gravity - and he writes gravity with a capital G like it was the name of a man or a God. He wrote, she was unable to fight gravity, which came up and seized her like a dragon and brought her to the bottom. And that is an enemy worth fighting. So he poured millions into antigravity technologies - millions upon millions, year after year, decade after decade. He started a company, Invention Incorporated, that bought any patent that he thought might someday have something to do with freeing us from gravity's pull. And he saw billions to be made if he could do that. Billions in diseases cured, in cars elevated, in the fallen rescued before they hit the ground. And even though physicists told him over and over that this simply wasn't going to happen, that there was no way, no how that gravity could be stopped any more than death, he kept going. He zagged and zagged and zagged.

Now this is the part of the story where I'm supposed to tell you about how Roger Babson collapsed under the weight of his crackpot theories. About how maybe he winds up shouting his theories from the top of an apple cart on the corner of Wall Street and Broad, wild-eyed and bearded, while oblivious brokers in Brooks Brothers stream by. Or at the very least I'm supposed to point out that despite all of his wealth and all of his will, he would never be able to pull his sister out of the Annisquam River. I'm supposed to do that because what goes up must come down. That's the way physics works and it's the way stories work. Stories have rules, they have morals. Don't play God. Don't fly too close to the sun. But Roger Babson doesn't come down. He lives a long, and by all accounts, happy life. He founds Babson College. He dies at the age of 92. He gets a fancy obituary in the Times that relegates his wrongheaded life's pursuit of the reversal of gravity to a discrete paragraph, because that's not what people wanted to remember about Roger Babson, but it is what I want you to remember about Roger Babson. Because this story does have a moral and it's this - if you have a lot of money, you can do whatever the [expletive] you want.

KESTENBAUM: Yep, that's the end of the story. But don't worry, we have more Nate. I called him up. Nate can you hear me?

DIMEO: I can. How are you?

KESTENBAUM: Hey. Nate, can I just say I loved that story?

DIMEO: You can totally say that. Thank you very much. That's all a lonely podcaster can hope for.

KESTENBAUM: You got a kind of amazing comment on your website about this story just recently. I'm just going to read it. As a Babson myself, and having met and talked with cousin Roger, as we used to call him, you did him proud. He was all you said and more. He used to drive my father crazy with his schemes, but old cousin Roger had his own ideas, some worthwhile and some nuts. But you're right - in the end, money talks. The comment is signed Thomas Babson. So we decided we'd just call him up.

DIMEO: Let's do it.

KESTENBAUM: We had an engineer here in the studio get him on the line.

THOMAS BABSON: What? I'm going to do an interview here so don't talk.

KESTENBAUM: Is this Thomas Babson?

BABSON: Yes.

KESTENBAUM: Hi. This is David Kestenbaum with National Public Radio and PLANET MONEY and Nate DiMeo, who did the stories online also.

BABSON: OK.

DIMEO: How are you, Thomas?

BABSON: I'm good. I think you captured the old goat pretty good.

DIMEO: Thanks so much.

KESTENBAUM: So Thomas, he was your dad's cousin?

BABSON: The answer is I'm not sure of the exact lineage, but dad always called him Cousin Roger, so that's what we called him.

KESTENBAUM: And what do you remember of Cousin Roger?

BABSON: I just met him a couple of times. And he looks just like Colonel Sanders. If you can picture Colonel Sanders, that was Roger - the white hair, the white goatee, the white mustache and a white suit. I thought of him as a bit of a crackpot, although extremely successful and rich and famous.

KESTENBAUM: It seems like his theories about the market were totally wrong. Why do you think he succeeded?

BABSON: Because of his ego.

(LAUGHTER)

BABSON: He didn't care what everybody else said. He was going to do what he thought he should do - and he just happened to hit it right. But somewhere stuck in there he had some good ideas 'cause Babson College was, you know - but what did you have to do as a freshman at Babson? Did you ever hear about this?

KESTENBAUM: No.

DIMEO: No.

BABSON: You had to take a history course in Roger...

(LAUGHTER)

BABSON: ...As a freshman. And they didn't stop that until - I don't know, the '70s or something. 'Cause I have guys come up to me that are obviously younger than I am and will say, yeah, I went to Babson. I had to take a course in Roger.

KESTENBAUM: What was it called? Roger 101?

BABSON: The history of Roger Babson, I guess. I don't know.

KESTENBAUM: When you see people on TV standing up and making predictions about stock market's going to go this way, going to go that way, knowing Cousin Roger, do you think differently about them?

BABSON: Yes I do. But they seem much more scientific, you know.

KESTENBAUM: What's more scientific than gravity and the laws of physics?

BABSON: I know, but - but that's crazy talk. I mean, these guys don't do that. I mean, these guys - it's all computer based and fact driven and stuff.

KESTENBAUM: They're just the next generation.

DIMEO: Well, they're just one floored goatee away from being Roger Babson, if you ask me.

BABSON: (Laughter). Yeah, personality does drive the thing. I mean, he must've been a hell of a salesman that he could, you know, his dad used to say talk a dog off a meat wagon, you know.

KESTENBAUM: A big thank you to Nate DiMeo from The Memory Palace for sharing his story with us and taking the time to talk. Thanks also, of course, to Thomas Babson. You can find Nate's podcast on his website, thememorypalace.org or on iTunes. It comes out around once a month. Our show today was produced by Phia Bennin and Caitlin Kenney. We'd love to know what you think. Send us email - planetmoney@npr.org. Or you can find us on Facebook or Twitter. All right, ready to do the goodbyes?

DIMEO: Sure.

KESTENBAUM: I'm David Kestenbaum.

DIMEO: And I'm Nate DiMeo.

KESTENBAUM: Say thanks.

DIMEO: Oh, I'm supposed to say it. OK.

KESTENBAUM: I'm David Kestenbaum.

DIMEO: And I'm Nate DiMeo. Thanks for listening.

(SOUNDBITE OF SONG, "FALLING")

YUNA: (Singing) I keep falling. I keep falling. I keep falling. I keep falling...

Copyright © 2015 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.