John Kenneth Galbraith — the Harvard econ prof who sailed with the Kennedys, coined phrases (e.g., "conventional wisdom"), and adored big words — looked back at The Great Crash 1929 (1954) a quarter-century later and found much frenzy to marvel at and folly to lament.

One of his chapters he titled "In Goldman, Sachs We Trust".  In it, he looked at how a late-comer to the "investment trust" bubble, Goldman, Sachs and Company, sponsored "the most dramatic of all the investment company promotions" during the year of the crash.

Professor Galbraith ended the chapter with this Senate testimony:

Senator Couzons.  Did Goldman, Sachs organize the Goldman Sachs Trading Company?

Mr. Sachs.  Yes, sir.

Senator Couzons.  And it sold its stock to the public?

Mr. Sachs.  A portion of it.  The firm invested originally in 10 percent of the entire issue for the sum of $10,000,000.

Senator Couzons.  And the other 90 percent was sold to the public?

Mr. Sachs.  Yes, sir.

Senator Couzons.  At what price?

Mr. Sachs.  At 104.  That is the old stock . . . the stock was split two for one.

Senator Couzons.  And what is the price of the stock now?

Mr. Sachs.  Approximately 1¾.

The story that Professor Galbraith tells hinges in part on "worry that the country might be running out of common stocks."  Firms like GS solved the problem by setting up stock-speculating companies whose own shares allowed investors to "leverage" bets on the market, which seemed ever only to rise.

Something very like that happened in the middle of this decade.  And it goes a long way towards explaining why now the Securities and Exchange Commission has sued Goldman Sachs for civil fraud and, per The Wall Street Journal today, "is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors."