In 1935, amidst massive economic uncertainty following the Great Depression, a new AA-rated corporate bond yielded just 70 basis points over Treasurys. This historical precedent, nearly identical to today's spreads, shows that low credit spreads are not necessarily a sign of complacency and can persist even if economic conditions worsen, challenging typical risk-pricing assumptions.
Morgan Stanley's 1935 founding was a direct consequence of the Glass-Steagall Act, which forced a separation between commercial banking (deposits, loans) and investment banking (trading, underwriting). This regulatory mandate created the specialized firms that define the structure of modern finance today.
Core components of today's financial landscape, including FDIC insurance, Social Security, and even the 30-year mortgage, were not products of gradual evolution. They were specific policies created rapidly out of the financial ashes of the Great Depression, demonstrating how systemic shocks can accelerate fundamental structural reforms.