by John Brooks
On January 5, 1962, the S.E.C. came out with its report on its investigation, accusing a “dominant group”—specifically, Reilly, Bocklet, Dyer, and Mann—of having passed the essential power at the Amex back and forth among themselves for a decade; criticizing, in general and particular, this group’s discipline over specialists and floor traders; bringing out into the open the charges against McCormick, including the Guterma episode; demanding swift action to end the “manifold and prolonged abuses” of the decade past; and threatening once again to move in and assume command if the Amex should fail to clean its own house. A week later, Bocklet, Dyer, and Mann let it be known that they would not run to succeed themselves. So in February, when a new board was elected, the rout of the Old Romans was complete. Later in the year a brilliant and spotless new president, Edwin D. Etherington, was brought in to replace McCormick, and an entire new Amex constitution was written and ratified that conformed largely to the recommendations of the S.E.C. and the Levy committee. Probably never— not even in 1938 when the New York Stock Exchange was turned upside down following exposure of Richard Whitney— has any stock exchange reformed itself so thoroughly so fast.
Jackson was a backstage Richelieu during the period of reorganization, remaining out of sight to avoid further inflaming the Amex conservatives, but scrupulously consulted on each move. He moved out to center stage to serve as chairman for three years—from 1965 to 1968—and during the latter part of that term, the Amex president with whom he worked, generally harmoniously, was Ralph Saul, the man he had first met as a harsh and hostile questioner for the S.E.C. Saul built himself a reputation as one of the soundest presidents in Amex history, and could have had the presidency of the Big Board in 1971 if he had wanted it. Over the decade as a whole, the Amex made such extraordinary strides in efficiency and public confidence that by 1971, when people were talking about a merger between the two leading exchanges, it was being seriously suggested in high places that the New York Stock Exchange ought to be merged into the American, rather than vice versa. As for Jackson—not a power-lover or a natural rebel, but a simple man of unblocked feelings, as eager as the next for acceptance by his peers—perhaps he deserves a small niche among those who, at various times and in various places, have found in themselves the stubborn courage, abetted by luck and good timing, to save what was worth saving.
And at the right moment. The Amex happened to reform itself precisely at the beginning of a notorious decade of Wall Street speculation and concomitant chicanery. As if with foreknowledge, it battened down while the hurricane lay just beyond the horizon.
CHAPTER III
The Last Gatsby
1
The stock-market collapse of 1962—which broke the 1961 bucket shops and their eager patrons, sent the Dow industrials down more than 25 percent, and taught a whole new generation of investors and gamblers alike that it is possible to lose—looked back to the past rather than forward to the future. It was a thing not of firsts but of lasts: the last crisis in which little brokerage offices in distant towns and villages, and the amateur plungers who frequented them, were a significant factor; the last time in Wall Street that the tune was called not by the computer-assisted decisions of institutions like mutual funds and pension trusts, but by the emotions—fear and greed, chiefly—of individual men and women acting for themselves.
Diabetic coma, the preventable catastrophic crisis of a human disease, comes on slowly; the sinister lassitude it induces neutralizes the rational alarm that would otherwise lead the patient to take measures to head it off. So it is with stock-market crashes. That of 1929 had actually been going on, in important ways, for a year or so before it reached its climax, and that of 1962—a smaller model in all respects—for some five months. After the Dow had reached a high just short of 735 at the turn of the year (not quite double the high of September 1929, incidentally), a gradual, fairly consistent decline began. But experts who a year earlier had been sounding prudent warnings of the dangers of speculation were now victims of the very euphoria they had warned against; in January and February, 1962, they pointed out that business was good, spoke of a “healthy correction,” and recommended the continued, if cautious, purchase of stocks. What a falling market needs to become a diving market is not a reason but an excuse, and in April it found one when President Kennedy chose to engage in a to-the-death confrontation with the steel industry and its bellwether, U.S. Steel, on the matter of a price increase. In the Kennedy grand manner, the clash became a thing of high melodrama, like the Cuban missile crisis six months later; there were closed-door White House meetings between Kennedy and Chairman Roger M. Blough of U.S. Steel, there were F.B.I. men ringing doorbells at dawn, and at last there was a clean, soul-satisfying ending—the steel industry’s capitulation and price rollback.
But at what a cost! Investors, who had profited so handsomely from the “Kennedy market” of the previous year, suddenly decided that the energetic young man in the White House was an enemy of business, after all. Whether or not Kennedy, in the heat of confrontation, had actually said in private, “My father always told me that businessmen were sons of bitches,” was not the point; the point was that a good proportion of the 17 million American owners of corporate shares believed he had said it. For several weeks in succession, the market slumped ominously, until the week of May 21–25 saw the worst decline for any week in more than ten years. And then, on May 28, the day that has gone down in Wall Street annals as Blue Monday, the Dow average dropped 34.95 points, a one-day collapse second in history only to that of October 28, 1929, when the loss had been 38.33. Moreover, the decline took place on the then-fantastic volume of 9,350,000 shares. Later in the decade such volume would come to constitute a slow day, and up-to-the minute Stock Exchange machinery would make it possible to handle more than twice that volume without confusion; but the type of ticker in use in 1962—the very same type that had been doggedly and perhaps sometimes rustily ticking at 11 Wall Street since 1930—was so overwhelmed that by the close of Monday’s trading it was more than an hour late in recording transactions, and it did not print the last of them for the day until two hours and twenty-eight minutes after the closing bell. Twenty billion dollars in paper values that had existed in the morning had evaporated by evening.
But it was on Tuesday that confusion was compounded. Sell orders in dozens of leading stocks, including blue chips like I.B.M., so overwhelmed buy orders that trading simply couldn’t be opened; the stocks that did open were down so drastically that at the end of the first hour the Dow had fallen another 11 points. Stock Exchange and brokerage communications broke down so completely under the strain that some floor brokers found that their best hope of reporting a trade to their clerks was to shout it at the top of their lungs. Many orders were simply lost in the shuffle, and perhaps these frustrated orderers were lucky; customers who did get trades executed found later that they had paid several points more than they had bargained for on a purchase, or had received several points less on a sale. Around noon, without warning, a strong rally started, and the ticker, fifty-six minutes late, was caught telling the ultimate Wall Street lie—it was solemnly recording the prior down market rather than the current up market. When the carnage ended that afternoon, the Street, with its vaunted pretensions to being an efficient market place, was clearly in disgrace. The rally continued, and by Thursday night all of the losses of Monday and early Tuesday were recouped. But soon the decline resumed at a more leisurely pace; by mid-June the Dow had sunk to 535 and the Kennedy boom—a sort of prologue in miniature to what was to come later in the decade—was something of the past.
Who lost, or lost the most, in the 1962 “little crash?” Most obviously, the hot-issue boys, the penny-stock plungers, the bucket-shop two-week millionaires of 1961, who, operating on the thinnest of margins in the most volatile of stocks, were wiped out either before May 28 or during the first hours of that disastrous day. But what about those who dealt more conservatively, on wider margins in more res
pectable issues? The Stock Exchange, rueful about its technical collapse, made a study later in the year to determine who had done what in the events of late May. The results were instructive. The great rising giant of American finance, the mutual fund industry, had come out with honors. Cash-heavy, still conservatively managed in the prudent fiduciary tradition, the funds had bought on balance in the falling market of Monday and had sold on balance in the rising market of Thursday; thus, besides protecting their shareholders from excessive risk, they had perhaps actually done something to stabilize the market. The panic had been among individuals—especially people in rural areas, especially foreigners, and especially the nouveau riche of whatever sex or nationality. It was a personal crash, the effect of a mass mood that swept suddenly over Broadway and Little Falls, Zurich and Grand Junction; and if May 1962 was the last great stock-market event controlled by people rather than institutions, it is fitting that its most conspicuous victim, its symbolic loser, should have been such a past-haunted romantic as Edward M. Gilbert.
2
Gilbert was born in December 1922 into the curious half-world of smalltime New York City millionaires and soon-to-be millionaires. His father and his uncle were substantial owners and principal operators of Empire Millwork Company, a solid little lumber business that their father had founded, and that had first flourished on contracts generated by the mysterious and lethal bombing of Wall Sreet in September 1920. Long afterward, Eddie Gilbert’s father, Harry, said of him, “As a kid he ran everywhere he went.” But Budd Schulberg’s Sammy Glick was only a part of Eddie Gilbert; he grew up dreaming more complex and grandiose dreams than that of becoming a ruler of Hollywood. From the first, he was a bright but lazy student with a particular aptitude for mathematics, a talented and fanatical athlete, and something of a spoiled darling. His father’s indulgence, then and later, was his financial strength and his moral weakness. At Horace Mann School for Boys, among other merchant princelings, he was a formidable tennis player and a champion diver and long-distance runner. At Camp Winnebago, in Maine, he was acclaimed the best athlete in four successive summers.
Matriculating at Cornell in the early stages of World War II, he made a name for himself in tennis and boxing, won the chess championship of his dormitory, and earned a reputation as a prankster, but went on neglecting his studies. In his first or second year he left to enlist in the Army Air Force. Shipped to North Africa and later Italy, he worked there for Army newspapers, and showed a marked interest in and aptitude for acquiring foreign languages. An American with this quality is, of course, an anomaly among his tongue-tied countrymen, but by this time it was clear that Gilbert was exceptional in more ways than one. In the service he continued to make a fetish of physical fitness and became proficient in more sports—water skiing and paddle tennis among them. He went at games, as he always had, as if they were work rather than play.
Back home at the end of the war, he returned to Cornell for a spell, but did not stay long; soon he joined his father’s company. During the period of his business apprenticeship he embarked on a series of personal ventures that were uniformly unsuccessful. He backed a prizefighter who turned out to be a dud. He was co-producer of a Broadway play, How Long Till Summer? that starred the black folksinger Josh White’s son and that, as a pioneer in the equal-rights-for-all genre of entertainment, won the public approval of Mrs. Eleanor Roosevelt. But How Long Till Summer? was either ahead of its time or wrong for all seasons; it opened at the Playhouse Theatre on December 27, 1949, got disastrous notices, and closed a week later. Gilbert also dabbled in the stock market without any notable success. While thus conforming to the old tradition that the princeling sons of successful businessmen show scant aptitude for business, he was acquiring a deep and genuine love of music and, in particular, of opera. He seemed to be assuming the familiar shape of the ineffectual, esthetic second generation—an impression that could scarcely have been more wrong.
His career at Empire Millwork came to an early crisis. The firm, flourishing in the postwar building boom, sold stock to the public, and the sale left Harry Gilbert with a liquid and bankable fortune of around $8 million. He was ever ready to use his money to indulge his son, and over the years he would do so again and again. The arrangement came to be a kind of unspoken trade between the two. Harry Gilbert had never been the brains of Empire Millwork; he was an amiable man who had inherited a tidy concern. Never a corporate rainmaker, Harry Gilbert, humanly enough, yearned to appear vital, enterprising, and interesting to his friends and colleagues. The son’s deals and the electric office atmosphere they created were made possible by the father’s money. Doubtless the father on occasion did not even understand the intricate transactions his son was forever proposing—debentures and takeovers and the like. But to admit it would be to lose face; and besides, what satisfaction there was in saying over cocktails, “We’ve got a big one going now but I just can’t talk about it yet.” And so, again and again, he put up the money. Harry Gilbert bought commercial glamour from his son.
As early as 1948, Eddie Gilbert had decided that the family company was too small to hold him, and he began to dream of using it as a vehicle to construct, through mergers with other companies, an enterprise that would live up to its grandiose name—a true Empire. In 1951, when he was twenty-eight, he demanded of his father that he be given greater responsibility in the form of a directorship. When Harry Gilbert turned him down, Eddie Gilbert quit to enter the hardwood-floor business on his own.
It turned out to be a case of reculer pour mieux sauter. There are two versions of what happened to the younger Gilbert’s independent business venture. In one—the one that was published in 1962—the venture was a success, and four years later Harry Gilbert bought it out, and thus brought his son back to Empire, in exchange for 20,000 shares of Empire stock. In another, Eddie, through his own company, made a bumbling attempt to corner the lumber market, failed, lost considerable money, and was rescued by his father, who bailed him out to bury the costly mistake. At any rate, in 1955 Eddie returned to Empire with new power and freedom to act. Ever since 1948, when he had done a stint at an Empire plant in Tennessee and had there become acquainted with E. L. Bruce and Company, the nation’s leading hardwood-floor company, he had dreamed of acquiring Bruce as a gem for Empire’s crown. With net sales of around $25 million a year, Bruce was considerably larger than Empire, but it was a staid firm, conservatively managed and in languid family control, of the sort that is the classic prey for an ambitious raider. In 1955, Eddie Gilbert persuaded his father to commit much of his own and the company’s resources in an attempt to take over Bruce.
Now Eddie came into his own at last. He began to make important friends in Wall Street—brokers impressed with his dash and daring, and delighted to have the considerable commissions he generated. Some of the friends came from the highest and most rarefied levels of finance. He apparently won over John Loeb, Sr., of Loeb, Rhoades by pledging $100,000 to Loeb’s beloved Harvard; later he could claim to be an important client of André Meyer, the shy eminence of Lazard Frères and close friend of Mrs. Jacqueline Kennedy Onassis. At the same time, Gilbert began gathering unto himself a coterie of rich social allies, people who might tap him for his stock-market tips and whom he could use in turn for the aura of social acceptance their propinquity implied.
3
The key word for these new friends is “social.” Like almost all of the great American financiers of the nineteenth century—and even more, like F. Scott Fitzgerald’s Jay Gatsby, the bootlegger who yearned toward the green light on the dock of Daisy Buchanan, the heiress who had money in her voice—Gilbert believed that a special quality of human possibility attached to the rich. In his case the quest took the form of striving to become a part of the uneasy American version of court life that we have always called Society. It is interesting that he apparently made little distinction between Real Society, based on inherited money and Anglo-Saxon lineage, and the newer, less exclusive, more flamboyant versi
on associated with the entertainment world called Café Society. He sought them both impartially, although he kept them separate. By 1960 the process of democratic thought, or perhaps merely the breakup of traditional fortunes by taxes, had advanced to the point where Real Society had gone suburban or disappeared within the upper middle class, while Café Society, born of the entertainment-mad depression and war years, had lost status with the growing public realization of its loose rites of passage and easy-money-spending ways.
But if Gilbert believed that Society no longer existed in turn-of-the century form, he gave no clue. On the contrary, it seems clear he believed in its vitality, and sought to fulfill himself through it. In fact, he had much to offer his new friends. In his early thirties, a short, compact man with pale blue eyes and a sort of ferret face under thinning hair, Gilbert had a direct, personal charm that compensated for his vanity and extreme competitiveness. Sometimes his newfound friends patronized him behind his back, laughing at his social pretensions and his love of ostentation, but they continued going to his parties and, above all, following his market tips. Some accused him of being a habitual liar; they forgave him because he seemed genuinely to believe his lies, especially those about himself and his past. He was a compulsive gambler—but, endearingly, a very bad one; on lucky streaks he would double bets until he lost all his winnings, or draw to inside straights for huge sums at poker, or go for broke on losing streaks; yet at all times he seemed to take large losses in the best of humor. It was almost as if he lost just so that he could show what a sport he was, and how little money as such meant to him. He was spoken of as interesting—a natural, a source of conversation to those who followed the gossip columns and who in turn spread the gossip even wider.
