by John Brooks
7
When at length the back-office crisis passed, it did so without benefit of the wisdom of either Wall Street or Washington.
During a wild December, the fails level peaked out at the all-time high—$4.12 billion. Nevertheless, beginning on January 2, 1969, the exchanges resumed a five-day trading week with 2 P.M. closings. Haack explained later that the Wednesday closings had been abandoned not because they had accomplished their purpose but because they had failed to do so; too many brokerage firms, rather than using them to catch up, had simply treated them as holidays. “Frankly, I don’t see any end in sight,” a leading brokerage partner said. Wall Street at the turn of the year had tried all such remedial measures as it was willing and able to make, and they had all failed; it was at the end of its rope.
It was saved, not for the first time, by a deus ex machina. The end of the crisis was coming, and coming in its own way in its own time. In January, prices and volume both dropped sharply on the Stock Exchange, average daily trading from 15 million shares to 12 million, the Dow industrials from the December peak of 985 to the 920–930 range. The fails level responded by dropping 20 percent to $3.3 billion. In February, volume dropped to 11 million shares a day, the Dow to below 900, fails to below $3 billion. By the end of March, fails were down below $2.5 billion; in June the Dow sank to 870, in July almost to 800. Starting early in July, the exchanges began lengthening their daily trading hours, in thirty-minute stages, until closing time was back to 3:30.
The back-office crisis was over, ended less by reason and intelligence than by the advent of a bear market destined to bring new and unforeseen crises.
CHAPTER IX
Go-Go at High Noon
1
Not by chance, cultural and social revolution hit Wall Street, New York, at the same time that it hit Wall Street, U.S.A. It was in 1968 that New York City first came to seem ungovernable, out of hand, to large numbers of formerly optimistic citizens. Those who loved the city had clung to the belief that for all its passing anarchies—soot, noise, clogged streets, racial tension, the deadly cycle of drugs and crime, unconscionable strikes against the public, corruption in office—some deep, underlying civic principle of order and good will ruled it with an invisible hand, so that things would come out all right in the end. But in 1968—perhaps chiefly because of the infamous teachers’ strike, as shocking for the shrugging public acceptance of closed schools as for the cynical political maneuvering that caused and perpetuated it—the sinking feeling overtook many citizens that the invisible hand had disappeared, if it had ever existed at all, and that there was no longer any foundation of order.
But of course, it was still a great city, and in time the sinking feeling would pass. The new stridency of minorities was a result of new freedom rather than a response to new oppression, and, as the music critic Harold C. Schonberg pointed out, “around the corner, almost anywhere, is at your disposal the best art, the best music, the best libraries, the best restaurants, the most varied entertainment, that any city in the world can offer.” New York’s brave, hardy flowers of art and culture went on blooming in the ruins of its social order. Breaking must come before rebuilding, and it was possible to look upon New York in 1968 as not a city dying—as so many pundits inside it and out so confidently proclaimed it to be—but as one being reborn.
Almost all of the great cultural centers of history have first been financial centers. This generalization, for which New York City provides a classic example, is one to be used for purposes of point-proving only with the greatest caution. To conclude from it that financial centers naturally engender culture would be to fall into the most celebrated of logical fallacies. It is nonetheless a suggestive fact, and particularly so in the light of 1968 Wall Street, standing as it was on the toe of the same rock that supported Broadway, off-Broadway, Lincoln Center, the Metropolitan Museum, the Museum of Modern Art, and Greenwich Village. At that moment, the revolution in Wall Street standards and mores that we saw emerge in 1965 was rampant: the physical paralysis of the back offices was paralleled by the sort of overthrow of old authority and abrupt disappearance of old norms that is characteristic of social revolution at all times and places. But Wall Street’s revolution, like New York’s, was not entirely bad. There were new flowers budding and even blooming in the ruins.
2
Begin with the old social edifices that survived more or less intact. In many instances they were Wall Street’s worst and most dispensable; for example, its long-held prejudices, mitigated only by tokenism, against women and blacks.
Women in Wall Street (as in the nation) were fighting their way to positions of importance, but not in numbers. By 1968 there were hundreds, perhaps a few thousands, of women brokers handling primarily the business of the rising number of women investors who trusted chiefly other women—a happy case of common interest between social reform and profit. But at the higher levels, women downtown were scarcely pushing the male chauvinist pigs up against the Wall Street. On December 28, 1967, Muriel Siebert, a tough, affable, and ambitious woman broker in her thirties, who had been a stock salesman with several different firms and then decided to go it on her own, became the first woman member of the New York Stock Exchange in modern times; on the day she first went on the floor to make a trade, the Exchange bureaucracy, never noted for its delicate sensibilities, required her to wear a trainee’s badge. In July 1970, Madelon Talley, a New York housewife who had tired of full-time housewifery and taken some courses in finance at Columbia, became co-manager of the Dreyfus Leverage Fund—and Wall Street’s first female fund manager. A couple of long-locked doors opened a crack, then; but only a crack.
As to black men (not to speak of black women) in positions of influence or power, Wall Street had advanced the miniscule distance from the no-tokenism of 1965 to tokenism at the end of the decade. In July 1968, Shearson Hammill and Company began working on plans to open a branch office in the heart of Harlem—the first brokerage branch ever in any black ghetto in the country. It would have been quite unrealistic to assume that the local Harlem community could afford to generate sufficient brokerage business to support a profitable office, and Shearson Hammill made no such quixotic assumption. The hard-nosed notion was that white financial institutions—major foundations, mutual and pension funds, endowments—would be willing, out of charitable or public-relations motives, to channel part of their brokerage business through a Harlem office for the deliberate purpose of feeding commission money into a poor black community, instead of handing such commissions over, routinely, to prosperous Wall Streeters. There were squabbles over terms with various Harlem groups, particuarly the local chapters of CORE. Out of them came a decision by Shearson Hammill to establish a foundation—named for Crispus Attucks, the black man believed to have been the first American killed in the American Revolution—to be “dedicated to helping foster a viable economy in the Harlem community,” and to be financed by pledged contributions of 7½ percent of all gross revenues of Shearson’s Harlem branch. The office opened on Harlem’s main drag, 125th Street, with a largely black staff, in July 1969, under the managership of Russell Goings, Jr., a firm yet amiable black man in his thirties who had once shined shoes in a suburban office of Merrill Lynch, and had briefly been a member of the Buffalo Bills football team. Enough white institutions threw business to the office to make it modestly profitable (from the start, its dealings were over 99 percent institutional), and to bring the Crispus Attucks Foundation significant revenue. Looked at cynically, the Shearson Hammill Harlem operation could be viewed as just one more instance of guilty or frightened whites paying tribute to blacks. Still, in the context of insular Wall Street—surely in most times one of the least guilt-ridden communities on Earth—it was a substantial step forward.
Downtown at the Stock Exchange, there were signs of similar progress, not yet in 1968 but soon thereafter. In February 1970, Joseph Louis Searles III, a thirty-one-year-old black man, would become the first black member in the hist
ory of the New York Stock Exchange, as a general partner of and floor broker for Newburger, Loeb and Company. Like so many Stock Exchange members before him, Searles borrowed money to buy his seat; like Russell Goings he was a former star football player—a record of participation in America’s favorite weekend sports entertainment apparently being, at this time, the de facto prerequisite for black men in the brokerage field. But irony intruded; Joseph Searles joined the Exchange at the worst possible moment for any man of whatever color or race. The market itself is coolly impartial and, by November of the same year, Searles had lost his entire personal stake in the general 1970 crash and would soon resign his seat and leave Wall Street for a new career elsewhere.
At the end of 1970, then, the Stock Exchange would be left with a single woman member, and with no black members at all.
3
Hardly anything else on Wall Street had remained the same since 1965. The most conspicuous change was the triumph of youth. The battle of the generations had ended in a rout; living out the Freudian fantasy, Wall Street by now had killed its father. The late sixties became, for a shockingly brief moment, the heyday of the young prodigy, the sideburned gunslinger. What manner of young man was he? He came from a prospering middle-income background and often from a good business school; he was under thirty, often well under; he wore boldly striped shirts and broad, flowing ties; he radiated a confidence, a knowingness, that verged on insolence, and he liberally tossed around the newest clichés, “performance,” “concept,” “innovative,” and “synergy”; he talked fast and dealt hard (but unlike the back-office people he seems to have seldom used drugs, including marijuana); and, if he was lucky, he made 40 or 50 percent a year on the money he managed and was rewarded with personal earnings that often exceeded $50,000 a year.
Indeed, the gunslinger hardly needed to “perform” at all. His youth itself was his stock in trade; he was a winner on board, so to speak, by virtue of an abrupt and scarcely believable reversal in local cultural fashion. The Institutional Investor magazine told of an under-thirty stock analyst with three years’ experience (a good average for young analysts of 1968) and a salary of $25,000, who decided to better his situation by changing jobs. Within two weeks of making known his availability he had fifteen job offers, including one of $30,000 plus bonus and equity in the firm, one of $30,000 with the virtual promise of $50,000 and a partnership in two or three years, and one of $30,000 plus bonus, profit sharing, and deferred compensation. Again, The Institutional Investor reported, a thirty-two-year-old already making $50,000 was approached by an executive recruiter with a package offer from a mutual fund that amounted to something in the vicinity of $150,000 a year. “And you know what this character says?” the dumfounded recruiter reported. “He says he wants to think about it!”
In plain numbers, youth had taken over Wall Street. An old-line Boston investment advisory firm estimated, and reported to its clients with something like horror, that 10 percent of all investment people in 1969 were forty-five or over, 25 percent were twenty-five to thirty-five, and the other 65 percent were under thirty-five. In the new climate, an under-thirty had so much going for him that he sometimes needed to pick only a single stock-market winner to become nationally famous. Martin Sass, twenty-five, of the advisory firm of Argus Research, spotted a knitwear company on the rebound called Duplan, liked its management and its key product—women’s pantyhose—and recommended it in April of 1968; Duplan turned out to be the biggest percentage gainer on the Big Board that year, and when Business Week came around to interview Sass early in 1969, he could afford to lean back and allow that “about ninety-five per cent of the stocks I screen turn out to be pretty dull”—with the off-hand manner of an elder statesman. Then there was Bill Berkley. In 1966, when he was a portly, confident, twenty-year-old second-year student at Harvard Business School, a speaker is said to have proposed to his class that all those students who would be satisfied to make twenty thousand dollars a year stand up. A few students arose. How about fifty thousand? Some more students. Well then, one hundred—two hundred thousand? By then the whole class was standing, except Berkley. Immediately after graduation in June 1968, he and an “older” partner (aged twenty-five) formed Berkley, Dean and Company; by the following January they already managed $15 million in investment accounts and had just launched their own mutual fund.
Fred Carr of Enterprise Fund was all of thirty-seven by 1968, and the once-redoubtable Fred Alger of Security Equity was going on thirty-five—fast-fading stars. (“Which Fred do you like?” insiders had asked each other a couple of years earlier; but no longer.) Gerald Tsai, at forty, was a man of the past to be revered but no longer to be heeded. It was coming to be believed, in the absence of evidence to the contrary, that almost any man under forty could intuitively understand and foresee the growth of young, fast-moving, unconventional companies better than almost anyone over forty. In the face of this clearly prejudiced new view, age continued to fight a desperate holding action. “Competence and judgment are not the product of age alone,” tradition-oriented David L. Babson and Company grimly wrote its clients, “but there is a high correlation between experience and the ability to assess the risk factor.” One may imagine the chortling of the gunslingers at that.
Among the weaknesses of youth is intolerance, and the youth takeover brought with it a new intolerance toward the very qualities Wall Street had always most revered, age and experience. No imaginable social change could have rocked the traditional Wall Street order more profoundly. How, then, did this sudden reversal of values come about, and was it a good thing? As to the first question, we have already noted the effect of Wall Street’s missing generation, the vacuum left by the disinclination of young men of talent and energy to go there to work between 1930 and 1950. But surely something else was involved—the confluence of great worldwide trends during the late nineteen sixties toward youth-fear and youth-worship; toward allowing and even urging students to set attitudes and fashions for their elders; toward a belief that only the young were equipped to understand and master the new world that the old had created but could not control; and, finally, toward rejection of irrelevant experience and uncritical acceptance of intuition unsullied by fact. Wall Street, which lives on dreams and fashions, was, for all of its pretensions to rational practicality, precisely the milieu within which the new gospel of youth could proliferate.
Wall Street provided a climate that permitted a trend to feed on itself; the quite traditional levers of Wall Street success, personal contacts and the possession of privileged information, now worked in favor of the young money manager or brokerage deal-maker and against the old one. Would the thirty-year-old president of a fast-moving franchising or computer-leasing firm prefer to break bread or close deals with a Wall Streeter of sixty, or with a self-anointed swinger of thirty very much like himself? When it came to the hot stocks that were the darlings of the 1968–1969 market, the Street’s elder statesmen were all out to lunch. They could still get through promptly to GM or to Telephone whenever they wanted to, but that wasn’t where the action was.
And yet, did it work? Did the intuition and kindred spirit of youth, as instruments of security analysts, do well by the broad mass of investors? Not judging by results. In 1970 most of the glamour stocks would fall out of bed and many of the gunslingers who had touted them would leave, or be fired from, the securities business. As John Kenneth Galbraith remarked in the spring of 1970, “Genius is a rising market.” The look of eagles became a vacant stare once the ever-rising market began to plunge. But the revolution in Wall Street faiths and values that the youth binge briefly produced was a necessary corrective to some venerable shibboleths, an antithesis that might later lead to a synthesis. It taught Wall Street that old men make mistakes, too.
4
Meanwhile, the financial community had somehow, for the first time in this century, reversed its tightly held tenet that war is bullish and that peace is for the bears. This pragmatic hawkishness had become
firmly established at the time of World War I, which changed the United States from the world’s leading debtor nation to the world’s leading creditor nation, and gave rise to the famous munitions profits so scathingly exposed by the Nye Committee during the time of the New Deal. World War II failed to produce a major bull market in large part due to the excess-profits tax, but it certainly did not produce a bear market, either; the Dow industrials on V-J Day stood some 50 percent higher than they had stood the week before Pearl Harbor. The Korean conflict, in Dow terms, was modestly bullish. The fact is, as Eliot Jane way wrote in The Economics of Crisis, that “America’s wars seem to have paid not only somebody but usually almost everybody.” International conflict was good business-page news because war, or the threat of it, kept people and machinery busy; conversely, international reconciliation or its illusion raised specters of idleness and overcapacity. Just as the Communists were always saying, finance capitalism seemed inherently to thrive on war. Or—if the matter is regarded from a moral rather than a political stance—the reaction of the Dow to peace and war over the years provides the most dramatic possible demonstration of the fact that the market, although a product of human psychology, lacks anything resembling a human soul.
The disheartening attitudes of the late nineteen fifties—those edgy years of Cold War confrontations, competitive nuclear tests, and the stockpiling of unthinkable weapons, when it had become routine for Wall Street to treat the slightest, most transient breath of international reconciliation, not to mention international amity, as a signal for panic—carried over far into the nineteen sixties. The hair-raising Cuban missile crisis in October of 1962 passed with only a momentary stock drop, apparently because investors realized with shock that while war may be good for the market, enjoyment of a good market depends on being around to enjoy it. In 1966, when demonstrations against the Vietnam War first came to Wall Street, it reacted in general with a measure of disdain. That April 12, a group of about a dozen boys and girls calling themselves Youth Against War and Fascism briefly disrupted Stock Exchange trading by throwing antiwar leaflets onto the floor from the visitors’ gallery. They were dragged from the gallery by armed guards, and Exchange officials commented, no doubt justifiably, “We don’t want the gallery used as a political platform.” Needless to say, the stock market averages were unaffected. Two days later there was a small, acrid pitched battle on Broad Street outside the Exchange, in which Y.A.W.F. kids traded punches and insults with members of a right-wing group, American Patriots for Freedom. Official Wall Street took no notice, but open controversy over the war had invaded its precinct at last. Then, a bit more than a year later, Abbie Hoffman and his friends threw their dollar bills on the floor and elicited the response they desired.
