The Go-Go Years (12 page)

That was his line, and that of such of his friends as chose to remain loyal to him: Gilbert, without the undue impatience of his creditors and the bad timing of the May market crash, would have bagged Celotex, covered the Bruce borrowing before it became public knowledge, and emerged a hero. In the light of retrospect, it is a line that simply does not correspond to reality. In fact, it would later appear that his debts exceeded his assets by somewhere in the neighborhood of $14 or $15 million. It is probable that neither the most indulgent set of creditors nor the most complaisant of markets could have saved him permanently from the consequences of his overweening ambition; and almost certainly the May crash merely accelerated his demise.

At home, meanwhile, there were the predictable recriminations and unseemly squabbles, lending a sort of false dignity by
contrast to the lonely exile pouring over Portuguese grammar. At the end of June, the Bruce company sought and got a court injunction to prevent Mrs. Gilbert from disposing of the couple's furniture and art collection for her own benefit: particular reference was made to Boucher's
La Toilette de Venus
and
Psyche and Cupid,
asserted in the injunction plea to be worth $95,000; Monet's
Flowers,
$75,000; and Fragonard's
Portrait of a Young Woman,
$92,000. At about the same time, the Justice Department got an indictment against Gilbert on fifteen counts of securities fraud, and the Internal Revenue Service added a touch of comedy by filing tax liens against him dating back to 1958 and amounting to over $3 million. In mid-July, he was further indicted in New York for grand larceny in connection with the Bruce misappropriation. As for his friends, a few of them loyally insisted that he was a misunderstood man who had never meant to do wrong; others, however, would no longer acknowledge that they knew him. His old pal and business associate Igor Cassini, who had lost money on Bruce and Celotex, now found it appropriate to pronounce Gilbert “a crook.” And then, in November, by which time there were federal and state charges outstanding against him the penalties for which added up to 194 years in prison, Gilbert suddenly came home. He got off the plane at New York flanked by federal marshals. He was arrested, and then promptly released on bail.

He said he had returned because he was bored with inaction and the Latin American spirit of mañana, and surely this was true. (Some of his friends joked that five months is as long as a Jewish boy can stay away from home.) But it also seems clear that Arnold Bauman, the New York criminal lawyer whom Gilbert's father had hired in his absence to defend him, had told him that the coast was now as clear as it would ever be. And that, it turned out, was pretty clear. Gilbert remained free on bail for no less than four and a half years, while he and his lawyer dangled before the various prosecutors the promise that he would implicate other wrongdoers. He could implicate various people, he said; he had something on Lazard and Loeb, Rhoades. These promises were never fulfilled. In May 1963, he and Rhoda
Gilbert were finally divorced, and a week later he married a Norwegian airline stewardess named Turid. The villas, the art collection, and the poolside parties were now in the past, but Gilbert and his new bride did well enough for a time. They dressed well; they lived in a Park Avenue apartment; they had two children, and went to Puerto Rico on vacation. With help, as usual, from his father, Gilbert set himself up in a new business, the Northerlin Company, flooring brokers. He was still a good salesman. Northerlin made over $200,000 its first year, and Gilbert, besides beginning to fulfill his promise by paying off some of the smaller of his old debts—$2,300 to a painter of his old Fifth Avenue apartment, $138 to F.A.O. Schwartz—began trying to live in his old way on $100,000 a year. He began again to wheel and deal in the market—in his wife's name. Very tentatively, a few of the not-so-beau monde began to take notice of him again.

There are second acts in some American lives, but not Eddie Gilbert's. Given his temperament, his comeback attempt could not succeed, but even so, it was quite a feat. Still under multiple indictments, free on bail, bankrupt for over $10 million all the while, between 1963 and 1967 he twice “got rich,” twice “went broke,” once even managed to get himself investigated by the S.E.C. He cut too many corners in his operations at Northerlin; the promising young company began to lose money, and finally had to be sold for a tax loss. And time ran out on his unfulfilled bargain with the civil authorities. In 1964 he pleaded guilty to twelve counts of grand larceny and three of securities fraud; in each case a sentencing date was set, and in each case, when the date arrived, sentencing was postponed. It almost seemed as if he might escape imprisonment indefinitely. But in 1967 the authorities finally lost patience with his failure to come up with usable state's evidence. That April—with only a trivial fraction of his 1962 debts repaid, and with a flock of new ones accumulated—the federal penitentiary doors finally closed on him. He would be paroled a little over two years later, but by that time his career as Gatsby was gone for good.

7

As a financier Gilbert cannot be taken seriously; at the gambling tables and in the stock market he operated by the world's oldest and surest formula for failure—to double your winning bets until the law of averages overtakes you, and you are wiped out. As a catalyst for reform, he has little importance; neither his speculative methods nor his ultimate crime were original in conception or execution, and the exposure of them did not lead to new loophole-closing S.E.C. rules or legislation. Nor, indeed, were large numbers of innocent investors, apart from his too-trusting friends and relatives, significantly hurt by his operations. Why, then, need he detain us?

It is as a social figure, a reflection of the texture of financial life in the United States at the start of the nineteen sixties, that Gilbert's career has a kind of resonance. The style that he embodied with instinctive perfection was a once-familiar but now-fading American one: the style of romantic self-destructiveness, of seeking risk for its own sake, of wild midnight rides in fast cars or on roulette wheels that ended in disaster not by accident but because the courting of disaster was integral to the style itself. The doomed and gilded youth of America, the beautiful and damned, had gone out with the depression, or certainly with World War II. But Gilbert did not know that; he had formed his unconscious stylistic aspirations early in life, and he clung to them and projected them into an alien era. A generation too late, he set out unknowing to destroy himself in the grand manner.

And so, perhaps, though in a smaller way, did all of the people who with high hopes sank their savings into the far-out new stock issues of 1961 and got wiped out in 1962. At the end of the decade, between 1968 and 1970, there would be an even bigger speculative boom and bust. But that one would be dominated by institutions; by that time the American stock market
would be so huge as to be beyond manipulation by individuals or small groups operating for themselves, and Gilbert and his little band of followers would have been ineffective in it.

Coming just before the mutual and pension funds took charge of the stock market, the 1961–1962 investment scene was perfect for Gilbert, and he remains its symbolic figure. Tinsel-mad, he burned for personal transfiguration by riches and fame. Money-seekers later in the decade would set themselves more practical goals—to revenge themselves on the Establishment by joining it, to improve the nation, to thumb one's nose at the whole world; they would know what Gilbert did not, that the possession of money cannot turn life to magic. He was the archetypal loser of 1962, a stock-market crash for romantics, and yet also a harbinger of things to come.

CHAPTER IV

Palmy Days And Low Rumblings

1

Usually after general disaster in Wall Street or elsewhere, one man takes charge of cleaning up and putting things back together, of dragging the bodies off stage and rearranging the set for the next performance—rearranging it neatly and primly, as if in hopes that subsequent action will turn toward drawing-room comedy rather than more bloody melodrama. There was no such one person after 1929. That Street scene was a disaster of such magnitude that the whole cast of characters was left paralyzed for years, and an entire new federal government with a mandate to do anything was needed to supply resolution and to restore a semblance of order. In 1938, after Richard Whitney's fall had disorganized the Old Guard that ran Wall Street by unmasking its impeccable leader as an embezzler, there was William McChesney Martin, Jr., a quiet, scholarly bachelor of thirty-one, who wore owlish round spectacles and never smoked, or drank anything stronger than hot chocolate. It was to this prudent and serious young man that the Stock Exchange turned in its extremity, making him acting chairman and then
its first paid president, to undertake the necessary job of reform.

After the shambles in 1962, however, the man Wall Street turned to was neither on the inside like Martin, nor entirely outside like the New Deal. He was the chairman of the S.E.C., William Lucius Cary.

Cary in 1962 was a lawyer of fifty-one with the gentlemanly manner and the pixyish countenance of a New England professor. A late-starting family man, he had two children who were still tots; his wife, Katherine, was a great-great-granddaughter of America's first world-famous novelist, James Fenimore Cooper. His reputation among his colleagues of the bar was, as one of them put it, for “sweetness of temperament combined with fundamental toughness of fibre.” In fact, his roots were not in New England but in Mount Vernon, Ohio, although there was some New England in his blood: a New England ancestor had fought in the battle of Lexington. The family had trekked westward to Ohio in 1814, and had stayed there. He had grown up in and around Columbus, the son of a lawyer and president of a small utility company; he had graduated from Yale and then from Yale Law, practiced law a couple of years in Cleveland, then done a long stretch in federal government—first as a young S.E.C. assistant counsel, later as an assistant attorney general in the tax division of the Justice Department, then as an Office of Strategic Services cloak-and-dagger functionary in wartime Roumania and Yugoslavia. In 1947 he had entered academic life, teaching law thereafter, first at Northwestern and later at Columbia. He was in the latter post, taking one day a week off to go downtown to the “real world” of Wall Street and practice law with the firm of Patterson, Belknap and Webb, when John F. Kennedy appointed him S.E.C. chairman soon after assuming the Presidency in January 1961.

Cary never knew how he came to be tapped; he had worked in the Stevenson campaigns of 1952 and 1956 and had become a close friend of the candidate, then had worked with Robert M. Morgenthau, a New York City neighbor, in the Kennedy campaign of 1960. Thus he had many friends in the upper echelons of the Kennedy ranks, and one or another of them must have
suggested his name to the President-elect. At all events, the appointment proved to have been a brilliant one—perhaps the most brilliant to that post since Franklin D. Roosevelt, to the dismay of all good liberals, had chosen the ex-stock manipulator Joseph P. Kennedy to be the S.E.C.'s first head back in 1934. Cary brought to the organization a vigor and a drive that it had lacked for years.

“Regulatory bodies, like the people who comprise them, have a marked life cycle,” John Kenneth Galbraith has written. “In youth they are vigorous, aggressive, evangelistic, and even intolerant. Later they mellow, and in old age—after a matter of ten or fifteen years—they become, with some exceptions, either an arm of the industry they are regulating or senile.” The S.E.C., although widely considered to be generally the most successful of the regulatory bodies, had not been immune to the aging process. Aggressive, evangelistic, and intolerant in New Deal days, during World War II, when the securities industry itself was at a near standstill, it had fallen into virtual desuetude, lying low in temporary quarters that were not even at the seat of government in Washington but were situated in Philadelphia. And in the early postwar years the S.E.C. did not noticeably revive. This was far from entirely its own fault; Presidents Truman and Eisenhower both showed a pointed lack of interest in it; its chairmanship was often used as a political payoff (as, indeed, it technically was in Cary's case), and its appropriations were cut again and again by Congress and the Bureau of the Budget. In June 1941, the S.E.C. had a roster of 1,683 employees; in 1955, by which time the industry it was supposed to regulate had expanded vastly, the number was down to 666, and when Cary assumed office some six years later the total was around 900. The S.E.C.'s premature onslaught of senility, then, was compounded by starvation. During the latter nineteen fifties it gained considerable public acclaim for the noisy campaign of its New York office chief, Paul Windels, Jr.—“Pistol Paul” to the culprits—who took after boiler-room operators peddling worthless penny uranium stocks by telephone. But meanwhile the agency as a whole was all but moribund. While the Birrells and
the Gutermas were weaving their schemes and the Amex was all but falling to pieces, the sparse staff at S.E.C headquarters—restored to Washington now, but assigned there to an unimpressive temporary building on Second Street called the “tarpaper shack”—generally contented themselves with routine; they were never seen on the trading floors of the exchanges, they enjoyed all too amiable social relations with the authorities of those exchanges, and one S.E.C. chairman developed the comfortable habit of falling asleep during the Commission's deliberations. “Literally and figuratively, the S.E.C. slept for most of the decade,” Louis M. Kohlmeier, Jr., a historian of regulatory agencies, wrote of the nineteen fifties.

2

A strong
Report on Regulatory Agencies to the President Elect,
commissioned by the President-elect himself and written late in 1960 by James M. Landis, who had been an S.E.C. chairman in New Deal days, showed that Kennedy was bent on bringing the S.E.C. back to life, and it set the stage for the Cary regime. Landis called for more funds as well as greater regulatory zeal, and Kennedy and Congress implemented the Landis conclusions with practical backing; between 1960 and 1964 the S.E.C.'s annual appropriation increased from $9.5 million to almost $14 million and its payroll from fewer than one thousand persons to almost fifteen hundred. But the change was not only quantitative. Cary concentrated on recruiting talented and enthusiastic lawyers, devoting perhaps a third of his time to the task. His base supply naturally enough consisted of his former students and their friends; the atmosphere at the tarpaper shack soon changed from one of bureaucratic somnolence to one of academic liberal activism.