The Go-Go Years (49 page)

Just as in the nineteen thirties, the Stock Exchange set about reforming itself internally. In March 1972, its members voted to reorganize its governing structure along more democratic lines by replacing the old thirty-three-man heavily insider-dominated board with a new board comprising twenty-one members, ten of them from outside Wall Street, and a new salaried chairman to supercede the traditionally unpaid, nominally part-time chairman of the past, such as Lasker. In the spirit of reform, the new board, at its maiden meeting in July, selected as its first paid chairman James J. Needham, not a Wall Streeter but an accountant and S.E.C. man. The first new “public” representatives
to be elected to the board were mostly rich industrialists scarcely likely to share the point of view of the small investor, suggesting that the job of reform was not done yet. Still, the change unmistakably represented progress.

And whose recommendations served as model for the new, more democratic structure at 11 Wall Street? None other than those of William McChesney Martin, Jr., the very same man who in 1937, as a precocious, serious-minded young broker just past thirty, had served as secretary of the committee proposing democratizing reform of the Stock Exchange structure, and the following year had become the Exchange's first president under the new structure, in the wake of the Whitney scandal. It must have been with a weird sense of experiencing a recurring dream that Martin, called out of retirement at Lasker's urgent request in December 1970, for the second time in his life spent half a year studying the question of how to transform the New York Stock Exchange from a club serving its members to a marketplace serving the public.

The final irony, then: history repeating itself not only as to pattern of events but, in one crucial instance, as to identity of protagonist. But if Wall Street's nineteen sixties were in many ways a replay of its nineteen twenties—refuting the optimism of those who believe that reform can make social history into a permanent growth situation rather than a cyclical stock—its go-go years were also utterly characteristic of the larger trends of their own time, reflecting and projecting all the lights and shadows of a troubled, confused, frightening decade the precise like of which had never been seen before and surely will not be seen again. Consider, for example, the subtle shift in the aspirations of the moneymakers who have dominated the various stages of this chronicle. Edward M. Gilbert, at the beginning of the decade, was a throwback to the vanished American style, originally canonized in the nineteen twenties, of personal and social irresponsibility elevated to the status of principle. Gerald Tsai—reaching his apogee in 1964 and 1965, the period of calm between the storms of John Kennedy's assassination and the
upheavals of 1967 and after—aspired to and largely achieved a more rational American dream dating back to more stable times, that of the poor immigrant using his wits to make good in the land of the free. Saul Steinberg in 1968 and 1969 was the financial world's version of a figure familiar in the larger national scene at that moment, the young and brash outsider setting out to join the insiders by overthrowing them—and, like other contemporaneous American rebels, ending up largely gaining his objective by the ironical means of being defeated and then admitting his mistake. Bernard Cornfeld, typifying a conflicting and simultaneous national tendency, wrote satire with his life instead of his pen, made his life an exaggerated version of the manners and morals of his society; not deigning to aspire to join the Establishment, he aspired to thumb his nose at it as conspicuously as possible—as indeed he did. Finally, the two figures who dominated Wall Street at the decade's end, Lasker and Perot, dutifully reflected a national turn toward the more conservative and conventional forms of social responsibility. Unabashedly loving their country because it had provided such a complaisant arena for their personal ambitions, they set out to do what they could to reciprocate—Lasker by throwing his heart and soul and mind into the saving of the New York Stock Exchange, Perot by throwing huge sums of his own money into the same enterprise, and, in his futile attempt to rescue American prisoners in North Vietnam, riding off in all directions like a modern Don Quixote with a Boeing 707 as his Rosinante.

Manners and fashions change, but the wish to become rich remains constant; and the styles and motives of the greatest money-seekers reflect those changes as delicately as do those of great lovers.

3

What of the customer, the little investor, Wall Street's “consumer”? Was he fleeced as calculatedly and ruthlessly in the nineteen sixties as he had been in the nineteen twenties? Did the conglomerates and the performance funds treat him with no more consideration than had the market pools and investment trusts of old? Or did he, like the victim of a confidence game, have largely himself to blame?

To begin with, there can be little question that, by and large, he was a big loser in the nineteen sixties market. The Stock Exchange had the bad luck to release the results of its latest national stockholder census in July 1970, right at the bottom of the market collapse. As we have seen, the count came to about 31 million, more than one in every four of the nation's adults. This represented a 53.3 percent increase since 1965, when the census figure had been just over 20 million. The conclusion is inescapable that almost 11 million persons invested in the stock market for the first time between 1965, when the Dow stood just under 1,000, and mid-1970, when it stood at around 650. Exactly how much of the $300 billion overall paper loss in the 1969-1970 crash was suffered by those 11 million new investors is incalculable, but it may safely be assumed that as of July 1970, when the Exchange distributed its newest evidence of the arrival of people's capitalism, people's capitalism had left at least 10 million American investors, or one-third of all American investors, poorer than it had found them, and poorer by an aggregate sum of many billions of dollars.

The man or woman of the nineteen sixties who—in quest of a third car or a Caribbean vacation, or to pay a private-school bill, or merely to try to stay even with inflation—invested in Ling-Temco-Vought, or Leasco, or the Mates Fund, or even National Student Marketing Corporation, had one measurable
advantage over the unfortunate who in 1929 had taken an equally disastrous flyer in Radio or Shenandoah or Alleghany. Thanks to the Securities Acts and the S.E.C., the nineteen sixties investor was technically protected from corporate deception by federal requirements of full disclosure. But the key word, of course, is “technically.” If he had fully understood the abstruse implications of merger accounting, he might not have invested in Ling-Temco-Vought or Leasco; if he had grasped the significance of up-valuation of letter stock in a fund portfolio, he would probably not have invested in the Mates Fund; if he had read and understood the footnotes to the 1969 annual report of National Student Marketing, he would almost certainly not have entrusted his savings to that particular venture. The question, then, is whether or not an amateur investor, with affairs of his own to attend to and limited time and attention to give to the ins and outs of the stock market, might reasonably be expected to have had such understanding. Was he not entitled to rely on the investment skill and integrity of his broker and his mutual-fund manager—especially when their judgment was so often confirmed by that of the greatest professional investing institutions, the national banks, the huge mutual and pension funds, the insurance companies and foundations? In sum, had the game of stock investing really been made fair for the amateur as against the professional?

Indeed it had not—not when the nation's most sophisticated corporate financiers and their accountants were constantly at work finding new instruments of deception barely within the law; not when supposedly cool-headed fund managers had become fanatical votaries at the altar of instant performance; not when brokers' devotion to their customers' interest was constantly being compromised by private professional deals or the pressure to produce commissions; and not when the style-setting leaders of professional investing were plunging as greedily and recklessly as any amateur. Full disclosure in the nineteen sixties market was largely a failure, giving the small investor the semblance of protection without the substance. And that failure raised the question of just how much full disclosure
can ever accomplish. Rules can be tightened, as many were during the decade and more will be in the future; but as surely as night follows day, the tricksters of Wall Street and its financial tributaries will be ever busy topping the new rules with new tricks, and there is no reason to doubt that the respectable institutions will again play Pied Piper by catching the quick-money fever the next time it is epidemic. As Lasker said in 1972, “I can feel it coming, S.E.C. or not, a whole new round of disastrous speculation, with all the familiar stages in order—blue-chip boom, then a fad for secondary issues, then an over-the-counter play, then another garbage market in new issues, and finally the inevitable crash. I don't know when it will come, but I can feel it coming, and, damn it, I don't know what to do about it.”

Thus, in the nature of things, the amateur investor remains and probably will remain at a certain disadvantage in relation to the professional. Perhaps his best protection lies in knowledge of that fact itself.

4

All that notwithstanding, Wall Street is changing in a democratic direction, and will surely change more: the public will be better represented in the councils of the New York Stock Exchange (perhaps tied in with the Amex and the smaller regional exchanges), the commissions on more and more trades will be determined by free-market negotiation rather than by fiat of the securities industry, mutual-fund charges and operations will be better regulated. But perhaps the biggest change currently in the wind is not strictly financial, but rather social and cultural.

After it graduated, around the beginning of this century, from being chiefly an arena for the depredations of robber barons and the manipulations of sharp traders in railroad bonds, Wall Street became not only the most important financial center
in the world but also a national institution. In the nineteen twenties it was in a real sense what Wall Streeters always cringed to hear it called, a private club—and not just any private club but probably the most important and interesting one in the country, a creator and reflector of national manners and a school for national leaders. In the nineteen sixties, despite declining aristocratic character and political influence, it was still those things, playing out week by week and month by month its concentrated and heightened version of the larger national drama. But after the convulsion with which the decade and that particular act in the drama ended, its days in the old role seemed to be numbered. Wall Street as a social context is apparently doomed not by reform but by mechanization. Already in the early nineteen seventies, a significant proportion of stock trading is being conducted not face to face on a floor under a skylight but between men sitting in front of closed-circuit television screens in offices hundreds or thousands of miles apart. There is a growing movement, forced by Wall Street's increasingly obvious inability to handle a vastly expanded national securities business, to abolish stock certificates and replace them with entries in computer memory units. The head of the nation's biggest brokerage firm—Regan of Merrill Lynch—predicted in 1972 that “by 1980 Wall Street will have lost lots of its distinctive flavor. … The Street will be the scene of a lot less colorful action than we have witnessed in the past few years. … Early to go, I imagine, will be that decorative piece of paper [the stock certificate]. … When all the electronic gear is in place, will we still need a New York Stock Exchange? Probably not in its present form.”

Good-bye, then, to the private club. The twin forces that hold Wall Street together as a social unit are the stock certificate, the use of which calls for geographical unity because it must be quickly and easily conveyed from seller to buyer, and the stock-exchange floor, which gives stock trading a visible focal point. If the certificate and the floor go, Wall Street will have moved a long way toward transforming itself into an impersonal national slot machine—presumably fairer to the investor but of
much less interest as a microcosm of America. The private-club aspect, however deplorable from the standpoint of equity and democracy, is necessary to the social ambiance; the wishes of a reformer and those of a social historian must be at odds. If the private club goes, with it, perhaps, will go that tendency of Wall Street's of which I have spoken: to be a stage for high, pure moral melodrama on the themes of possession, domination, and belonging. This may be, conceivably, one of the last books to be written about “Wall Street” in its own time.

Notes on Sources

Since little formal history has yet been written about United States financial life in the nineteen sixties, I have necessarily relied chiefly on business and government publications, contemporaneous newspaper and magazine articles, and, above all, the personal accounts of those involved either as observers or as participants, among them: Louis S. Auchincloss, William L. Cary, Manuel F. Cohen, Orval DuBois, Russell Goings, Jr., Walter Guzzardi, Jr., H. Erich Heinemann, the Rev. Francis C. Huntington, David S. Jackson, Eliot Janeway, Edward C. Johnson II, Edward C. Johnson III, Alfred Winslow Jones, Gilbert E. Kaplan, Kenneth Langone, Bernard J. Lasker, Thomas Marquez, the Rev. John W. Moody, Osgood Nichols, Henry Ross Perot, William S. Renchard, Felix G. Rohatyn, M. J. Rossant, Eugene H. Rotberg, William R. Salomon, Ralph S. Saul, Andrew Segal, Lee J. Seidler, Saul P. Steinberg, Gerald Tsai, Jr., Thomas O. Waage, and John Westergaard.

I owe thanks to all of these persons, and to others who wished not to be identified.

C
hapter
I

Surprisingly little has been published about Henry Ross Perot's career prior to his 1970 involvement in Wall Street affairs. See Arthur M. Louis, “The Fastest Richest Texan Ever,”
Fortune,
November 1968; and “H. Ross Perot: America's First Welfare Billionaire,”
Ramparts,
November 1971.