The Go-Go Years (15 page)

Then on the first day of June, William McChesney Martin, Jr., once the high-level Wall Street white wing and now the respected old warhorse who had been chairman of the Federal Reserve Board since 1951, gave the principal address at a Commencement Day luncheon of the Alumni Federation at Columbia University in New York City. As boss of the Fed, Martin had long since gained a reputation as any federal administration's dour conscience in economic matters, ever counselling unpleasant restraints on money and credit while the politicians in the White House and Congress revelled in the political hay that was to be harvested from expansionist policies that promoted stock-market booms. In particular, relations between Johnson and Martin were said to have become severely strained over this very issue. Now, at Columbia, Martin preached a ripsnorting sermon of old-time economic religion. He saw, he said, “disquieting similarities between our present prosperity and the fabulous twenties,” with the concomitant unsettling implication that the present boom might end as painfully as had the earlier one. “Then as now,” he pointed out,

many government officials, scholars, and businessmen were convinced that a new economic era had opened, an era in which business fluctuations had become a thing of the past, in which poverty was about to be abolished, and in which perennial economic progress and expansion were assured.

He spoke of the resolve of “responsible leaders” (for which it took no genius to read “Lyndon Johnson and his economic
advisers”) to prevent a repetition of 1929—“but,” he went on, “while the spirit is willing, the flesh, in the form of concrete policies, has remained weak. With the best intentions, some experts seem resolved to ignore the lessons of the past.” Getting down to specifics, he ticked off the similarities he saw between the present and the period just before 1929: then as now, there had been seven years of virtually uninterrupted economic progress, in each case following a period of disruption by war; then as now, world prosperity was unequally concentrated in the developed countries and, within them, in their industrialized sectors; then as now, private domestic debt was soaring, and the supply of money and bank credit was continuously growing with no increase in gold supply; then as now, international indebtedness has risen along with domestic, and the payments position of the main reserve money center—Britain in the first instance, the United States in the second—was shaky in the extreme. In sum, Martin saw the footprints of impending disaster everywhere. Toward the end, he shaded the picture somewhat by pointing out some differences between the two situations—for example, national income was better distributed now, wholesale prices were more nearly stable, stock-market credit was under better control. But even so, the old preacher, when he sat down, had painted the fires of economic Hell in vivid colors, and had warned sinners and blameless alike that they all stood on the edge of the descent.

The Dow dropped 9.81 points that very day. In the next three weeks it dropped another 60 points, to its lowest level in nearly a year. Wall Street began talking of the “Martin market.” Meanwhile, Johnson did not deign to take public notice of Martin's tongue-lashing, or to alter his expansionist policies. July arrived without any apocalypse, and then the market turned around. It kept charging upward the rest of the year, passing the old Dow record of 940 in October, a month when the Stock Exchange saw its busiest week in history up to then, with almost 45 million shares changing hands. (And when had that previous record been set? At the end of October and the start of November, 1929.) The Martin market was consigned emphatically to the past—and so, it seemed, was Martin himself as a prophet.

The talk of Wall Street that glorious autumn, the last one quite so glorious for quite so many people, was of 1,000 on the Dow—that, and of the great new force in the market, the mutual funds. The magic 1,000 had not even been dreamed of in the boom of 1929, when the peak reached by the giddy bull market was a mere 381.17. Nor, indeed, had it been dreamed of in 1961, when the peak had been 735. But now the magic figure was within easy reach, mentioned on every financial page and in every market letter: in October the Dow just missed touching 960, in November it passed 960, in December it went on to 970. Just a good week or two, and Wall Street's millenium, or the nearest thing it had to one, would be achieved. …

And then there was the mutual-fund industry, the force that was in the process of transforming Wall Street both economically and socially, a vast new shadow of uncertain portent looming across Wall Street's sky. As recently as the end of World War II, the funds had been a trivial element in securities trading, with just over $1 billion under their management; now the figure was $35 billion and rising fast, with new money flowing into them at net annual rate of $2.4 billion; already fund trading accounted for a quarter of the value of all Stock Exchange transactions. And with such momentum, it was clear that this was no more than the beginning.

It was said repeatedly in Wall Street that autumn that at last the funds were making “people's capitalism” a reality instead of a catch phrase; through fund investment the small investor could get the expert advice and fast action his limited resources otherwise denied him. Skeptics at the S.E.C. retorted that their contractual plans with large front-end commissions, sometimes amounting to half of the initial investment, were almost fraudulently unfair to the new investor with small resources—the very person the funds were supposed to benefit most; the Wall Street wisdom replied that such contracts were necessary incentive for the salesmen who made such growth of the fund industry possible. Skeptics feared that the funds, with their unmatched power to buy or sell huge blocks of stock, had almost precisely the same muscle and incentive to manipulate the market to their own advantage, and to the disadvantage of others, that the infamous
private investment pools of the nineteen twenties had had; the Wall Street wisdom replied that the securities laws, and the integrity of mutual-fund managers, made such abuses unlikely. Skeptics worried about the “redemption nightmare”—how, in a sudden market panic, mutual-fund shareholders might redeem their shares in great quantities, forcing the funds to sell portfolio holdings, leading to further redemptions, and so on down into a 1929-type pit; the Wall Street wisdom replied—most convincingly—that the funds' ability to withstand a panic had been tested in May 1962, and they had passed the test with flying colors.

The paradoxical thing was that the funds, in making the American stock market for the first time a market primarily of institutions rather than of persons, were bringing back the power and fame of individual men. The old Wall Street star system, in its heyday before 1929 and now entirely absent from Wall Street for a generation, was returning. The new stars were the portfolio managers, the men who made the investment decisions for the mutual funds. It was coming to be more and more widely believed that these decisions could not be made by committees in the traditional way of money managers; they required the speed, dash, and intuition of one man working alone on his sole responsibility.

Dangerous power, and the potential for dangerous abuses, yes. But there was a final, crushing argument in favor of the funds in 1965. With almost $2.5 billion net in new money a year coming into the stock market through the funds, wasn't the market, over the long term, bound by the law of supply and demand to go up and up and up, to everyone's benefit? Weren't the funds, so long as they thrived, a sort of guarantee of a permanent bull market?

Poor old Bill Martin! He was still living back in the nineteen thirties (the Street wisdom went) when mutual funds had scarcely existed; he simply did not comprehend this new and decisive force. Gerry Tsai, hottest of the new fund managers, predicted that the Dow would go through 1,000 before the end of 1965. He was wrong, but not by much; it was during the
morning of February 9, 1966, that it touched 1,001.11, and stayed above the magic number for a matter of minutes before falling back. As things turned out, that was the peak. The Dow would not again touch the 1,000 mark during the decade, and in the fullness of time, Bill Martin would have his day.

CHAPTER V

Northern Exposure

1

By 1965, Wall Street as a social context—a place to have one's being half of one's waking weekday hours—had changed in a generation probably more than it had ever previously changed in a lifetime; but it had not had its real revolution. Like the rest of the nation, it was poised on the verge of a strange take-off into new, totally unexpected and totally uncharted directions, new ways of looking at life and dealing with it that would seem not to have come out of evolution from the past or from reaction against it, but out of the blue, as if the past did not exist.

Wall Street as a social context? Twenty paces across from building to building, some six hundred paces end to end, a few hundred acres comprising the whole district that goes by the name—Wall Street as a social context seems at first glance not to exist, not because of its limited acreage but because of its artificiality. It is a region where no one—apart from a thousand or so seamen and artists and urban hermits—really lives; where nearly half a million people arrive in the morning and depart in the afternoon, passing the hours between, unless they are so
money-obsessed as to want nothing out of life but money for its own sake, with their deeper and more pleasurable thoughts playing over other scenes, other people somewhere else; a place where, at night, a few students and late-working clerks hurry down vacant streets, wary of muggers or perhaps ghosts; where work is everything, and yet no cows are milked or potatoes dug, no lampshades or shirts or steel ingots produced; where love and desire wax as often and as strongly as anywhere else, but cannot often be consummated without a trip several miles away by subway, car, train, or boat. For most of this century, the whole area south of Fulton Street has got along without a single hotel or apartment house above the marginal-slum level, and hardly anyone has ever thought twice about this strange fact.

Wall Street, then, would seem in this sense to be what the painter Willem de Kooning used to call a no-environment.

And yet, through history it has been not only a social context but a style-setting one. In the nineteen twenties, Wall Street's last great era before the present one, it was a kind of super-university as well as a marketplace. The young Corinthian of ambition, coming there in those days to learn the bond business, could get an Athenian education in manners as well as a Spartan outlook as to life strategies while meeting the people who would help him to become first rich and later influential. Walking the storied canyons, as compact as a large campus, as ingrown as any academic community, he might brush shoulders with the newly mighty or the ancient great: with J.P. Morgan himself, Wall Street's unquestioned ruler who, though born to the purple, had overcome an armed assassin with his bare hands; with Thomas W. Lamont, the ambassador of Morgan to nations that needed loans or financial advice; with Herbert Lehman, Otto Kahn, Franklin Roosevelt, Averell Harriman, Ferdinand Eberstadt, Robert Lovett, Thomas Finletter. And—provided only that his background was proper Protestant or old-family German Jewish—he might even meet some of them. Then having profited over a period of fifteen or twenty years, he would find the grandees he had met along the way easing his path into the important clubs, committees, and even
councils of state. Thus Wall Street triumphed over (or perhaps profited by) its limitations of space, function, and human situation and emerged as a kind of American Mount Olympus where the gods walked, bluffed and blustered, gossiped, made mistakes, and sometimes touched aspiring mortals with financial godhood.

2

Almost all that was gone now. The reign in Wall Street of the Old Establishment and its archetypal figure, the Protestant gentleman, had long since been ended by a whole complex of forces and events, of which the paradigmatic one was the exposure of Richard Whitney. The Wall Street of the middle nineteen sixties was a far more open society where performance (a new key word in Wall Street) counted for more than education, manners, or breeding. Within limits, that is; for in the year of the Selma march and the second Civil Rights Act, the year when the Texan President of the United States cried, “We shall overcome!,” there was no black member of any stock exchange and there were no more than half a dozen blacks working above the messenger-boy or clerical level in the whole nationwide securities business.

To begin with, Wall Street in the physical sense was still the national financial center only by the grace of God—or, perhaps, by that of William Zeckendorf. In the early nineteen fifties, with the tremendous midtown office-building boom, one great corporation after another moved its headquarters northward, and the money world showed signs of following. Once upon a time the corporations, credit-starved, had come willingly to the commercial and investment banks, but now with the growing wealth and power of corporations the balance had shifted. First National City Bank moved uptown, and Manufacturers Trust, soon to become Manufacturers Hanover, followed.
Wall Street took to living with its hat on, ever ready to jump in a cab and fight traffic through the tortuous streets to midtown where the big clients held court. Not a single new office building had been started in the downtown area since before the Depression, and no one wanted to be the first to build one. There was talk of the financial district becoming a ghost town.

Then the Chase Manhattan Bank, which needed a new and larger headquarters to replace its old one at 18 Pine Street, took the plunge by deciding to stay in the area—and to stay in a big way—and suddenly the tide was turned. In Zeckendorf's account, the decision was made at a meeting he attended, and dominated, at 18 Pine Street in 1954. Present, in addition to the mercurial real-estate man, were the Chase's young suzerain David Rockefeller and several of his distinguished colleagues. After making an eloquent plea for the survival of Wall Street as a financial center, Zeckendorf pointed out the window to the old Mutual Life site at Pine and Nassau, then owned by the Guaranty Trust Company, and said that it could be bought for under $5 million, but only by instant action. When the Chase men hesitated and talked about consulting their board of directors, Zeckendorf made his strongest pitch: “Your whole future is at stake, you can't wait to go to your board with a silly thing like that.” According to Zeckendorf, they didn't wait; the $5-million deal was consummated over the telephone that day; there followed a rounding up of adjacent properties and a protracted game of musical chairs among the other leading banks, which, emboldened by the Chase, decided to stay, too; and the new sixty-four-story Chase Manhattan Plaza, opened in 1960, immediately became—almost as much as the Stock Exchange itself—the vital center of a firmly reconstituted Wall Street. (Zeckendorf went broke in 1966, four years before a good part of Wall Street did. Once again, he showed it the way.)