John Brooks blends humor and astute analysis in this tale of the staggering “go-go” growth of the 1960s stock market and the ensuing crashes of the 1970s. Swiftly rising stocks promised fast money to investors, and voracious cupidity drove the market. But the bull market couldn’t last forever, and the fall was just as staggering as the ascent.
Including the astounding story of H. Ross Perot’s loss of $450 million in one day; the tale of America’s “Last Gatsby,” Eddie Gilbert; and the account of financier Saul Steinberg’s failed grab for Chemical Bank, this book is replete with hallmark financial acumen and vivid storytelling. A classic of business history, The Go-Go Years provides John Brooks’s signature insight into the events of yesteryear and stands the test of time.
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The Go-Go Years
The Drama and Crashing Finale of Wall Street's Bullish 60s
By John Brooks
OPEN ROAD INTEGRATED MEDIACopyright © 1999 John Brooks
All rights reserved.
On April 22, 1970, Henry Ross Perot of Dallas, Texas, one of the half-dozen richest men in the United States, was so new to wealth, at forty, that he was not listed in Poor's Register and had just appeared for the first time in Who's Who in America. Only a small fraction of his fellow countrymen had ever heard of him. Many who had met him by happening to sit next to him on airliners had not found him particularly impressive or interesting. Barely five and a half feet tall, with a naïve, straightforward gaze, an unamused smile, a crooked nose, a hillbilly East Texas accent, and a short crewcut tended like a tennis lawn, he was inclined to talk at length and with enthusiasm about things like patriotism and the Boy Scouts of America. More than anything else, he seemed to be a nice, promising young man who was probably selling something.
Yet that day Perot made a landmark in the financial history of the United States and perhaps of the Western world. It was hardly a landmark to be envied, but it was certainly one to be remembered. That day, he suffered a paper stock-market loss of about $450 million. He still had, on paper, almost a billion dollars left afterward, but that wasn't the point. The point was that his one- day loss amounted to more than the total assets of any charitable foundation in the country after the top five; more than the annual welfare budget of any city except New York; and more—not just in figures, but in actual purchasing power—than J. Pierpont Morgan was known to be worth at the time of his death in 1913. It was also quite possibly more in actual purchasing power than any man had ever lost in a single day since the Industrial Revolution brought large private accumulations of money into being.
It was Earth Day; the environment had recently become a national mania, especially among the young, and a group of conservationist leaders headed by Senator Gaylord Nelson of Wisconsin had picked April 22 as a day of national dedication to the cause of eliminating pollution in all its forms. (Were preposterously large paper stock-market profits such as Ross Perot had made to be considered a form of pollution? Quite possibly.) In Washington, in front of the Department of the Interior Building, twelve hundred young people milled around shouting "Off the oil!" and "Stop the muck!" to protest government leases to oil producers whose operations were thought to cause pollution. There were antipollution rallies of twenty-five thousand or more (watched by the F.B.I., it became known later) in New York, Chicago, and Philadelphia. In Bloomington, Minnesota, former Vice President Humphrey urged the United Nations to establish an environmental agency to combat pollution around the world, and at Georgetown University in Washington, Senator Birch Bayh of Indiana called for a national agency "to conquer pollution as we have conquered space." Interior Secretary Walter Hickel—an authentic hero of environmentalism, since he was a convert soon to be martyred professionally for his views—was in his home state of Alaska, getting a hero's welcome. In New York City, children rode bicycles to school; huge, lighthearted crowds gamboled on an automobile-free Fifth Avenue; at Seventeenth Street people were offered the opportunity to breath "pure air" from the nozzle of a blocklong polyethylene bubble; and so on, as all the artillery of promotion and public relations was turned, momentarily, in an unfamiliar and uncharacteristic direction. The same day, the novelist Kurt Vonnegut, after alluding to President Nixon's statement that he did not propose to be the first American President to lose a war, commented, "He may be the first American President to lose a planet."
All this resolution and high spirits fought upstream against one of the deepest moods of gloom to darken any American April since the Civil War. The first My Lai revelations were five months old; the dangerous and disturbing New Haven strike in support of the Black Panthers, which would spread quickly to campuses all over the Northeast, was to begin that same day, April 22; the stunningly unpopular invasion of Cambodia was eight days off, the Kent State University killings of students by National Guardsmen twelve days off. The gloom, compounded by signs of an approaching national economic recession, had caused a stock-market panic that, though far from over, was already comparable in a remarkable number of ways to that of October 1929. The Dow- Jones industrial average of common stocks had sunk relentlessly through almost all of 1969; then, after holding fairly firm through the first three months of the new year, it had gone into a sickening collapse that had carried it, by April 22, to a level some 235 points below where it had been at its peak sixteen months earlier. Much worse, the Dow did not begin to tell the whole story. Interest rates were at near-record highs, strangling new housing construction and making most industrial expansion impractical. The dollar was in bad trouble in the international markets, with foreigners holding American currency worth many billions more than the national gold hoard. One hundred or more Wall Street broker age firms were near failure. As for the Dow, made up as it was of the old blue chips that had long since been deposed as sensitive and accurate market leaders, it was a pale, watered-down reflection of the real stock-market situation. A better indication is to be found in the fact that in May 1970, a portfolio consisting of one share of every stock listed on the Big Board was worth just about half of what it would have been worth at the start of 1969. The high flyers that had led the market of 1967 and 1968—conglomerates, computer leasers, far-out electronics companies, franchisers—were precipitously down from their peaks. Nor were they down 25 percent, like the Dow, but 80, 90, or 95 percent. This was vintage 1929 stuff, and the prospect of another great depression, this one induced as much by despair as by economic factors as such, was a very real one.
The visible parallels to 1929, in the business and financial spheres, were enough to make a man agree not merely with Santayana, who said that those who forget history are condemned to repeat it, but with Proust, whose whole great book, read one way, seems to say that man's apparent capacity to learn from experience is an illusion.
Before the crash in 1929 the financial sages had insisted repeatedly that there couldn't be another panic like that of 1907 because of the protective role of the Federal Reserve System; before the crash of 1969–70 a later generation observed repeatedly that there couldn't be another panic like that of 1929 because of the protective role of the Federal Reserve System and the Securities and Exchange Commission. In each case a severe market break had taken place about eight years earlier (in 1921 and 1962, respectively), followed by a period of progressively more unfettered speculation. In each case huge, shaky financial pyramids, built on a minimum of cash base, had been erected by financiers eager to take maximum advantage of the public's insatiable appetite for common stocks. Before 1929 they had been called investment trusts and holding companies; now they were called conglomerates. In each case there had been a single market operator to whom the public assigned the star role of official seer. In the 1920s the man to whom the public ascribed almost supernatural power to divine the future prices of stocks had been Jesse L. Livermore. In the middle 1960s, it was Gerald Tsai.
In each case, certain insiders contrived to use privileged information and superior market technique to manipulate stock prices and thus deceive the public; in the 1920s the manipulators had been called pool operators, in the 1960s they were called portfolio managers. (It is curious to note that, while the operations of both the pools of the 1920s and the high-performance funds of the 1960s were obviously unfair if not illegal, there was no public disapproval of either so long as people were making money on them.) In each case, the practice of slack ethics started in the untended underbrush on the fringes of Wall Street and moved, sooner or later, to the very centers of power and respectability. In 1926 (although it wasn't known publicly until over a decade later), the future president of the New York Stock Exchange committed the first of a series of embezzlements of funds entrusted to his care; in 1929 the president of the Chase National Bank made a personal profit of $4 million by selling short the shares of his own bank. No wrongdoing so melodramatic occurred among the Wall Street leaders of the 1960s—or, at least, none has so far been uncovered. But in 1926 a partner of J.P. Morgan and Company shocked the financial world, which believed the Morgans sat on the right hand of God, by openly touting a stock, General Motors, in which his firm was substantially interested; and forty years later, in 1966, a not dissimilar shudder went through the Street when it became known that two years earlier a key vice president of J.P. Morgan and Company's successor firm, Morgan Guaranty Trust Company, had bought or caused to be bought ten thousand shares of Texas Gulf Sulphur in less than half an hour, apparently on the basis of privileged information of a great ore strike in Ontario.
The parallels go down to certain curious details. In each case, the market collapse occurred under a Republican President who had been elected on the crest of the preceding boom, and who had a strong pro-business orientation. In each case, the crisis was marked by carefully planned and publicized Presidential meetings at the White House with Wall Street leaders. Finally, in each case the crash gave rise to an orgy of recrimination and finger-pointing.
Of course, there were tremendous differences, too—not just the fact that the more recent crash did not lead to a catastrophic national depression (though it did lead to a severe one), but differences in style and nuance and social implication that will be the main subject of this chronicle. One might, in comparing 1929 with 1969–70, even find a certain appositeness in Karl Marx's famous observation that history repeats itself the first time as tragedy, the second time as farce.
Wall Street, in the geographical sense, was to become an actual battleground that spring, less than three weeks after Earth Day and Ross Perot's Down-to-Earth Day. By Wednesday, May 6, 1970, a week after the Cambodia announcement and two days after the Kent State incident, eighty colleges across the country were closed entirely as a result of student and faculty strikes, and students were boycotting classes at over three hundred more. Most New York City schools and colleges were scheduled to be closed that Friday, May 8, in a gesture of protest, and among the student antiwar demonstrations being planned was one to be held in Wall Street. On Wednesday the sixth, a small group of white-coated students and faculty members from several medical and nursing schools in the city came to Wall Street to demonstrate for peace on their own. There they were greeted warmly by the vigorous, youth-oriented, peace-crusading vicar of Trinity Church, Donald R. Woodward. In the course of the ensuing conversations, the medical people suggested that it might be a good idea, considering the vast daytime population of the Wall Street area, to establish a noon-hour first-aid center at Trinity Church, which, standing as it has since colonial times right at the head of Wall Street, is at the very heart of the financial district in the physical—though scarcely, it often seems, in the spiritual—sense. If Trinity would provide space, the medical people said, they would undertake to set up and man the first-aid center on a volunteer basis. The vicar gratefully and enthusiastically accepted the offer. The first day that the center was in operation was Friday, May 8—a circumstance that in retrospect seems little less than providential.
That Friday morning—a damp, drizzly, bone-chilling morning such as New York can often produce in early May—beginning at about seven-thirty, boys and girls by the hundreds began debouching from Wall Street's two principal subway stations, the Seventh Avenue–Broadway stop at Chase Manhattan Plaza and the Lexington Avenue at Broadway and Wall. Most of them were from New York University, Hunter College, and the city's public high schools, all of those institutions being closed for the day. Eventually something like a thousand strong, they jammed into the financial district's central plaza, the intersection of Broad and Wall, where they milled around under the apprehensive scrutiny of a good-sized cadre of city policemen who had been dispatched there in anticipation of their arrival. But the students seemed to be in no mood to cause the police any trouble. In light rain, under the columns of Federal Hall, where George Washington had once taken the oath of office as the United States' first President, and facing the intimidating entrance to the great marble building from which imperial Morgan had once more or less ruled the nation, they spent the morning rallying their spirits and formulating their demands. The demands, not too surprisingly, turned out to be the same as those agreed upon a few days earlier by a secret convention of radical youth leaders in New Haven, and now being put forth on dozens of northeastern campuses. One: immediate United States withdrawal from Vietnam and Cambodia. Two: release of all "political prisoners" in the nation—a pointed, not to say loaded, reference to the Black Panthers imprisoned on charges of participating in the torture and murder of Alex Rackley, a Panther accused of being a police informer. Three: cessation of all military-oriented research work under the auspices of American universities. Unlike many student demonstrations in the spring of 1970, this one was wholly nonviolent. Indeed, it was positively good-humored, and when, as noon approached, the rain stopped and a warm sun broke through, the mood became even better. Most of the demonstrators sat down on the sidewalk to listen to speakers.
Eleven fifty-five: suddenly, simultaneously from all four approaches to the intersection, like a well-trained raiding force, the hardhats came. They were construction workers, many employed in the huge nearby World Trade Center project, and their brown overalls and orange-and-yellow helmets seemed to be a sort of uniform. Many of them carried American flags; others, it soon became clear, carried construction tools and wore heavy boots that were intended as weapons. Later it was said that their movements appeared to be directed, by means of hand signals, by two unidentified men in gray hats and gray suits. There were perhaps two hundred of them.
As they pushed through the mob of seated students, it became manifest that their two objectives were to place flags at the base of the Washington statue in front of Federal Hall, otherwise known as the Subtreasury Building, and to break up the demonstration, if necessary by violence. As to the first objective, they marched toward the statue shouting "All the way, U.S.A.!" and "Love it or leave it!"; their way was barred on the steps by a thin line of policemen; the policemen, overwhelmed by greater numbers, were brushed aside; and the flags were triumphantly planted under the statue. As to the second objective: construction workers repeatedly struck students with sticks, fists, boots, screwdrivers, and pliers. They chased screaming students of both sexes down the canyons of the financial district, striking to hurt when they came within range. They ripped the Red Cross banner, indicating the presence of the new first-aid station, from the front gates of Trinity. The air was filled with the cries of the enraged and the injured, and the acrid, ominous aroma of a storm-troop putsch. Vicar Woodward, brave and exposed, stood through it all by the Trinity front gates, directing victims to the aid station inside; twice, fearing an actual invasion of the church, he ordered the gates closed.
Inside Trinity, a communion service was in progress—a Mass, as it happened, for peace and in commemoration of the Kent State students and all the war dead in Vietnam. Those in the congregation were first aware of the noise of a rising mob filtering in from the street; then, as the service proceeded, they watched a steady stream of bloodied students walking or being carried down the nave's side aisle to the Sacristy and Clergy Vesting Room where the young doctors and nurses were ready to treat them. In all, about fifty demonstrators were treated at the Trinity first-aid station; another twenty-three were serious enough cases to require attention at Beekman-Downtown Hospital.
For more than a week afterward, Wall Street bristled daily with police as if it were in a fascist state.
Excerpted from The Go-Go Years by John Brooks. Copyright © 1999 John Brooks. Excerpted by permission of OPEN ROAD INTEGRATED MEDIA.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
ContentsForeword Michael Lewis,
I Climax The Day Henry Ross Perot Lost $450 Million,
II Fair Exchange The Year the Amex Delisted the Old Guard Romans,
III The Last Gatsby Recessional for Edward M. Gilbert,
IV Palmy Days and Low Rumblings Early Warnings Along Wall Street,
V Northern Exposure Early Warnings Along Bay Street,
VI The Birth of Go-Go The Rise of a Proper Chinese Bostonian,
VII The Conglomerateurs Corporate Chutzpah and Creative Accounting,
VIII The Enormous Back Room Drugs, Fails, and Chaos Among the Clerks,
IX Go-Go at High Noon The View from Trinity Church,
X Confrontation Steinberg/Leasco vs. Renchard/Chemical Bank,
XI Revelry Before Waterloo The Time of the Great Garbage Market,
XII The 1970 Crash To the Edge of the Abyss,
XIII Saving Graces The Invisible Samaritans of Wall Street,
XIV The Go-Go Years,
Notes on Sources,
About the Author,
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