Thursday, July 17, 2014
Brooks, Business Adventures
John Brooks originally published these business stories in The New Yorker, so it goes without saying that they are well written. Describing the stock market as “the daytime adventure serial of the well-to-do,” Brooks devotes the first chapter to a blow-by-blow account of the “little crash” and rapid recovery that occurred in the last week of May 1962. On Monday the Dow dropped more than it had on any day except October 28, 1929. By Thursday, after the Wednesday Memorial Day holiday, it closed “slightly above the level where it had been before all the excitement began.”
The infrastructure in place at the time could not cope with the overwhelming trading volume. On Tuesday, May 29, “there was something very close to a complete breakdown of the reticulated, automated, mind-boggling complex of technical facilities that made nationwide stocktrading possible in a huge country where nearly one out of six adults was a stockholder. Many orders were executed at prices far different from the ones agreed to by the customers placing the orders; many others were lost in transmission, or in the snow of scrap paper that covered the Exchange floor, and were never executed at all. … By a heaven-sent stroke of prescience, Merrill Lynch, which handled over thirteen per cent of all public trading on the Exchange, had just installed a new 7074 computer—the device that can copy the Telephone Directory in three minutes—and, with its help, managed to keep its accounts fairly straight. Another new Merrill Lynch installation—an automatic teletype switching system that occupied almost half a city block and was intended to expedite communication between the firm’s various offices—also rose to the occasion, though it got so hot that it could not be touched. Other firms were less fortunate, and in a number of them confusion gained the upper hand so thoroughly that some brokers, tired of trying in vain to get the latest quotations on stocks or to reach their partners on the Exchange floor, are said to have simply thrown up their hands and gone out for a drink. Such unprofessional behavior may have saved their customers a great deal of money.” (p. 17)
The first chapter alone is worth the price of the e-book, but Brooks has eleven more. He writes about the fate of the Edsel, the federal income tax, insiders at Texas Gulf Sulphur, Xerox, the Haupt crisis, non-communication at GE, a company called Piggly Wiggly, David E. Lilienthal, annual meetings and corporate power, the trial of Goodrich v. Wohlgemuth, and the pound sterling.
I admit that I haven’t quite finished reading the book, but since any review I could write would pale in comparison to Gates’s and Buffett’s endorsement, I considered it sufficient to add my voice to those calling attention to these essays.