Wednesday, August 20, 2014
Brooks, The Go-Go Years
Brooks’s most famous book, Business Adventures, has stood the test of time; it was on Bill Gates’s 2014 summer reading list—45 years after it first appeared. Time has not treated The Go-Go Years quite so kindly, although the book is still an interesting, if sometimes pained, commentary on a troubled era of change, both in society at large and on Wall Street in particular.
“In the nineteen twenties,” Brooks wrote, “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. … 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.” (pp. 314-15)
The late sixties were a time of social and political unrest. But “all through the stormy course of 1967 and 1968, when things had been coming apart and it had seemed that the center really couldn’t hold—the rising national economic crisis culminating in a day when the dollar was unredeemable in Paris, the Martin Luther King and Robert Kennedy assassinations, the shame of the Chicago Democratic convention, the rising tempo of student riots—the silly market had gone its merry way, heedlessly soaring upward as if everything were O.K. or would surely come out O.K., as mindlessly, maniacally euphoric as a Japanese beetle in July. Or as a doomed man enjoying his last meal. One could only ask: Did Wall Street, for all its gutter shrewdness, have the slightest idea what was really going on?” (p. 17) Obviously not. By the end of the decade and into 1970 the stock market “had gone into a sickening collapse,” interest rates were at near-record highs, and one hundred or more Wall Street firms were near failure.
Not that the early part of the decade was exactly tranquil. The stock-market collapse of 1962 sent the Dow down more than 25 percent. Brooks writes of it: “Diabetic coma, the preventable catastrophic crisis of a human disease, comes on slowly; the sinister lassitude it induces neutralizes the rational alarm that would otherwise lead the patient to take measures to head it off. So it is with stock-market crashes.” (p. 55)
The Dow reached a high just shy of 735 at the turn of the year, after which “a gradual, fairly consistent decline began. But experts who a year earlier had been sounding prudent warnings of the dangers of speculation were now victims of the very euphoria they had warned against; in January and February, 1962, they pointed out that business was good, spoke of a ‘healthy correction,’ and recommended the continued, if cautious, purchase of stocks.
“What a falling market needs to become a diving market is not a reason but an excuse, and in April it found one when President Kennedy chose to engage in a to-the-death confrontation with the steel industry and its bellwether, U.S. Steel, on the matter of a price increase.” The steel industry eventually capitulated, “but at what a cost! Investors, who had profited so handsomely from the ‘Kennedy market’ of the previous year, suddenly decided that the energetic young man in the White House was an enemy of business, after all. Whether or not Kennedy, in the heat of confrontation, had actually said in private, ‘My father always told me that businessmen were sons of bitches,’ was not the point; the point was that a good proportion of the 17 million American owners of corporate shares believed he had said it. For several weeks in succession, the market slumped ominously, until the week of May 21-25 saw the worst decline for any week in more than ten years. And then, on May 28, the day that has gone down in Wall Street annals as Blue Monday, the Dow average dropped 34.95 points, a one-day collapse second in history only to that of October 28, 1929, when the loss had been 38.33. Moreover, the decline took place on the then-fantastic volume of 9,350,000 shares.” (pp. 55-56)
Brooks recounts how the late sixties became, “for a shockingly brief moment, the heyday of the young prodigy, the sideburned gunslinger. … He came from a prospering middle-income background and often from a good business school; he was under thirty, often well under; he wore boldly striped shirts and broad, flowing ties; he radiated a confidence, a knowingness, that verged on insolence, and he liberally tossed around the newest clichés, ‘performance,’ ‘concept,’ ‘innovative,’ and ‘synergy’; he talked fast and dealt hard (but unlike the back-office people he seems to have seldom used drugs, including marijuana); and, if he was lucky, he made 40 or 50 percent a year on the money he managed and was rewarded with personal earnings that often exceeded $50,000 a year.” (p. 189) Alas, “the look of eagles became a vacant stare once the ever-rising market began to plunge,” and “many of the gunslingers who had touted [the glamor stocks] would leave, or be fired from, the securities business.” (p. 192)