The decade of the 1960s on Wall Street is likely remembered as a period characterized by a steadily rising stock market. Fifty years on, not much else may survive in the details, but it might be thought of as a bland and safe age compared to the crashes of 1929, 1987, the dot-com era, or 2008. This stands in sharp contrast to the sense of social upheaval in the United States during the same decade. This book offers evidence that the 60s were certainly not bland nor was the market on a steady upward path throughout the period.
Brooks' central theme is that the decade saw the final transition of Wall Street from a private gentleman's club to a national financial market. The story is told through a series of individual biographies of characters who stood for their brief moment on the financial stage with the collection bracketed by the record one-day loss of H Ross Perot in his losses from a sharp drop in EDS.
Here are the stories of the American Stock Exchange trying to right itself and avoid the scandal of corruption among its leaders, of Eddie Gilbert gambling desperately to finance continuing acquisitions of competitive flooring firms, and of a somnolent SEC and a major insider trading scandal among the directors of Texas Gulf Sulfur. As these events are sweeping out the old, slow ways of the Street, a new generation of fund managers is coming to the fore. These are the Gunslingers: mutual fund managers who took heavily concentrated positions and moved in and out of investments rapidly to show "performance." There were also the new conglomerates. These were collections of companies created by mergers and acquisitions across multiple industries. It was argued that there was some mystic synergy that made sports equipment, tractors, and dish soap manufacturers better if they were all part of one larger corporation. Finally, there were the hyper-growth, new technology firms that attracted investors whose money could be used for more ambitious growth. One might see, for example, a computer leasing firm making a bid to take over a major money center bank.
The market itself was beginning to attract the interest of many new, small investors as Wall Street became more of a national institution. It wasn't prepared for this new role. Clearing paper share certificates became a backroom nightmare. Customers accounts were in disarray and the problem was growing. In an attempt to stem the problem, brokerages were to close one day a week and not solicit new business. In a story familiar to anyone acquainted with the growth of synthetic MBS until 2008, the firms could not resist the additional profit in new accounts - and churning those accounts - in an era of fixed, high commissions.
As the economy began to slow in 1969, the brokerages took in less income. Many had lived with almost fictional capital assets and failures in several brokerages, including some of the largest houses, began to stress the NYSE. (There was, as yet, no Security Investors Protection Corporation - SIPC - to insure investors' accounts.) As share prices sagged, the performance of the hot-handed gunslingers seem to cool. This bears out John Kenneth Galbraith's aphorism that "genius is a rising market." It could be seen that by the end of 1970, actual performance over the decade for many hot hands had been nil. The synergy of the conglomerates and their stock prices evaporated. That synergy proved to be only the result of accounting manipulation made possible by acquiring firms with lower price to earnings multiples. The Dow Jones index which had touched 1,000 in 1966 wouldn't return to that value until nearly the end of 1972.
By the end of the decade, despite all the pain of growth and transition, Wall Street was something new. It had become integral to American life in a way it hadn't been before. Where it was once a spectator sport, it now held pensions and individual savings that would make it critical to more households. To be more a part of the life of many Americans, however, would mean that the slumps and bubbles that seem an inevitable part of markets would have more that an academic impact for the average citizen than in times past. This may be the reason, more than simply because they are in recent memory, why the crashes of 1970, 1987, 2000, and 2008 had such an impact in ways that the 1954 or 1962 slides did not.
This book has been re-issued in the Wiley Investment Classics series and it very much deserves to be. It is strongly recommended because it covers a market era that is usually overlooked.
