Wednesday, October 30, 2013

97. Wall Street, Its Past and Present Sins, and Do We Need It? Part 3

     With this third and last post on Wall Street we will press deep into the twentieth century and beyond.  This is not a full-fledged history of the Street, but rather a series of personal impressions of it, presented now as a timeline with commentary.


     1920.  A bomb planted in a horse-drawn carriage explodes at the corner of Broad and Wall Streets, killing 38 people and injuring 143 others.  Someone doesn’t like Wall Street, but it’s not clear who.  This and other less spectacular bombings prompt a vigorous response by the Justice Department’s Bureau of Investigation (forerunner of the FBI), including the BOI’s General Intelligence Division, headed by an unknown named J. Edgar Hoover.  Communists and anarchists are blamed for the blast, but in time it is attributed to Italian anarchists or Italian terrorists.  And J. Edgar is on his way to power and fame.

The scene of the bombing.  Federal Hall is seen in the upper right.

     1921.  The curbstone brokers, who trade speculative stocks out in the street, finally come in out of the cold, establishing themselves in a building on Greenwich Street; fewer colds presumably result.  So ends one of the most curious and colorful sights on Wall Street: brokers shouting and gesticulating their bids and offers in the open air.  They will become the American Stock Exchange in 1953 and merge with the New York Stock Exchange in 2008.

File:Crowd outside nyse.jpg
Crowd outside the Stock Exchange,
October 1929.
     1929.  The Great Crash, the Big Daddy of all crashes, still unrivaled even today.  In October, just one year after my birth, though I deny any causality.  Stocks, having gone up up up, begin plunging down down down.  A substantial rally will fool many, followed by a dizzying decline ending only in July 1932.  Many fortunes are demolished, many corporations are bankrupt, there are runs on banks, and hundreds of thousands lose their jobs.

     This dire event prompts many comments:

·      It is said that many ruined victims jumped out of skyscraper windows, but those who have scanned the newspapers of the time find no such accounts.  Pure myth.

·      Just prior to the Crash, the gap between rich and poor in America was at an all-time high.  (Sound familiar?  It should.)

·      Some survived, some didn’t.  Years later, when I had a summer job as dishwasher in a kitchen feeding construction workers on an Army base in Anchorage, Alaska, I got to know a man named Scottie, fiftyish and beefy, with a ready tongue and a good sense of humor. While peeling quantities of potatoes and onions, he told us how in the 1920s he had owned General Motors stock, and in the 1930s he had been in the Works Progress Administration (WPA), the government agency employing millions of the unemployed in public works projects: a perfect reflection of the nation’s history at that time.  But Scottie had learned from experience.  Now, his $60 a week (a good wage in those days) was carefully budgeted: $20 for savings, $20 for necessities, and $20 (“honey money,” I called it) for a weekly visit to a lady of the evening.  On one occasion we dishwashers saw him decked out for his Saturday-night foray in a dapper hat, a jacket and tie, and stretched across his chest, a shiny watch fob.  We were amazed: he was elegant!  Yes, whatever Wall Street had done to him, Scottie was a survivor.

·      The repercussions of October 1929 on Wall Street reached into every nook and cranny of the nation, even into well-scrubbed Evanston, the genteel Chicago suburb where I grew up.  Not that the elm-shaded tranquility of this very middle-class community, staunchly Republican, was convulsed; it was not.  The fathers continued to commute to jobs in Chicago, the wives saw to the house and the kids, and we kids went off to our first-rate suburban schools.  The Great Depression was more in evidence in Chicago, that crime-ridden, corrupt, and drink-sodden  metropolis (Evanston was dry) stretching south from the boundary of Howard Street, where, we were told, liquor stores abounded and crime and municipal corruption began.  But into the calm of Evanston came victims of the times: clean-cut young men who in groups of two or three knocked at the back doors and courteously asked if we could spare some food.  The housewives and maids of Evanston always obliged, so that each suppliant might get an apple here, a sandwich there, and a hard-boiled egg down the street.  And the young women willing to work as maids were of a high caliber indeed, often public schoolteachers who had lost their jobs.  Grim times indeed.  And at grade school the kids got together once or twice a year to do a “teacher shower”: a surprise gift to our teacher of food, usually canned goods; the teachers, though secure in their jobs, were profoundly grateful.  All of which may seem far removed from events on Wall Street, but I include these reminiscences as examples of how the doings on that Street could affect everyone else, even residents in the snug, safe suburbs.

     1933.  Enactment of the Glass Steagall Act (named for the two Congressmen sponsoring it), erecting a firewall between commercial or retail banks on the one hand, and investment banks on the other.  From now on, commercial banks, which hold citizens’ money in deposits and make loans, cannot deal in or underwrite securities, and investment banks, which do deal in securities, taking greater risks for greater profits, cannot take deposits.  For the next forty years, while the economy has its ups and downs, the financial system is solid, and depositors’ deposits are safe.

     1934.  Establishment of the Securities and Exchange Commission (SEC) to regulate stock exchanges and enforce federal securities laws.  The first chairman?  None other than Joseph P. Kennedy, Sr., the patriarch of the famous Kennedy clan, a notorious insider trader and market manipulator of the 1920s, and one of the canny few who, by selling short in 1929, had added vastly to his already considerable fortune.  And why does President Roosevelt pick Kennedy?  Kennedy had contributed generously to his election campaign.  And when asked why he had appointed a crook, Roosevelt replied, “Takes one to catch one.”  Kennedy, using his knowledge of the financial world, will institute needed reforms and be widely praised for his work.

     1938.  Richard Whitney, a former president of the New York Stock Exchange and a respected figure in the Wall Street establishment, is arrested in New York for embezzlement, pleads guilty, and is sentenced to five to ten years in Sing Sing.  But so what?  In every barrel there’s always one bad apple.  And he’ll be a model prisoner and in get out on parole in 1941.

Abbie Hoffman
Abbie in his patriotic shirt.
     1967.  On August 24 Yippie leader Abbie Hoffman and a band of fellow pranksters hurl real and fake dollars from the Stock Exchange’s visitors’ gallery to the hectic trading floor below, where some traders boo and jeer, others laugh, blow kisses, and wave, and still others scramble for the apparent windfall.  (Money, after all, is money.)  The Yippies are then escorted out of the building, but their bit of guerrilla theater, which stops the ticker-tape for six minutes, is reported worldwide and causes the Exchange to shell out $20,000 to enclose the gallery with bulletproof glass, so as to prevent a repetition of this dire event.

     1999.  In their infinite wisdom the solons of Washington, both Republicans and Democrats, repeal the Glass Steagall Act, which was no longer being strictly enforced.  Their rationale?   They must help American banks expand and better compete in global markets.  Though I am no financial expert, it occurred to me at the time that, before repealing a law that had been on the books that long, Congress should go back and study the reasons for its passage in 1933, and make sure that those reasons no longer hold today.  Thanks to this repeal, big U.S. banks become still bigger, becoming too big to fail – that is, so big that their failure would have dire consequences for the economy as a whole.

     2000.  The bubble bursts.  The stocks – stocks of newly hatched Internet-related companies --- having gone up up up, now begin going down down down, taking all the other stocks with them.  (As Wall Streeters like to put it, when the bad girls are rounded up, the good girls are carted off, too.)  Day traders who quit their regular jobs to stay home at their computer and trade stocks, buying in the morning and selling at the end of the day for a profit, suddenly find that trading stocks isn’t much fun. 

     In that same year J.P. Morgan merges with Chase Manhattan, which had merged with Chemical Bank, which had merged with Manufacturers Hanover, which had merged with …  But why go on? The result: a mega bank rivaled only by Citigroup, both of them too big to fail.

     2006.  The U.S. real estate bubble bursts.  Housing prices, having gone up up up, begin to go down down down.  People who bought a house and then sold it at a profit two years later, then bought another house and did the same, and then bought another, are stuck with that house and, as housing prices continue to fall, see their credit also fall, leaving them with a mortgage they can’t afford.  Home foreclosures follow, and the subprime (i.e., low-quality) mortgage industry collapses.  And who are heavy investors in that industry?  All the big Wall Street banks.  Oops!  Big trouble ahead.

     2008.  The subprime mortgage crisis causes a market collapse and the subsequent Great Recession.  Causes of the crisis:

·      The housing market bust.
·      Homeowner speculation (see above, 2006).
·      Mortgage fraud and predatory lending.
·      Inaccurate credit ratings.
·      Decreased government regulation (see above, 1999).
·      Boom and bust in the shadow banking system, where affiliates of regulated investment banks found ways to operate free of regulation and undertake risky investments.
·      And so on, and so on.

Confused?  So am I.  Let’s just say that whatever dubious financial practices Wall Street could conceive of, Wall Street put into practice.  And Wall Street’s imagination is bold and vast.  Who had ever heard of a shadow banking system before this?  And how about terms that emerged with it: “credit default swaps,” “collateralized debt obligations,” “structured investment vehicles,” and “interest-only adjustable-rate mortgages”?  Some of them baffled even veteran Wall Streeters not involved in these markets.  Here are a few specifics from this calamitous year of 2008.

File:Lehman Brothers Times Square by David Shankbone.jpg
Lehman Brothers headquarters, on
Sixth Avenue.  With such a soaring
tower, how could it fail?
David Shankbone
September.  The investment bank Lehman Brothers files for bankruptcy, the biggest bankruptcy filing in U.S. history.  The main cause: heavy exposure to subprime mortgage securities.  U.S. stocks, having gone up up up, begin going down down down, marking the start of a horrendous bear market and  the Great Recession, with repercussions worldwide.  Meanwhile the Lehman CEO is getting millions in bonuses.  A subsequent investigation will uncover a good deal of financial hanky-panky on Lehman’s part prior to bankruptcy.

October.  President George W. Bush signs into law an emergency bailout package establishing the $700 billion Troubled Asset Relief Program (TARP), which will buy stakes in financial institutions and the big U.S. automakers, all of them deemed too big to fail.  Citigroup will get $45 billion, Goldman Sachs $10 billion, and my own beloved J.P. Morgan Chase $25 billion.  These loans are made with no strings attached.  (Just try getting a loan like that for yourself.)  The banks continue to award outsized bonuses and in time report record profits.

December.  Wall Street financier Bernard (Bernie) Madoff  is arrested for securities fraud, his firm having operated a colossal Ponzi scheme defrauding thousands of investors of billions of dollars.  Even Jay Gould and Jim Fisk, those master manipulators of the nineteenth century, never thought of this.  Bernie will subsequently get 150 years in prison.  But so what?  In every barrel there is always one bad apple.

     2010.  Congress passes the Dodd-Frank Act to regulate Wall Street and render a repeat of the recent financial crisis less likely.  Hailed as the most significant financial reform since the 1930s, it makes some progress toward transparency and accountability but leaves the banks still too big to fail.  And many of its provisions have yet to be implemented.

      2011.  Occupy Wall Street protests against inequality, greed, corruption, and the undue influence of Wall Street by occupying, not Wall Street, but nearby Zuccoti Park.  Its slogan “We are the 99%” stresses the disparity in wealth between the top 1% and the rest of us.  After two months they are expelled from the park and shift their focus to other sites.  I have talked with them several times at Union Square and cheered them on.  But since then they seem to have faded from the scene, another roar that dwindled to a whimper.

File:Day 14 Occupy Wall Street September 30 2011 Shankbone 49.JPG
David Shankbone

     2012.  My very own candy-dispensing bank, J.P. Morgan Chase, registers a $6 billion loss in a trade in its London office.  (Yes, that’s six billion, not six million.)   According to CEO and board chairman Jamie Dimon, the strategy was “flawed, complex, poorly reviewed, poorly executed, and poorly monitored.”  Which might suggest that his management was poorly implemented.

     2013.  Jamie Dimon announces a tentative $13 billion settlement – the biggest such settlement ever -- with the U.S. Justice Department over the bank’s sale of risky mortgages to investors unaware of the risks.  The bank still faces investigations by at least seven federal agencies, several state regulators, and two foreign countries and may face criminal charges.  Should Mr. Dimon be fired?  Writers, editors, and bloggers resoundingly chorus yes!  But analysts, board members, and regulators chorus no!  And who am I, a financial nobody, to scream for his scalp?  Photos show him to be a very clean-cut, well-dressed, downright handsome gentleman.  So leave Jamie alone; don’t pick on a gent when he’s down.  Especially when the board just halved his bonus, formerly the highest in the nation, to a mere $10 million.  Even if he and his minions have committed some minor indiscretions along the way, what are we talking about anyway?  A few billion here, a few billion there – chump change!  And if in every barrel there’s always one bad apple, it isn’t necessarily Gentleman Jamie.  Besides, I like his first name, so casual, so friendly – the very opposite of J. Pierpont Morgan, that formidable  titan of another day.

File:Jamie Dimon, CEO of JPMorgan Chase.jpg
Handsome and elegant, his hand gestures showing an earnest 
desire to communicate.  How could anyone with such a
spotlessly white collar and cuffs wish ill to others?
And look closely at the cuff link: an American flag!
Steve Jurvetson

Possible conclusions based on recent financial history (take your pick)

·      Those naughty banks deserve another spanking.
·      On Wall Street the bigger your blunders, the bigger your bonus.
·      As regards J.P. Morgan Chase, federal regulators obviously don’t like candy.
·      Big banks get bailed out.  How about the rest of us?
·      Capitalism is dying of its own inconsistencies, failures, and corruption.  Workers of the world, unite!
·      Only gold is safe.
·      Bring back the Glass Steagall Act!
·      In every barrel there’s always one bad apple … or maybe several.

The New York Stock Exchange Building and Integrity

     I’ve gotten so involved with recent financial shenanigans that I’ve lost sight of Wall Street itself, the street and its buildings.  Today of course it has come to be dominated by soaring high-rises, but empty office buildings have been converted to lofts and apartments, and recently there has been a trend toward luxury apartments and upscale retailers, alleviating the deathlike stillness traditionally characterizing the area at night and on weekends and holidays.  Also, the concentration of the financial industry in one district, so that buy and sell orders and stock certificates could be delivered promptly, is no longer necessary in the age of computers and telecommunications, prompting some big banks to migrate to midtown Manhattan.  And New Jersey has successfully attracted some Wall Street firms, the data centers of electronic trading for all the major U.S. stock exchanges, and other financial services to its shining shores.

File:New York Stock Exchange, June 2000.JPG
Elisa Rolle
     That said, let’s take note of an earlier but enduring structure, the New York Stock Exchange’s current home at 18 Broad Street, a pillared parthenon in the Beaux-Arts style that opened in 1903 and is now a National Historic Monument.  Topping its noble façade is a marble pediment with high-relief sculptures designed by John Quincy Adams Ward, whose very name breathes integrity, representing Integrity Protecting the Works of Man.  Integrity, a classically robed female, stretches her arms outward in a protective gesture toward figures symbolizing Agriculture and Mining on the left, and Science, Industry, and Realizing Intelligence (whatever that is) on the right.  Since the original marble figures weighing many tons threatened the structural integrity of the pediment itself (symbolic perhaps?), they were replaced in 1936 with lead-coated sheet copper replicas that come critics find disappointing.  But so what?  It’s the thought that counts.  If Integrity dominates the Stock Exchange, can anything really be wrong?  Surely not.

File:New York Stock Exchange pediment.jpg
Who those little darlings are at the foot of Integrity I can't begin to say.Beyond My Ken

     Even so, I should add that Wall Street is also a tourist destination, with high points including the Stock Exchange itself, and the Federal Reserve Bank on Liberty Street whose gold vaults eighty feet below street level house $415 billion in gold bullion behind a 90-ton steel door. 

     Especially popular is sculptor Arturo Di Modica’s 7,000-pound bronze Charging Bull, which he originally deposited in front of the Stock Exchange in 1989 as a Christmas gift to the city.  He meant it to be a symbol of the strength and power of the American people, just two years after a little occurrence known as the 1987 stock market crash (yes, there was one in 1987 too).  The police quickly seized the work, but a public outcry followed; after all, a 7,000-pound gift is not to be sneezed at.  Result: it was installed at Bowling Green, where multitudes of tourists flock to see it and click their cameras.  Its flared nostrils, sharp horns, and head lowered in readiness to charge suggest a muscular and aggressive stock market, and a dangerous one.  But rubbing its horns, nose, and testicles is supposed to bring good luck.  (I haven’t tried it.  If any viewer does, please give me a report.)

Courtesy of Jessica, at Occasional Traveler

     Also, from May to September there is a weekly “Scoundrels of Wall Street Tour” featuring robber barons of the Gilded Age and more recent financiers adept at finding ways around financial regulations or loopholes through them.

Do we need Wall Street, and if so, why?

     If you think capitalism is hopelessly flawed, as some proponents of socialism do, then throw Wall Street away.  (Many voices on station WBAI are vehemently of this opinion.)  But if you think that capitalism, with all its flaws, can be saved and purified, then some financial center for handling money, making loans, and trading securities is necessary, and Wall Street, if spanked and punished sufficiently, maybe with cuts to its allowance, can serve.  And let’s face it, Wall Street salaries and bonuses are taxed and so contribute to the New York economy.  It is estimated that Wall Street provides almost one fourth of all income produced in the city, and 10% of the city’s tax revenues and 20% of the state’s.  So I reluctantly reach a conclusion that I had not anticipated: maybe, when all is considered realistically, alas, maybe greed is good.  Not what many of us want to concede, but there it is: as matters now stand, yes, greed is good.  Ayn Rand must be cheering from her grave.  Ouch!

     Re Ayn Rand:  I have read both the novels of this libertarian saint and apostle of unfettered capitalism and greed.  The Fountainhead (1943; 694 pages) is a challenge; Atlas Shrugged (1957; 1069 pages) is impossible, since it repeats, repeats, repeats.  Strictly for the hardy few.  Two reasons to read her: (1) To know what the buzz is all about.  (A dwindling buzz, I suspect.)  (2) To have something interesting to say at cocktail parties: “Oh yes, I’ve read her.  Very thought-provoking.”  (Or just provoking?)  Or:  “She’s mad, of course.  A delusional libertarian, quite off her rocker.  Ought to be banned.”

A Note on Covetous New Jersey

Peter Stuyvesant, Governor of New Amsterdam     As already mentioned, New Jersey has succeeded in enticing various financial facilities from Manhattan to its presumably less congested and less costly hinterland.  This in itself wouldn’t be a bone of contention, were it not simply the latest raid that the Garden State has perpetrated against the city and state of New York.  I have many friends from New Jersey and hold them in no way responsible for these blatant acts of aggression.  But when visiting them in Jersey City I often noticed an outsized statue of Peter Stuyvesant in Bergen Square, a short distance from Journal Square, that city’s chief plaza and the site of the PATH terminal, probably the most unlovely city square I have ever visited.  As for the statue, a looming creation in heroic mode, I have often wondered why a New York – or, more properly, a New Amsterdam – figure should be represented in Jersey City.  I now learn that in 1660 he established Bergen Village, the first European settlement in New Jersey, at this site, and that this village is regarded as the forerunner of Jersey City.  Well, all right, but there is no indication that Stuyvesant ever set foot on Jersey soil; he had plenty to keep him busy in New Amsterdam.  Here, in subtle form, is an attempt by the Garden State to annex a bit of the history of New York.

     The New Jersey’s aggression doesn’t end there.  In 1987 the mayor of Jersey City sued New York City, alleging that Bedloe’s Island, also called Liberty Island, where crumb of land where the Statue of Liberty looms nobly, belongs to the state of New Jersey.  The court declined to hear the case, so the island’s status remains unchanged: the parts of the island above water are deemed to be a part of New York, and the submerged parts are deemed to be a part of New Jersey.  But let’s face it, this was an insidious attempt to annex Lady Liberty herself.  When immigrants came by ship to this country, they didn’t say, “We are going to New Jersey.”  They surely said, “We are going to New York.”  And that should settle the matter.

     New Jersey has an inferiority complex, being squeezed in between two much larger states, Pennsylvania and New York.  I’m sure there are many fine things in the state, but my first impression was not the best.  Years ago I went with friends by car to the Rutgers campus at New Brunswick, experiencing en route the marsh smells of the Meadowlands, then a pig farm, and finally an oil facility – maybe a refinery – before arriving at our destination.  What do I remember of Rutgers and New Brunswick?  Nothing.  What I do remember is a sequence of stinks: marsh stink, then pig stink, then oil stink. 

     New Jersey, accept your fate as dormitory to New York City, and a transition between the Empire State and the Keystone State.  Glory in your own attractions, whatever they may be, and do not covet Peter Stuyvesant or Lady Liberty.  Pax vobiscum, New Jersey, please cease and desist.

     Coming soon:  Next Sunday, My Suicides, plus random thoughts on the subject.  Then, a walk along the waterfront circa 1870: cavernous ironworks, giant cotton presses, coal becoming heat and power and speed, gas works to light the city, and the offal boat taking away 3100 barrels of offal a week.

     ©  2013  Clifford Browder

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