Sunday, October 26, 2014

150. Wall Street, Greed, and Addiction

"Wall Street!  Who shall fathom the depth and the rottenness of thy mysteries?  Has   Gorgon passed through thy winding labyrinth, turning with his smile every thing to stone – hearts as well as houses?  Art thou not the valley of riches told of by the veracious Sinbad, where millions of diamonds lay glistening like fiery snow, but which was guarded on all sides by poisonous serpents, whose bite was death and whose contact was pollution?"

     So spoke journalist George G. Foster in his book entitled New York in Slices, published in New York in 1849.  Which goes to show that Wall Street – meaning not just the street itself but the whole financial community – has from an early date inspired a mix of fascination, puzzlement, and censure. 

     This post is not about the history of Wall Street, which was dealt with in posts #95, 96, 97; it’s about greed and addiction.  Let’s continue where those posts left off, with a look at the façade of the New York Stock Exchange, in the heart, figuratively and literally, of Wall Street.  Since 1903 the Exchange’s home has been a noble neoclassical edifice in white marble fronted by six massive Corinthian columns at 18 Broad Street, just south of Wall.  It suggests a Greek temple, and its pediment crammed with statuary shows Integrity Protecting the Works of Man.  An amply robed Integrity looms centrally, with figures representing Agriculture and Mining on the right, and Science, Industry, and Invention on the left.  Who the infants near Integrity’s feet represent, I haven’t been able to determine.  But Integrity rules over all … at least in the sculptor’s mind.  A reassuring thought, is it not?

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The Stock Exchange, guarded by security personnel and police with M16
machine guns and police dogs, following the 9/11 attack.

Kowloonese
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Integrity in the center, stretching both arms out with clenched fists.  Agriculture and Mining on the right, with Agriculture shown here as a man bending under the weight of a sack of grain, and a woman in a bonnet and pioneer dress leading a sheep.  Science and Industry on the left, shown here as a man pushing a lever.

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The crowd outside the Exchange
following the 1929 Crash.
     Now let’s flash back to Thursday, October 25, 1929, Black Thursday, when turmoil raged in the Stock Exchange as prices plummeted, margin calls went out, a crowd gathered outside in the street, and rumors of suicides circulated.  That afternoon all eyes were on Richard Whitney, acting vice-president of the New York Stock Exchange in the absence of the Exchange’s president, who was off on an extended honeymoon in Hawaii.  A tall, handsome, muscular man, at 1:30 p.m. Whitney walked confidently onto the trading floor and, stopping at Post No. 2, loudly announced, “I bid 205 for 10,000 Steel!” – a bid well above the current market price.  Immediately a huge cry went up from the trading floor.  Whitney then placed similar bids for AT&T, Anaconda Copper, General Electric, and other blue-chip stocks.  Behind him were the combined resources of the leading bankers of the day, to the tune of $130 million, on whose behalf he was acting. 

     After this show of confidence by Whitney, the panic subsided and people took heart; maybe the dramatic slide was over.  Suddenly famous, Whitney looked like a hero, the “Great White Knight” of Wall Street.  In the following year the Exchange elected him their president, and in that capacity he made speeches around the country emphasizing the high character of the New York Stock Exchange and the companies that were traded there.  “Business Honesty” was the name of one of his speeches, and he stressed an ethical corporate environment as the key to recovery.  Above all, the Exchange was not to blame.

     Alas, Whitney’s dramatic gesture on the trading floor, and the speeches that followed later, were not enough.  On Monday, October 28, the plunge resumed, as the Dow dropped 13%, and on the following day, Black Tuesday, it lost another 12% in the heaviest trading ever.  The Great Crash could not be stemmed; stocks recovered, fell again, recovered a bit, and fell once more, not reaching the bottom until 1932, by which time the Great Depression was well under way.

     (Wall Street’s history abounds in Black Mondays, Tuesdays, Wednesdays, Thursdays, and Fridays.  Saturday seems to have been immune to financial disasters, maybe because, in recent times, the New York Stock Exchange is closed then for trading.  And the Sabbath has of course been spared.)


Mianyanville

     Who was Richard Whitney, this proponent of financial integrity?  Born in 1888 to an old patrician family in Boston, he had attended Groton School and Harvard College, then migrated to New York in 1910 to establish his own bond brokerage business and purchase a seat on the prestigious New York Stock Exchange.  A member of the city’s elite social clubs and treasurer of the New York Yacht Club, he lived lavishly with his family in a five-story red brick townhouse at 115 East 73rd Street.  He also owned a 495-acre thoroughbred horse and cattle farm in Far Hills, New Jersey, was president of the Essex Fox Hounds, and rode elegantly to the hounds on one of his twenty horses.  A quintessential Wasp, well groomed, arrogant, and snobbish, he quietly preventing Jewish applicants from attaining significant positions at the Exchange.  But to most observers he was the epitome of the gentleman banker. 

     Everything about Richard Whitney said money; in fact, it almost screamed it.  The trouble was, he didn’t have enough of it.  His life style required an income that, even with all his connections, he simply didn’t have.  He speculated, he suffered severe losses.  So finally he went into debt and went in deep.

     Flash forward to 1938, when the comptroller of the New York Stock Exchange reported to his superiors that he had absolute proof that Whitney, who had retired as the Exchange’s president in 1935, that Whitney’s company was insolvent and Whitney himself an embezzler.  He and his company soon declared bankruptcy and on March 10 he was indicted for embezzlement by District Attorney Thomas E. Dewey.  It soon came to light that he had stolen money from the Stock Exchange’s Gratuity Fund, the New York Yacht Club, and his father-in-law’s estate.  The financial elite might  have forgiven him almost anything, but stealing from the Yacht Club was unpardonable.  Urbane and self-possessed, Whitney pleaded guilty to the charges and was sentenced to 5 to 10 years at Sing Sing.  Thousands showed up at Grand Central Station to witness a former head of the Exchange being taken to prison handcuffed to two petty racketeers.  Informed of his downfall, President Roosevelt, also a graduate of Groton and Harvard, shook his head sadly and murmured, “Poor Groton.  Poor Harvard.  Poor Dick.”  (He might have added, "Poor Stock Exchange," or perhaps, "Poor Yacht Club.")  Though Whitney symbolized the very interests that the President’s New Deal was fighting, Roosevelt refused to demonize Whitney, perhaps because they shared the same privileged background.

     At first censorious, public opinion had turned sympathetic, seeing in him a stoic martyr who even in disgrace remained a gentleman.  Respect for him extended even to Sing Sing, where other inmates as well as guards lifted their caps to him and asked for his autograph.  Assigned at first to mop-and-broom duty, he was soon teaching in the prison school and playing on the baseball team.  A model prisoner, he served 3 years and 4 months of his term, was released on parole in August 1941, and was reunited with his ever loyal wife.  Banned from dealing in securities in New York State, he became manager of a dairy farm and, later, president of a textile company.  Living quietly in Far Hills, he died there in 1974.

     Richard Whitney was neither the first nor the last Wall Streeter to be caught cheating.  Today, the wake of the 2008 panic and resulting Great Recession, the top executives of the biggest (“too big to fail”) U.S. banks have looked suspect to many.  Jamie Dimon, top honcho of my own dear  J.P. Morgan Chase, has been criticized for presiding over his bank’s six-billion-dollar loss in a 2012 trade in its London office, and its sale of risky mortgages to investors unaware of the risks, leading to an unprecedented  $13 billion settlement with the U.S. Justice Department in 2013, with further investigations and resulting settlements pending.  Like Whitney, Mr. Dimon is a handsome, well-tailored, clean-cut gentleman, but so far, one unsmirched by prosecution.  When questioned by the Senate Banking Committee in 2012, he was treated deferentially like a visiting dignitary and a financial guru oozing deep wisdom, and not like an irresponsible operator who, so his critics assert, had endangered the whole financial system of the country.  Immaculately groomed and urbane, though at times showing signs of nervousness, Dimon, like Whitney long before him, seems to elicit admiration, sympathy, and respect.  (Dimon is of Greek American stock and not a WASP, which shows progress of a kind, I suppose.)

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Jamie at Davos, Switzerland, in 2013, at the annual World Economic Forum.  Immaculately
groomed, and looking like a Ruler of the World.

World Economic Forum

     What drives these Wall Street people?  The nineteenth-century speculator Daniel Drew confessed to a friend, in a rare moment of candor, that it wasn’t the money itself that he loved, but the wild excitement of the game: “I must have excitement, or I should die.”  But I would suggest that it’s both the money and the excitement of the game, and that it’s a matter of addiction.  I used to think that addiction involved only substance abuse -- alcohol, tobacco, and drugs.  But then a friend confessed to me that he was addicted to sex – for me, an innocent when it comes to addiction, a novel and enigmatic idea.  To explain, he said that, periodically, if he didn’t go out every night and have sex with another man, he felt totally unworthy and depressed.  Hearing that, I had to accept the fact that sex too could be an addiction.  So how about money?  Can greed also be, in the full and literal sense of the word, addictive?

     Relevant here is the article “For the Love of Money” by former hedge-fund trader Sam Polk, which appeared in the Sunday New York Times of January 19, 2014.  Polk tells how his dreams of being rich had been nourished by his father, a salesman with huge dreams that never seemed to materialize, while the family lived from paycheck to paycheck off his mother’s salary.  When, at age 22, Polk walked onto the trading floor at Credit Suisse First Boston to begin a summer internship, and saw an array of glowing TV screens, high-tech computer monitors, and phone turrets, he knew at once what he wanted to do with the rest of his life: play this video game to become rich and have power. 

     So began his career as a trader.  Three weeks into his internship his girlfriend dumped him: “I don’t like who you’ve become.”  Devastated, he consulted a counselor who showed him how he was using drugs and alcohol to blunt the powerlessness he had felt as a kid; his underlying trouble, she explained, was a “spiritual malady.” 

     A year or so later, having gotten off drugs and alcohol and graduated from Columbia College, he pestered a managing director at Bank of America until the manager took a chance and hired him.  At the end of his first year he was thrilled to receive a $40,000 bonus.  But a week later a trader only four years his senior was hired away by another outfit for a salary of $900,000 – 22 times the size of his bonus – and he was at once consumed by envy, and then excited by how much money was available.

     So it went.  He worked hard, moved up the Wall Street ladder, became a bond and credit default swap trader (whatever that is).  After four years in his new job Citibank offered him $1.75 million a year.  At age 25 he reveled in money and power.  But when, at a meeting, he suggested that the new hedge-fun regulations that everyone on Wall Street was decrying might be better for the system as a whole, the room went quiet and his boss shot him a withering look and said emphatically that he couldn’t think about the system as a whole, only about his company.  At which point Polk began to view Wall Street with new eyes.

     Now Polk noticed how traders hurled vitriol at the government for limiting their bonuses after the crash, and were infuriated by any mention of higher taxes.  Having always envied the men who earned more than he did, he now began to be embarrassed for them and himself.  Though he made more money in a single year than his mother, a nurse practitioner, had made in her whole life, he realized that, unlike her, he wasn’t really doing anything, wasn’t useful or necessary to society.  And having foreseen the 2008 crash and made money off of it, he himself now didn’t like who he’d become.  So he decided to get out.

     Polk now realized that he was an addict, craving more money just as an alcoholic craves alcohol.  And like any addict, he had an incredibly difficult time shaking his habit.  All too often he woke up in the middle of the night terrified at the thought of running out of money, of later feeling like an idiot for giving up his one chance to be really important.  In time these feelings abated, and he realized that he had enough money and, if he needed more, he could earn it.  But just as a recovered alcoholic still craves alcohol, so he still at times craves money and buys a lottery ticket.

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Avarice, an engraving by the Dutch artist Jacob Matham (1571-1631).

     Now Polk speaks in jails and juvenile detention centers about getting sober, teaches a writing class for girls in the foster system, and manages a nonprofit called Groceryships to help poor families struggling with obesity and food addiction.  Which reminds me of a recovered alcoholic I once knew who enlisted in Alcoholics Anonymous to help other alcoholics get free of their addiction.  Yet there is no 12-step program for wealth addicts.  Why not? he asks.  Because our culture supports and even praises the addiction.  The superrich appear on the magazine covers at every newsstand, have become our cultural gods.  So we all bear some responsibility, Polk insists, for letting wealth addicts exert so much influence over our nation.  To which I would add the suggestion that, in a capitalist society, this is close to inevitable.  We have always adulated wealth and those who have it.

     Sam Polk’s article – well worth reading in its entirety – provides a clear and emphatic answer to the question posed earlier.  Can greed become an addiction?  Yes!

     Coming soon:  I haven't the slightest idea.  I just hope it happens.

     ©  2014  Clifford Browder