Wall Streeters

Wall Streeters: The Creators and Corruptors of American Finance

Copyright Date: 2015
Pages: 368
Stable URL: http://www.jstor.org/stable/10.7312/morr17054
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    Wall Streeters
    Book Description:

    The 2008 financial collapse, the expansion of corporate and private wealth, the influence of money in politics--many of Wall Street's contemporary trends can be traced back to the work of fourteen critical figures who wrote, and occasionally broke, the rules of American finance.

    Edward Morris plots in absorbing detail Wall Street's transformation from a clubby enclave of financiers to a symbol of vast economic power. His book begins with J. Pierpont Morgan, who ruled the American banking system at the turn of the twentieth century, and ends with Sandy Weill, whose collapsing Citigroup required the largest taxpayer bailout in history. In between,Wall Streetersrelates the triumphs and missteps of twelve other financial visionaries. From Charles Merrill, who founded Merrill Lynch and introduced the small investor to the American stock market; to Michael Milken, the so-called junk bond king; to Jack Bogle, whose index funds redefined the mutual fund business; to Myron Scholes, who laid the groundwork for derivative securities; and to Benjamin Graham, who wrote the book on securities analysis. Anyone interested in the modern institution of American finance will devour this history of some of its most important players.

    eISBN: 978-0-231-54050-6
    Subjects: Business, Finance, Economics, History
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Table of Contents

Export Selected Citations
  1. Front Matter (pp. I-VI)
  2. Table of Contents (pp. VII-VIII)
  4. PREFACE (pp. XI-XVII)
  5. 1 J. Pierpont Morgan: 1837–1913 Jupiter (pp. 1-12)

    It was a sultry morning in the summer of 1885 when theCorsairmoored briefly at the Jersey City pier. Pierpont Morgan and Chauncey Depew, president of the New York Central Railroad, were already on board and waiting for the arrival of George Roberts and Frank Thomson, the president and the vice president of the Pennsylvania Railroad. Morgan had invited them onto the yacht as his guests, explaining that the venue would provide a remote, distraction-free location for negotiating an end to the destructive competition between the two railroads. But it wasn’t until the trip was under way that he...

  6. Part I: Reformers
    • [Part I: Introduction] (pp. 13-17)

      There has always been a philosophical tug and pull regarding the proper amount of regulation for U.S. financial markets. At one end are the minimalists, who believe that bankers will naturally act in a responsible manner in service of their best long-term interests—what Alexis de Tocqueville called “self-interest rightly understood” in his nineteenth-century classicDemocracy in America. The conventional wisdom of the holders of the minimalist outlook tells us that Wall Street will behave if left alone and, what’s more, its ability to operate unfettered by intrusive and costly regulation will ultimately promote the greater good for Main Street....

    • 2 Paul M. Warburg: 1868–1932 Daddy Warbucks (pp. 19-35)

      The instructions that Senator Nelson Aldrich gave his guests were painstakingly specific. They were to arrive, one at a time, on the evening of November 22, 1910, at the train station in Hoboken, New Jersey. There they would board, as unobtrusively as possible, Aldrich’s private car attached to a regularly scheduled southbound train. Once on the train and until they boarded the island ferry at Brunswick, Georgia, they were instructed to leave their last names behind. So Senator Aldrich would be just Nelson, and Benjamin Strong, president of Bankers Trust Company, just Ben. Abram Piatt Andrew customarily used only his...

    • 3 Carter Glass: 1858–1946 Unreconstructed Rebel (pp. 37-53)

      It was a snowy December 26, 1912, when Carter Glass traveled from Virginia to Princeton, New Jersey, to meet with President-elect Woodrow Wilson. Glass was an energetic young Democratic congressman from Lynchburg, Virginia, and during his four-year tenure on the House Banking and Currency Committee he had been an outspoken opponent of establishing a central bank in the United States. His maiden speech in Congress, in fact, was a denunciation of the Aldrich-Vreeland Act that provided for the National Monetary Commission—the congressional task force set up to simplystudythe question of central banking for the United States.


    • 4 Ferdinand Pecora: 1882–1971 Hellhound of Wall Street (pp. 55-84)

      On October 24, 1929, the inevitable end of the stock market frenzy arrived. Despite the price collapse that day—which later came to be called Black Thursday—there remained widespread confidence that the market would soon right itself. To that end, a group of the big names on Wall Street met at J. P. Morgan & Company, across the street from the New York Stock Exchange, to devise a plan. Those with long memories recalled how J. Pierpont Morgan had called together a similar group of bankers in the middle of the panic of 1907 and mapped the steps to save...

  7. Part II: Democratizers
    • [Part II: Introduction] (pp. 85-89)

      Before World War I, participation by ordinary individuals in the securities markets was close to nonexistent. When J. P. Morgan & Company and the other major banks of the turn of the century raised capital through stock and bond issues, they turned to institutional investors such as insurance companies, trust companies, and a small core of very wealthy families that were, in effect, institutions. The great majority of secondary trading in those issues on the stock exchanges was between the same institutional investors or, more often, between the traders doing business on the exchange floors. There was no “retail” market for...

    • 5 Charles E. Merrill: 1885–1956 The People’s Capitalist (pp. 91-109)

      Throughout the early part of the twentieth century, individual investors in the securities markets were of two distinct—and opposite—types. At one end of the pole were very wealthy and conservative investors who were usually advised by one of the large banks. Their investments were made for the long term and were chosen among secure bonds and, less frequently, the common stocks of well-established rail or industrial corporations whose dividend-paying ability was never in question. At the other end were the speculators—often fancying themselves as operators—who purchased securities for short-term gains, basing their decisions on tips and...

    • 6 John C. Bogle: 1929– Saint Jack (pp. 111-132)

      Savvy stock market investors put their focus on costs. They can’t control the ups and downs of the market, but short-term price movements aren’t of great concern for investors who are in it for the long haul. They have faith that the age-old upward trajectory of market prices will continue and that their patience will ultimately be rewarded with attractive investment returns.

      Costs are a different story. They are killers when it comes to long-term results. Commissions, advisory fees, management fees, administrative costs, and taxes all add up, year in and year out, to undermine investment success. But unlike the...

  8. Part III: Academics
    • [Part III: Introduction] (pp. 133-137)

      In the early years of the twentieth century, there was little connection between Wall Street and academia. Most of the prominent financiers had not bothered with higher education at all, and those who did—like Pierpont Morgan and Paul Warburg—received a classical education at a university and then followed that up with an apprenticeship at a bank, where they picked up practical knowledge on the job. During the course of that century, however, university-affiliated business schools grew in number and prominence, especially as their focus expanded from vocational undergraduate programs to respectable graduate schools at leading universities.

      As the...

    • 7 Georges F. Doriot: 1899–1987 Dream Builder (pp. 139-159)

      Failure didn’t come naturally to General Georges Doriot. By 1957 (at age fifty-seven), he had long enjoyed renown as an inspirational teacher at the Harvard Business School and as a highly valued consultant and director for countless companies. The French-born Doriot was also in the final stages of founding INSEAD, which would soon become Europe’s premier business school. He had also seen success in the military, receiving the Distinguished Service Medal in 1946 for his efforts in World War II as a brigadier general. But now he was faced with the possibility of failure. His signature creation—the American Research...

    • 8 Benjamin Graham: 1894–1976 Dean of Wall Street (pp. 161-181)

      On an early spring afternoon in 1911, sixteen-year-old Benjamin Graham took the West Side subway from Fulton Street in downtown Manhattan all the way uptown to 116th Street, then walked a few blocks to the home of Frederick Keppel, dean of Columbia College. Graham was self-conscious about his grimy work clothes and hands still dirty from working all day in a machine shop. But after work was the only time he could get away, and so Dean Keppel accommodated him by suggesting an early evening meeting at Keppel’s house. The year before, Graham had been devastated when Columbia turned him...

    • 9 Myron S. Scholes: 1941– Professor of Derivatives (pp. 183-200)

      It was December 10, 1997, and Myron Scholes was among the dozen laureates gathered on the stage in the Stockholm Concert Hall to receive the annual Nobel Prize in the memory of Swedish industrialist Alfred Nobel. Scholes was sharing the 1997 award for economics—officially, the Sveriges Riksbank Prize in Economic Sciences—with his colleague Robert Merton. Twenty-five years earlier they had created what is known throughout the financial world as the Black-Scholes option pricing model and what the Nobel committee described as “a new method to determine the value of derivatives.”

      In his Nobel Prize lecture, Scholes cited Alfred...

  9. Part IV: Financial Engineers
    • [Part IV: Introduction] (pp. 201-203)

      Wall Street has a penchant for taking good ideas to excess. During the latter part of the twentieth century, three important and useful asset classes made their market debuts: hedge funds, high-yield (junk) bonds, and securitized bonds. Before enjoying widespread acceptance in the markets, however, the development of each conformed to Warren Buffett’s three-stage progression for new financial ideas that grow out of control: first there is innovation, which is followed by imitation, and then ends with idiocy.

      In 1949, Alfred Winslow Jones—a doctor of sociology who freelanced forFortunemagazine, generally writing on nonbusiness topics—conceived of a...

    • 10 Alfred Winslow Jones: 1900–1989 Financial Hippie (pp. 205-221)

      Little in the first half of Alfred Winslow Jones’s life suggested that, over the second half, he would become the acknowledged father of the hedge fund. After following the family tradition of attending Harvard College, he set off not for a career in finance but instead hired on in 1923 as a purser on a tramp steamer. For the remainder of the 1920s, he hopped from job to job, living the life of a vagabond intellectual and—like many of the idealistic young men and women of his time—flirting with various socialist and communist ideologies.

      By 1930, Jones had...

    • 11 Michael R. Milken: 1946– Junk Bond King (pp. 223-249)

      In the spring of 1970, I graduated from Wharton, the business school at the University of Pennsylvania. At a dean’s reception for soon-to-be MBAs a few months earlier, I had bumped into a particularly driven and single-minded classmate—when I asked him about his plans after school, he answered without hesitation that he would first become independently wealthy by working a few years at the Drexel Harriman Ripley investment banking firm and then would return to a university to teach. I might have been skeptical of this goal had it been voiced by another peer, but this was Michael Milken;...

    • 12 Lewis Ranieri: 1948– Father of Securitization (pp. 251-264)

      The world’s bond markets underwent a revolution during the last decades of the twentieth century. Michael Milken’s junk bonds forever changed the scope of corporate bonds, expanding their use from a small number of blue-chip corporations to a much larger group of medium-sized and less creditworthy enterprises. And Milken had a corevolutionary in shaking up the bond world: Lewis Ranieri. While Milken’s Drexel Burnham Lambert was making a name for itself by originating junk bonds and engineering leveraged buyouts, Ranieri, stationed at the trading desks of Salomon Brothers, was developing a new financial process called “securitization,” which he applied first...

  10. Part V: Empire Builders
    • [Part V: Introduction] (pp. 265-267)

      Not that long ago, there were no U.S. financial institutions deemed too big to fail. Commercial banks were not allowed to grow beyond well-defined geographic limits and investment banks were constricted by their limited access to capital—and neither was allowed into the other’s business.

      By state and national law, commercial banks were not permitted to branch very far, if at all, from their headquarters, and as a result banking was a localized business. Each city was home to a number of single-office banks, the oldest and largest usually holding the title of First National in front of the name...

    • 13 William H. Donaldson: 1931– Entrepreneur (pp. 269-285)

      “Judas Iscariot!” Felix Rohatyn exclaimed when he heard the news. It’s unclear which founder of Donaldson, Lufkin & Jenrette he was referring to—perhaps all three. Like him, the three young men were rising young leaders on Wall Street during the 1960s, but while Rohatyn (just forty-one) was a lead partner with the tradition-rich, century-old Lazard Frères investment banking firm and was just finishing his term as a governor of the New York Stock Exchange, Bill Donaldson (thirty-eight), Dan Lufkin (thirty-seven), and Dick Jenrette (forty), were upstarts in the securities world. They had formed “DLJ” just ten years earlier, only a...

    • 14 Sanford I. Weill: 1933– Conglomerateur (pp. 287-306)

      One common aspiration of ambitious Wall Street executives has been the creation of a financial supermarket. The idea always looks good on paper: If a firm can combine the multitude of financial services that customers require, there will be no end to the efficiencies, cross-selling, and profitability that’s created. If those customers are individuals, a single diversified firm could handle all of their brokerage, banking, advisory, insurance, and mutual fund needs; if the customers are businesses, the same firm could offer the full panoply of investment banking and commercial banking for them as well.

      But financial supermarkets have never worked....

  11. CONCLUSION (pp. 307-312)

    The Scottish philosopher Thomas Carlyle famously asserted that “the history of the world is but the biography of great men.” Most historians take exception to that simple approach to understanding the world’s developments, but with respect to modern American finance, Carlyle’s “great men” theory rings true. Had the men profiled in the preceding chapters—the reformers, the democratizers, the academics, the financial engineers, and the empire builders—not come on the scene, the new, multi-trillion-dollar asset classes devoted to venture capital, derivatives, hedge funds, junk bonds, index funds, and asset-backed securities may never have emerged. Nor, perhaps, the trillion-dollar financial...

  12. NOTES (pp. 313-326)
  14. INDEX (pp. 331-344)


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