by John Brooks
3
In political ideology, by contrast, Wall Street was now somewhat more liberal—or less reactionary—than previously. The day of the Liberty League was over; there were no more J.P. Morgans requiring aides to screen from their eyes all newspapers containing photographs of Roosevelt so as to protect the master’s blood pressure. Liberal Democrats, many of them Jewish, were about as common as conservative Republicans in the positions of power; now, one of them, Howard Stein of Dreyfus Corporation, would be the chief fund-raiser for Eugene McCarthy’s 1968 Presidential campaign. This was not entirely a matter of high-mindedness, however. With the federal government in generally liberal Democratic hands there was little to be gained by conservative intransigence on the old issues—balancing the budget, federal meddling in business, high costs of welfare and social security. Such intransigence now led only to nasty rows with Washington officials, and those, in turn, could lead only to more regulation, bad publicity, and loss of the confidence of customers. Downtown, Colonel Blimpism no longer paid.
Many of the men putting together the stock market’s new darlings, the conglomerates, were liberals—and, of course, it didn’t hurt a Wall Street analyst or salesman to be on close and sympathetic terms with such men. There were even former Communists high in the financial game. Much of Wall Street had long had a surprisingly tolerant attitude toward Communism, derived from a perspective that put any alien ideology so far beyond the pale as to make it an object of exotic interest. In the early postwar years a young man out of Columbia and the Army went to work for a long-established Wall Street firm; assigned to the library, he took to browsing in the firm’s extensive collection of books on Marxism and Communism; an unscheduled conversion took place, and the young man left the library, and Wall Street, presumably intending to join the Party.
Bart Lytton, born in New Castle, Pennsylvania, in upper middle-class circumstances, came of age in the Depression, joined the W.P.A. Federal Theatre Project, and became a Communist. His proper mother wrote him, “You who were raised in country clubs, you who used to buy a dozen golf balls and two tennis racquets at a time, you who could have been governor of Pennsylvania—you want to run off and join the radicals. Well, go eat bread with your comrades then.” After a time he left the Party, but without totally and violently rejecting its beliefs as so many renegades did. In 1939 he went to California to become a screenwriter and public-relations man, and in 1948 he moved into the savings-and-loan business. By 1965 his Lytton Financial Corporation had grown so fantastically that it was among the five biggest savings-and-loan companies in the country; and Bart Lytton, with hundreds of millions of his own, was describing himself without refutation as “the most successful businessman in this decade in the United States.” He served for four years as finance chairman of the California Democratic Central Committee, backed John F. Kennedy with a $200,000 contribution in 1960, was a major benefactor of local art museums and a founder of one, and decorated his company’s annual reports with pictures of himself with Elizabeth Taylor, Levi Eshkol, and Hubert Humphrey. He boasted that he considered a morning wasted when he didn’t wake up $500,000 to $1,000,000 richer than the night before. The very next year, 1966, his headlong business style would backfire and his company collapse into reorganization; meanwhile, though, the Communist Party of the United States had apparently been for him a far more effective academy of commerce than the Harvard School of Business Administration is for most.
The sudden youth explosion that was to overtake Wall Street life, and most particularly the management of money, had not occurred yet, but its fuse was burning short. It had an easily found sociological cause. For almost a generation, from the 1929 crash to the bull market of the nineteen fifties, young men of talent and ambition grew up thinking of Wall Street as anathema and did not go to work there, leaving a vacuum when the Wall Street leaders who had started before 1929 began to retire and the positions of power and responsibility to fall open. (Between 1930 and 1951, for example, only eight persons were hired to work on the New York Stock Exchange trading floor.) The positions were being filled, faute de mieux, by the soon-to-be-celebrated sideburned young hotshots of the late nineteen sixties, most of whom had started working in Wall Street after 1960.
Indeed, by 1969 half of Wall Street’s salesmen and analysts would be persons who had come into the business since 1962, and consequently had never seen a bad market break. Probably the prototypical portfolio hotshot of 1968 entered Wall Street precisely in 1965. Of course, he was no hotshot in 1965. He was a young man with conservative clothes and neatly trimmed hair who had a degree from a business school or perhaps only a liberal arts college, and who, assessing his chances for a quick fortune, had hit on the business of picking stocks for mutual funds as a good bet and accepted a starting salary of perhaps $7,500. Portfolio management had the appeal of sports—that one cleanly wins or loses, the results are measurable in numbers; if one’s portfolio was up 30 or 50 percent for a given year one was a certified winner, so recognized and so compensated regardless of whether he was popular with his colleagues or had come from the right ancestry or the right side of the tracks. Again as in sports, the winner became an instant star, his name known and revered in Wall Street. In 1965 the gunslinger-to-be was only a brisk young man poring over reports in a bullpen or a tiny back office. In three years his salary might quintuple or he might be raking off a fat percentage of his portfolio gains; his sideburns would be longer and his shirts louder, and he would be the new characteristic figure in a new Wall Street. But not yet.
4
The loss of power and influence of the Old Establishment was partly its own fault. Morally and intellectually, it seemed to be in decline. That keen observer of Anglo-Saxon Protestant manners and morals, the writer Louis Auchincloss—who kept in touch with his fictional material by maintaining a lively Wall Street law practice—found in the nineteen sixties that the attitude of the standard bearers downtown toward ethical niceties was largely one of indifference—of “everybody else is cutting corners, why not us?” A young financial lawyer in Wall Street then was making his way rapidly upward in the hierarchy of respected firms while leaving behind him a trail of court judgments resulting from passing bad checks. Apart from the victims, nobody—including the eminent and unassailably respectable chiefs of the young man’s firms—cared to blow the whistle. In the crush of business resulting from the stock-market boom, the pressure for legal manpower was such that the chiefs needed to hang onto a young man of talent, and to promote him, even though he happened to be a bit of a fraud.
Again, there is a sad and illuminating story of a Wall Streeter of those years—a man so strictly and traditionally conscientious that, after his father’s death, he had paid off his father’s debts even though he was not legally responsible for them and had received no inheritance out of which to pay them. This paragon of Puritan morality, having learned that another member of his firm had done something dishonest, was so disturbed by the discovery and its implications that he landed on a psychiatrist’s couch. The psychiatrist’s treatment consisted of pragmatic reassurance: “Don’t worry,” he told the troubled patient, “it doesn’t matter. Nobody will say anything.” And nobody did—to the painful disappointment of the patient, whose cure consisted of becoming disillusioned with his class.
It was open season now on Anglo-Saxon Protestants even when they stayed plausibly close to the straight and narrow. Their sins, or alleged sins, which had once been so sedulously covered up by press and even government, were now good politics for their opponents. They had become useful as scapegoats—as was perhaps shown in the poignant personal tragedy of Thomas S. Lamont. Son of Thomas W. Lamont, the Morgan partner who may well have been the most powerful man in the nation in the nineteen twenties, “Tommy” Lamont was an amiable, easygoing man. He was a high officer of the Morgan Guaranty Trust Company and a director of Texas Gulf Sulphur Company, and on the morning—April 16, 1964—when Texas Gulf publicly announced its great Timmins ore strike,
he notified one of his banking colleagues of the good news at a moment when, although he had reason to believe that it was public knowledge, by the S.E.C.’s lights in fact it was not. The colleague acted quickly and forcefully on Lamont’s tip, on behalf of some of the bank’s clients; then, almost two hours later, when news of the mine was unquestionably public, Lamont bought Texas Gulf stock for himself and his family.
He thought he had done nothing wrong; indeed, inasmuch as he had known all about Timmins several days earlier and had taken no advantage of the fact by either word or deed, he had clearly resisted a powerful temptation to wrongdoing. But the S.E.C—promulgating an entirely new doctrine of insider trading to the effect that fiduciaries with inside information were required not only to wait until after public announcement before acting on it, but then to wait an additional “reasonable amount of time”—accused him of violating the securities laws. In so doing, it lumped him with flagrant violators, some Texas Gulf geologists and executives who had bought stock on the strength of their knowledge of Timmins days and months earlier, and who made up the bulk of the S.E.C.’s landmark insider case of 1966.
Could it be, then, that the S.E.C. knew well enough that it had a weak case against Lamont, and dragged him into the suit purely for the publicity value of his name? The outlandishness of the charge against him, and the frequency with which his name appeared in newspaper headlines about the case, suggest such a conclusion. At all events, the publicity and attendant opprobrium were too much for Lamont, and soon after the S.E.C. charges his health went into a decline. In the end, he, almost alone among the defendants, was vindicated through the dropping of all charges against him. Too late, however, to do him any good. The vindication came after his death, to which he was hounded, some of his friends maintained, by the ruthlessness and irresponsibility of bureaucrats who sacrificed him to get public attention to their cause—made him, because of his name and lineage, a wholly involuntary martyr to the public interest.
Even in strictly religious terms, it was hardly surprising that Protestantism had lost its dispensation as Wall Street’s established church. The faith itself, in Wall Street’s part of the country, had largely lost its traditional character. The Protestant church in New York City was becoming a black church. Shortly before 1960 Negroes had for the first time become a majority of the city’s Protestants, and by 1965 they amounted to six out of ten. White membership was declining rapidly, and the various Protestant churches in the area, responding to their new constituency, were abandoning their old role of serving as the austere and worldly conscience of economic rulers to become agencies to fill the spiritual, and sometimes the material, needs of the culturally and economically deprived. Was this deeply integrated and sometimes activist church, then, the one for virtually all-white and surely nonactivist Wall Street? Apparently not.
The new downtown religion was liberal Judaism. German Jews had been among the founding fathers of Wall Street; the Seligmans, the Lehmans, the Goldmans and the Sachs had founded American investment banking before even Pierpont Morgan’s bulky presence had arrived on the scene, and from the time at the turn of the century when Kuhn, Loeb had fought Morgan to a standoff in the Northern Pacific affair, the Jews of Wall Street had enjoyed recognition as equal to the Yankees in both prestige and power. But those Jews had tended to be sedulous apes; awed and inspired by the new nation in which they or their fathers were immigrants, inclined to put Old Europe behind them except in matters of business, they became more Yankee than the Yankees, more Protestant than the Protestants, and thus did little to change the atmosphere. Moreover, with a few exceptions (like Paul M. Warburg, the Kuhn, Loeb partner who was virtually founder of the Federal Reserve System) they were by common consent excluded from the formal and official Wall Street leadership, and it went without saying that they never assumed the leadership of any but Jewish firms. In the nineteen sixties a great change came. By that time, some of the staid old Jewish firms had literally Protestantized themselves; their Anglophilia and Yankeephilia had reached the point where many of their partners and some of their senior partners were Protestants, not by conversion but by birth. Meanwhile, a newer strain of Jews, most of them more recent immigrants than the Germans and with origins in Eastern Europe, were taking over Wall Street leadership in a way that their predecessors had never aspired to. Even at the conservative New York Stock Exchange, the power struggle had largely come down to an armed truce between Jews, Catholics, and Protestants; President Funston, a Yankee Protestant if there ever was one, was widely thought of by the membership as a compromise candidate acceptable—like a Liberal Party member—precisely because his constituency was weak.
The change brought with it a new ethical climate. The new Jewish men of power were not temperamentally religious any more than the old Protestant ones had been, but they, like the Protestants, brought with them a certain culture and set of attitudes and responses and outlook on life, which became the new climate of Wall Street. It was a style a little less dour—not less materialistic or grasping but more candid and humorous about the materialism as well as the manner; a style not less interested in the trappings and icons of culture, but undoubtedly by tradition more capable of enjoying culture; a style with more of a bent for justice and less of an acceptance of caste. It was a style neither more nor less honest than that of the Protestants, but probably less inclined to be hypocritical on the subject. And it probably was—although this would be hard to prove—a style more inclined to dash and daring as opposed to respectability, less concerned about preservation of values and appearances and more sympathetic toward speculation and outright gambling. Our story of Wall Street from 1965 to 1970 involves a number of Jewish plungers, sometimes pitted directly against Old Protestant conservators.
5
Into this fast-changing, yet still relatively complacent, Wall Street of mid-decade there came, in June, 1965, a thunderbolt from the north.
The Texas Gulf ore strike at Timmins in early 1964 had dramatically shown Canada to United States investors as the new Golconda. Here was a great, undeveloped land with rich veins of dear metals lying almost untouched under its often-frozen soil; with stocks in companies that might soon be worth millions selling for nickels or dimes on Bay Street, the Wall Street of Toronto; and with no inconvenient Securities and Exchange Commission on hand to monitor the impulsiveness of promoters or cool the enthusiasm of investors. American money flowed to Bay Street in a torrent in 1964 and early in 1965, sending trading volume there to record heights and severely overtaxing the facilities of the Toronto Stock Exchange. Copies of The Northern Miner, authoritative gossip sheet of the Canadian mining industry, vanished from south-of-the-border newsstands within minutes of their arrival; some Wall Street brokers, unwilling to wait for their copies, had correspondents in Toronto telephone them the Miner’s juicier items the moment it was off the press. And why not? Small fortunes were being made almost every week by quick-acting U.S. investors on new Canadian ore strikes, or even on rumors of strikes. It was as if the vanished western frontier, with its infinite possibilities both spiritual and material, had magically reappeared, with a new orientation ninety degrees to the right of the old one.
The Canadian economy in general was growing fast along with the exploitation of the nation’s mineral resources, and among the Canadian firms that had attracted the favorable attention of U.S. investors, long before 1964, was Atlantic Acceptance Corporation, Ltd., a credit firm, specializing in real-estate and automobile loans, headed by one Campbell Powell Morgan, a former accountant with International Silver Company of Canada, with an affable manner, a vast fund of ambition, and, it would appear later, a marked weakness for shady promoters and a fatal tendency toward compulsive gambling. As early as 1955, two years after he had founded Atlantic, Morgan saw the possibilities of raising capital for expansion in Wall Street—and elements in Wall Street saw the possibilities of making profits in Toronto. Morgan was an acquaintance as well as a countryman of Alan T. Christie, a Canadian-
born partner in the small but rising Wall Street concern of Lambert and Company. The founder and head of this firm—whose members liked to describe it as a “banque d’affaires,” and to pronounce its name the French way, “Lombaire”—was Jean Lambert, a suave gentleman in his thirties, born and educated in France, who had come to America and married Phyllis Bronfman, daughter of the president of Seagram’s. A divorce had ensued, but $1 million of Bronfman money had stayed in Lambert and Company, whose founder liked to present himself as an international statesman of finance—as a delegate to the celebrated Bretton Woods monetary conference of 1944 (where he had, in fact, served, though not as a delegate but as a translator), and as the architect of a “Lambert plan” for international monetary reform. At Christie’s recommendation, Lambert and Company in 1954 put $300,000 into Atlantic Acceptance, thereby becoming Atlantic’s principal U.S. investor and chief booster in Wall Street and other points south.
The years passed and Atlantic seemed to do well, its annual profits steadily mounting along with its volume of loans. Naturally, it constantly needed new money to finance its continuing expansion. Lambert and Company undertook to find the money in the coffers of U.S. investing institutions; and Jean Lambert, backed by Christie, had just the air of European elegance and respectability, spiced with a dash of mystery, to make him perfectly adapted for the task of impressing the authorities of such institutions. Characteristically, Lambert decided to start at the top. In 1959, his partner Christie called on Harvey E. Molé, Jr., head of the U.S. Steel and Carnegie Pension Fund, probably the largest institution of its kind in the world at that time, with assets of more than $1.6 billion. Christie made the pitch for the Steel fund to invest in Atlantic. Molé, born in France but out of Lawrenceville and Princeton, was no ramrod-stiff traditional trustee type; rather, he fancied himself, not without reason, as a money manager with a component of dash and daring. Atlantic Acceptance was just the kind of relatively far-out, yet apparently intrinsically sound, investment that appealed to Molé’s Continental sporting blood. The Steel fund took a bundle of Atlantic securities, including subordinate notes, convertible preferred stock, and common stock, amounting to nearly $3 million. The following year, Lambert and Company—again starting at the top—approached the Ford Foundation, far and away the largest institution of its kind. The foundation’s investment men made a check (perhaps not too careful a check) on Atlantic with the company’s management, its competitors, and various Canadian banks; apparently the findings were favorable, and the Ford Foundation took a good-sized plunge in Atlantic debt securities.