The Go-Go Years (41 page)

The Dow started the year at around 800, down about 15 percent from the start of 1969, the year before. During all of January, the market fell slowly but inexorably and, by the twenty-ninth, the Dow was at 768, its lowest point in more than three years. February and March were months of moderate recovery, still, however, on low volume; on the Amex in particular, volume set record lows for the year, day after day, particularly during a postal delivery strike in the New York City area in March. Brokerage firms, finally geared up for multimillion-share trading days that had become common in 1968 and 1969, and running such high expenses that some of them now needed 12-million-share Stock Exchange days to break even on commissions, were losing money so fast that in the first week of April the S.E.C. consented to the imposition of a $15 commission surcharge on all transactions of 1,000 shares or less. Some—like Hans Reinisch, a young man who had set himself up as the Ralph Nader of the securities business—felt that thus punishing the small investor for the unprofitability of brokerage firms, at a time when large institutional investors had recently been granted
lower
commissions, was both absurd and unfair. But something had to be done quickly, and that was what the Wall Street leadership and the Nixon S.E.C. thought ought to be done.

At about the same time, the pace of the price decline suddenly stepped up. On April 22 came the abrupt and mysterious E.D.S. collapse in which Ross Perot sustained his historic loss. Two days later, the Dow had receded to 750, and about a quarter of all issues traded on the Stock Exchange were at their lows for the year. By April 27, the Dow was at 735, and the economic analyst Eliot Janeway—“Calamity Janeway,” as some had come to call him, in recognition of his reputation as Wall Street's most assiduous prophet of doom—was saying that it would certainly go below 700, and probably much lower than that. On the
twenty-eighth, with the Dow at 724, President Nixon tried to stem the tide by saying for quotation that if he had the spare cash, he would be buying stocks right now.

(Pause to note: on October 25, 1929, the day after the one remembered as Black Thursday, President Hoover said, “The fundamental business of the country … is on a sound and prosperous basis.” Hoover stopped short of saying he wished he had some money to invest in stocks, but five days later, after a further disastrous decline, John D. Rockefeller, Sr., said, “My son and I have for some days been purchasing sound common stocks.”)

2

The chairman of the New York Stock Exchange in 1970, who was fated to be the key man in Wall Street's near-fatal convulsions that year, was Bernard J. Lasker, always called Bunny, a tall, athletic-looking man of fifty-nine with the semi-distant yet curiously vulnerable air of command of a tough regular-army top sergeant. In character and background, he presents a striking—and, as a reflection of social change, highly interesting—contrast to his 1929 counterpart, the ineffable Richard Whitney. Where Whitney had belonged beyond cavil to such an aristocracy as his country could muster—descendant of seventeenth-century settlers in Massachusetts, son of a Boston bank president, nephew of a former Morgan partner, graduate of Groton and Harvard, son-in-law of a president of the Union League Club—Lasker was the son of a Jewish sponge-and-chamois importer on Beaver Street, a rundown commercial area of ancient redbricks standing in the shadow of imperial Wall Street. Where Whitney's undoubted ability to lead other men had been rooted in an intimidating aloofness composed of snobbery and disdain for those he considered his terrestrial inferiors, Lasker, an eminently approachable man, derived his comparable ability from
the overpowering singlemindedness—surely Whitney would have called it “pushiness”—of an aggressive yet accommodating businessman. Finally, where Whitney with all his physical impressiveness and air of Episcopalian propriety had eventually been exposed as a habitual embezzler, Lasker with his direct manner was by all accounts and evidences a man of iron sense of duty and scrupulous professional rectitude.

Born in New York City in 1910, Lasker grew up on West End Avenue in middle-class circumstances and went to a private day school. But the senior Lasker died when his son was fourteen—the sponge business was in any case to be ruined a few years later by du Pont's introduction of artificial sponges—and there was not enough money to send the boy to college. So, at seventeen, he went to work as a runner on Wall Street for the firm of Hirsch, Lilienthal and Company. There he made his way upward by the classical steps—the purchase-and-sales department, the order room, customer's man, assistant manager of a branch office—and in 1939 became a Stock Exchange member himself. Eventually, he settled in as a partner, and eventually senior partner, of Lasker, Stone and Stern, a professional firm—doing arbitrage, specializing, and floor trading, never dealing directly with the public—of the sort whose members have traditionally run the affairs of the New York Stock Exchange. In the natural course of events, Lasker gravitated into Stock Exchange management: membership on the Board of Governors in 1965, the vice chairmanship in 1967, and, in the spring of 1969, election to succeed Gustave Levy as chairman. Unabashedly loving the Exchange and his role within its canonical observances, Lasker considered it to be to all intents and purposes the center of his life, and he immediately threw himself into the unpaid job of chairman with a will, almost totally neglecting his own business affairs (as, indeed, Whitney had done) in the performance of his volunteer duties. But at the time he assumed office, he could hardly know just how onerous those duties would become, or that they would draw on energies and abilities that he may not have known he had—and draw, among other things, on his long-standing personal friendship with Richard M. Nixon.

Like so many self-made men in America, big, bluff Bunny Lasker was a bellicose conservative, ever eager to praise the free-enterprise environment that nourished him so bountifully, and quick to leap to attack or to patient explanation whenever anyone criticized it. Indeed, one is tempted to describe him as a Republican by instinct or even by religion. If someone he met turned out to be a Republican, Lasker tended automatically to think of the man as a friend; if, on the other hand, someone he instinctively liked turned out
not
to be a Republican, he was genuinely puzzled by the anomaly. Sometimes this rather elementary form of faith led to disillusionment; for example, in 1965, Lasker (albeit with some misgivings) served as finance chairman for the Republican New York City mayoral candidate John Lindsay, but a couple of months after that campaign's triumphant conclusion, when Mayor Lindsay decided to impose an increased stock transfer tax on Wall Street, Lasker's regard for Lindsay vanished rather abruptly. On the whole, though, his faith in the Grand Old Party and its members seemed to stand him in good stead. It certainly did in his relations with Nixon, with whom he first became associated as a fund-raiser in the 1960 Presidential campaign. The following year, when the defeated candidate was visiting New York, he called up Lasker to thank him for his efforts in the campaign and to suggest that, since they had never met, they do so now. The two men met at the Plaza and hit it off immediately. Nixon had never seen the Stock Exchange, so Lasker took him there; the ex-candidate was so beguiled by what he saw that he stayed for a long lunch. Then, after Nixon had hit political bottom with his 1962 defeat in the California gubernatorial election and had temporarily abandoned politics to come to New York to practice law, Lasker and his wife more or less took their friends, the tyro New Yorkers, in hand: Lasker helped the Nixons find an apartment, and Mrs. Lasker helped Mrs. Nixon find a dressmaker, and the two couples frequently dined together. It was in 1964, though, that Lasker without conscious intention put the future President most deeply in his debt. Nixon would say later that Lasker, in helping to talk him out of making the Presidential race again
in that overwhelmingly Democratic year, had had a large hand in saving his political career.

So when Lasker came to the Stock Exchange chairmanship in 1969, the Stock Exchange had a friend at court, as duly attested by a telegram from the President, on the occasion of Lasker's election, that Lasker subsequently had framed and mounted on the wall of his office: “Dear Bunny: As I mentioned yesterday, I am highly pleased that you have been chosen as head of the New York Stock Exchange. Your abilities and qualities of leadership make you exactly the right man taking the job at the right time. Pat joins me in sending our congratulations and affectionate regards. Richard Nixon.” Meanwhile, his religious Republicanism began creating new anomalies. Robert Haack, the Exchange's paid president and therefore the man Lasker had to work with most closely in its management, was a liberal Democrat as well as a man whose personal chemistry often conflicted with Lasker's. On the other hand, the amiable Judge Budge, Nixon's S.E.C. chairman, was a Republican and as such a man for whom Lasker felt a great affinity—an affinity that is said to have had a lot to do with the S.E.C.'s granting of the $15 brokerage commission surcharge in April 1970. So the chairman of the Stock Exchange didn't get along very well with his logical friend, his own organization's administrative head, but got along beautifully with his logical enemy, the head of the regulating body that was supposed to ride herd on Wall Street. To further complicate things—and complete the irony—Haack and Budge didn't hit it off, for the curious reason, among others, that the Wall Streeter considered the S.E.C. head too far to the right and the S.E.C. head considered the Wall Streeter too far to the left.

One hesitates to imagine what Stock Exchange-government relations in the great crisis of 1970 would have been had Lasker been Stock Exchange chairman and had the Washington administration been Democratic. As things stood, Nixon had been right: Lasker was indeed the right man at the right time, from a Wall Street point of view—for the very reason that he had the ear and the confidence of the President, whose telegraphed assurance
to the Stock Exchange chairman would turn out to be its own proof. Lasker began drawing on his Washington connections on April 29—the day of the Cambodia invasion, and another day of steadily declining stock prices—when, at Lasker's suggestion and with Nixon's approval, he and a group of other Wall Street leaders met at the White House with a group of top government officials including Economic Advisers Council Chairman Paul McCracken. Each side reassured the other that everything was under control; but nevertheless, as Donald Regan, chairman of Merrill Lynch, reported later, “the tone of the meeting was dejected.” Still, it served to open a wire between Wall Street and Washington that would be crucially useful in the weeks to come.

In early May, matters on Wall Street went from bad to worse. On the third, Galbraith, one of whose well-known books is a study of the 1929 crash, came out with a newspaper article drawing a series of striking parallels between the current situation and that of 1929: excessive speculation, overly leveraged holding companies, inflated investment funds, funds that invested solely in other funds, and so on. On the fourth, the Dow suffered its greatest one-day drop in seven years and finished at 714. The following day, government took its first positive action when the Federal Reserve reduced the margin requirement on stock purchases from 80 percent cash down to 65 percent cash; but the tide was running too strongly now to be stemmed by a moderate relaxation of credit requirements, and on May 13 the Dow broke through 700, closing at 694. Trading volume was still relatively low. It was not a panic but a funk—“a kind of neurosis,” as George Shultz, then Nixon's Bureau of Management and Budget chief, said. Shultz did not add that the funk, or neurosis, seemed to have been brought about in good part by the actions of the Nixon administration in noneconomic fields. Cambodia and Kent State, on top of everything else, had stunned the nation. Nothing could be discerned ahead but more futile overseas war and domestic violence. The last thing people felt like doing was buying stocks.

The vast securities ant hills, and the immense credit spiderwebs,
were crumbling now, and with them the network builders themselves. The stock of Cornfeld's fast-collapsing I.O.S., which had managed in six months to send some $75 million down the drain with bad investments and ill-considered loans, had sold in the 20s late in 1969 and was now selling at 2; on May 8, in an acrimonious board meeting at Geneva, Cornfeld's fellow directors forced him to step down as their head. And on May 17, in Dallas, James Ling—whose Ling-Temco-Vought was suffering from a government antitrust suit and from debts so large that it could not even keep up the interest payments, as well as a stock price that had plummeted from a peak of 170 to around 16—quietly resigned as chairman and chief executive, under pressure from the company's creditors. Thus, in hardly more than a week, the king of the conglomerators and the king of the mutual-fund operators were both forced from their thrones.

3

Lasker, having decided that the time had come to play his ace, now sought a personal interview with Nixon, who, he felt, was simply neglecting the stock market and its consequences in his preoccupation with foreign affairs and inflation. On the afternoon of May 20, he was notified that the President would see him the following morning at eleven o'clock. Lasker stayed up most of the night making notes on what he would say, and made further notes en route to Washington on an early-morning plane. Arriving at the White House at eight-fifteen, he went to the office of the President's secretary, Rose Woods, where he spent more than an hour putting the finishing touches on his notes; then he crossed the street to the Executive Office Building, where he dropped in on his friend Vice President Agnew. In the course of this visit, he found himself listening to an urgent appeal for help from the Vice President's secretary, Mrs. Alice Fringer, who told him that she had tied up most of her
savings in a mutual fund only to see its price fall far below what she had paid. “Tell me what to do,” she pleaded. “I can't afford to lose the money.” Taken aback, Lasker gave no immediate answer.