The Go-Go Years (42 page)

“Soft like with Budge!” was Lasker's admonition to himself at the top of the first page of the five-page sheaf of notes that he carried with him into his meeting with Nixon. “Market break worst since 1929—no present sign of abating. Confidence is the big problem.” What followed in Lasker's notes was mostly economic analysis and specific suggestions for the President about wage and price controls, government borrowing policies, and the impact that another 1929-style crash would have on the whole economy. Upon at last being ushered into the President's office, Lasker, after greetings and family inquiries, opened his briefcase and brought out his sheaf of notes. “What have you got there?” Nixon asked. Lasker replied with Stock Exchange-style humor that he had brought his lunch, since he could no longer afford to eat in restaurants. He was rewarded with a broad Presidential smile. He went on to say that the country was “five minutes till midnight of another 1929,” and that Presidential action was urgently needed to avert such a catastrophe. Then it suddenly occurred to Lasker that he could best dramatize the seriousness of the situation by forgetting most of the facts and figures he had prepared and bringing things down to personalities. Accordingly, he threw aside his elaborate notes and repeated, with dramatic emphasis, what had passed between him and Agnew's secretary, concerning her worry about her mutual-fund investment.

“Tell her not to sell her shares,” Nixon said immediately.

“You
tell her, Mr. President,” Lasker shot back in his best top-sergeant tones.

Nixon seems to have got the message. What the two men decided on, as an immediate step, was the scheduling, with due fanfare, of a large White House dinner for top officials of government, Wall Street, and business, to be tailored specifically to show the nation that the government was indeed concerned about the stock-market situation and was prepared to do what
could be done to remedy it. (In March 1929, at the leading edge of that year's crash, Richard Whitney went to the White House to confer with President Hoover about the stock-market situation. A temporary improvement in investor confidence followed.)

Lasker went back to Wall Street the same day, well satisfied with his White House audience. That afternoon he talked with Billy Salomon, who, with his finger on the pulse of the bond market, reported that the Federal Reserve had that day abruptly started pumping money into the economy through purchases of government paper—the first fruit, Lasker was entitled to suppose, of the alarm that he had succeeded in implanting in Nixon. Plans for the White House dinner—still unannounced to the public—went forward. The stock market went on dropping; the clock was still ticking out on Lasker's five minutes. On May 22, the averages hit a new low since early 1963, and Merrill Lynch had to call for $11.5 million in new margin money from its customers who had bought stock partially on credit. The weekend break brought no surcease, and on Monday, May 25, the Dow dropped 20.81 points—the biggest one-day drop since the Kennedy assassination in 1963—to finish just above 640. Janeway had begun talking about a bottom of 500.

Midnight seemed to be at hand. Panic lurked in the wings. On Monday afternoon, after the market close, the brokerage and investment community learned of the planned White House dinner from an announcement carried on the Dow news tape. The dinner was to be held that Wednesday the twenty-seventh and was to be attended by sixty or more leading figures from business and finance. But the studied implication of Presidential concern for the fortunes of Wall Street had disappointingly little immediate effect. The next day, Tuesday, the Dow dropped nine more points, to 631. Then on Tuesday evening through television news reports, and on Wednesday morning through newspaper coverage and comment, the significance of the coming event seemed to sink in. In one of the great pre-prandial celebrations of American history, a cocktail hour of staggering economic importance, the Dow on Wednesday the
twenty-seventh leaped upward 32.04 points for the biggest one-day gain in Stock Exchange history.

The dinner itself, taking place when the announcement of it had already largely fulfilled its purpose, was something of an anticlimax, with certain overtones of farce. (No reporters were present, and no official report of the proceedings was ever issued; but we have, as evidence of what happened, the accounts of various participants, and in particular that of Donald Regan of Merrill Lynch, who took careful notes.) In the White House's State Dining Room the full panoply of government, business, and financial power was duly arrayed. From the government, besides the President, there were Arthur Burns, chairman of the Fed; Chairman McCracken of the Council of Economic Advisers; Secretary of the Treasury David Kennedy; Secretary of Commerce Maurice Stans; Attorney General John Mitchell; and such special Presidential aides as Peter Flanigan, Charles Colson, and William Safire. From business there were, among others, Chairmen James Roche of General Motors, H. I. Romnes of American Telephone, Harold Geneen of I.T.T., Donald MacNaughton of Prudential Insurance, and Robert Anderson of Atlantic Richfield. The Wall Street contingent included, besides Regan and Lasker, President Haack of the New York Stock Exchange and President Saul of the Amex, as well as the top bosses of a half-dozen of the leading brokerage firms.

Lobster cocktails, beef Wellington, Chateau Lafite-Rothschild 1962—what but a Rothschild wine on stock-market night at the White House? The proceedings that followed seem to have been solemn, portentous, and in some ways rather horrifying. The President spoke first. Referring to a huge map of Southeast Asia that had been set up behind him, he characterized the three-weeks-old Cambodian invasion as the best-executed American military coup since MacArthur's landings at Inchon in Korea in 1950. Why, the President wanted to know, did Wall Street look upon such a national triumph as an occasion for selling stocks? On the contrary, he said, it ought to be considered highly bullish. On the domestic front, he predicted resumed economic growth and a cooling of inflation in the second
half of the year. Lasker, speaking next, urgently insisted that a substantial stock recovery was dependent on three government actions: strict adherence to the announced plans for withdrawal of American troops from Cambodia, clear evidence that the Fed would support the price of government bonds, and further steps by the Fed to increase the money supply. Chairman Burns of the Fed, arising next, assured those present that his institution was fully aware of the magnitude and significance of the Wall Street crisis, and declared flatly, and most satisfactorily, that the Fed was prepared to fulfill its responsibilities as a lender of last resort. This, as it happened, was the only concrete reassurance of constructive economic action to be uttered by a government official all evening.

Following Burns's remarks, Nixon called for questions. There was a question as to how the President proposed to deal with the nation's young people and their campus revolts, to which the President replied, apparently to everyone's satisfaction, that junior faculty members at universities ought to show “more guts” in dealing with student protesters. According to Regan's account, “he added that he had not become President of the United States to witness the liquidation of all of our alliances and to see us lose our place of primacy in the hierarchy of nations.”

The dinner, to judge from the available accounts, was getting to be a kind of Mad Tea Party, various participants giving voice to their own preoccupations without regard to anyone else's, and none of those present touching more than remotely on reality as it was perceived by most of their fellow citizens outside the State Dining Room. And then came the bombshell. A guest named Isidore Cohen, who was entirely unknown to almost everybody present, arose with a “question” that swiftly evolved into a slashing ten-minute attack on the administration's policies—its vacillation on economic matters, the badness (as the speaker thought) of Dr. Burns's economic advice to the President, and, in Regan's words, “a large helping of recommendations in a wide range of fields.” As Cohen went on, heatedly and implacably, and it became clear that there was a cuckoo in
this nest of the business-financial-government complex, there was general consternation and dismay. Regan, who happened to be seated next to Cohen, kept trying to pull him from his feet by yanking at the tail of his coat, but in vain; Cohen remained stubbornly standing, and talking. When at last Cohen had finished his tirade and resumed his seat, the President coolly picked up where he had left off, almost as if nothing had happened; and a few minutes later the meeting broke up to general applause.

What had happened? Who was Izzy Cohen and what was he doing there? “What was he doing there?” Bunny Lasker asked later, with rhetorical indignation. “Why, he's a Democrat!” At least as much to the point, Cohen was by no means a businessman of comparable stature to the others present. In fact, he was a principal of Joseph Cohen and Sons, a men's clothing manufacturer based in New York and Philadelphia that had recently merged with Rapid-American, which the reader will recall as the conglomerate headed by the one-time Israeli Meshulam Riklis—who had not been favored by a Presidential invitation. Cohen was there, in a word, because someone involved in the planning of the dinner had blundered. We may be grateful to the anonymous blunderer, and to Cohen himself, for making the President's dinner into something both more human and more representative of the nation than anyone had intended.

History is full of ironies, and it is just barely possible that the United States was saved from “another 1929” by this White House non-event, which is comparable in many respects to Richard Whitney's celebrated staged bid for Steel at 205 at the height of the panic on Black Thursday. (“If that market had gone through 600, it might have gone through 400,” Lasker would insist later.) The reports of the dinner that circulated in Wall Street the next day emphasized Burns's reassurances rather than Cohen's contrariety, and the market rose. It bounded up 21 more points that day, and on the following day, a Friday, it climbed above 700. Early in June a fresh decline began, and threatened to turn into a rout when, on the twenty-first,
the supposedly unshakable Penn Central Railroad Company, suffering from management that in retrospect would appear to have been inept beyond belief, suddenly collapsed into bankruptcy. This time, something more economically palpable was at stake than general loss of confidence in the nation's policies. What was at stake was the survival of the “commercial paper market,” a revolving credit system among corporations in which they borrow money short-term and unsecured, usually from each other, and in which in June 1970 there was involved the vast sum of $40 billion. With the Penn Central's paper in default, the danger was that the unfortunate companies that had lent tens of millions to the Penn Central might themselves be unable to meet their obligations, and that other commercial-paper lenders might suddenly refuse to renew their loans, leading to a chain reaction ending in a classic national money panic and, of course, a stock-market collapse. But the Federal Reserve, this time, was on its toes; warned in advance of impending danger, it applied the classic remedy to the classic dilemma, opening wide its usually carefully restricted loan window and suspending the banks' usual interest-rate ceilings, thereby releasing a flood of money into the market and preventing the chain reaction from starting. Fast footwork by the often heavy-footed Fed kept the Penn Central failure an isolated tragedy instead of a national disaster; early in July, the Dow began a long, fairly steady rise that would carry it by the end of the year to above 840.

4

Having compared 1929 and 1970 as to sequence of events and attitudes toward events and found the similarities at least as striking as the differences, we will do well to compare the hard figures. From the September 1929 peak to the nadir of the Great Depression in the summer of 1932, the Dow industrial average
dropped from 381 to 36, or just over 90 percent. From the December 1968 peak to the May 1970 bottom, the same index dropped from 985 to 631, or about 36 percent. By that standard, a pistol shot as against a mortar barrage. But, as we have had occasion to note before, that standard really will not do; the Dow accurately reflected the 1929-1932 market when house painters and office girls were making their plunges in Dow stocks like General Motors and Standard Oil of New Jersey, and woefully failed to reflect the 1969-1970 market when similar plunges were far more likely to be made in Control Data or Ling-Temco-Vought. A financial consultant named Max Shapiro, writing in the January 1971 issue of
Dun's Review
, tried to construct a new yardstick more appropriate to the new situation. As a rough modern counterpart to what the Dow represented in the old days, Shapiro made a list of thirty leading glamour stocks of the nineteen sixties—ten leading conglomerates including Litton, Gulf and Western, and Ling-Temco-Vought, ten computer stocks including I.B.M., Leasco, and Sperry Rand, and ten technology stocks including Polaroid, Xerox, and Fairchild Camera. The average 1969-1970 decline of the ten conglomerates, Shapiro found, had been 86 percent; of the computer stocks, 80 percent; of the technology stocks, 77 percent. The average decline of all thirty stocks in this handmade neo-Dow had been 81 percent. Even allowing for the fact that the advantage of hindsight gave Shapiro the opportunity to choose for inclusion in his list particular stocks that would help prove his point, his analysis strongly suggests that, as measured by the performance of the stocks in which the novice investor was most likely to make his first plunges, the 1969-1970 crash was fully comparable to that of 1929.

And again, measured by the number of people affected and the gross sums of money they lost, 1969–1970 was strikingly
worse
than 1929-1932. In 1929 there were, at the most, four or five million Americans who owned stock; in 1970, by the New York Stock Exchange's own proud count, there were about 31 million. As to the sums of money lost, between September and November 1929 around $30 billion eroded from the paper value
of stocks listed on the New York Stock Exchange, and a few billion more from that of stocks traded elsewhere; the 1969-1970 loss, including issues listed on the two leading exchanges and those traded over-the-counter, totalled in excess of $300 billion, ten times the former amount.