wall street in the '70s and '80s--8/26/24

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Today's excerpt--from Triumph of the Yuppies by Tom McGrath. Wall Street went from the doldrums of the 1970s to a rush of new blood in the 1980s:

“Even as the American economy had boomed during the '50s and '60s, Wall Street had remained a traditional place. One summer morning in the 1950s, for instance, a young Goldman Sachs associate named John Whitehead (who'd go on to become cohead of the firm) arrived at the office proudly wearing a brand-new white-and-blue seersucker suit. Whitehead got on the elevator, and after him came Walter Sachs, one of the firm's senior partners and the grandson of the cofounder. ‘Good morning, young man. Do you work at Goldman Sachs?’ Sachs asked. 

“Whitehead stuck out his chest and said brightly, ‘Yes, sir, I do.’ ‘Well,’ said Sachs, ‘in that case go home now and change out of your pajamas.’

“It was a place, too, where networks and long-standing relationships mattered most. One person who'd seen how Wall Street operated, and who, by 1980, was watching it change, was Hardwick Simmons. Simmons—known as Wick—was the great-grandson of the cofounder of the investment banking firm Hayden Stone. He'd first gone to work in the financial world in the mid-'60s, when the culture wasn't vastly different from what his great-grandfather had known. ‘It was a real family business in those days—the whole New York Stock Exchange family,’ recalled Simmons, a graduate of Groton and Harvard and Harvard Business School (with a stint in the Marine Corps included). Twice a year most of the industry would get together—at the Greenbrier resort in the mountains of West Virginia in the spring, in Boca Raton every December—while in between people saw one another at the various lunch clubs on Wall Street. The closeness was in part out of necessity; most of the firms didn't have enough capital on their own to finance a really big deal, and so they regularly brought in other firms to help out with big underwritings. But the friendly atmosphere was also because there wasn't really any competition—the commissions the firms charged were standardized across the industry. Sure, a corporation could try to shop its business around among various investment banks, but why bother? The cost was always the same—the deal you got was the deal you got. 

“For the firms, all of this was lucrative. With the economy roaring for much of the '60s, people working on Wall Street—as analysts, as traders, as brokers—could do well. Even run-of-the-mill talents could make $40,000 or $50,000 per year in those days, while real hustlers could do even better. 

Street sign

“Then came the '70s, and everything went to hell. Over the course of five years—from late 1969 to late 1974—the market lost more than 20 percent of its value. There were a variety of reasons for the decline: The escalating cost of the war in Vietnam spooked investors, as did Richard Nixon's shift in US monetary policy, moving the country off the gold standard. Then came the Arab oil embargo and the energy crisis, which set inflation spiraling and plunged the country into recession. On Wall Street, things were grim. More than 150 investment firms merged or closed altogether, and many Wall Streeters who'd made nice livings in the '60s started looking for other lines of work, convinced that the good times were over for good. A fellow named Bagley Reid walked away and got into the landscape architecture business. An analyst named Gerald Supple quit and opened his own bike shop in suburban New Jersey. A young guy named Michael Phillips, who'd made and lost a bundle in the market, decided to try his luck in Hollywood. The first film he invested in, Steelyard Blues starring Jane Fonda and Donald Sutherland, had been a flop, but he did better on his next one. The Sting won the Academy Award for Best Picture, and Phillips, who put in $1,500, came away with between $3 million and $4 million. 

“Still, even as the Street struggled—the Dow essentially finished flat for the entire decade of the 1970s-below the surface things were starting to change; the old order was being shaken loose. In 1975, the Securities and Exchange Commission put an end to fixed commissions, forcing the Wall Street firms to start competing with one another in earnest. Trades started being done via computer, which sped up what had been a slow, manual process and greatly increased the number of daily transactions. And many of the firms reorganized, transforming themselves from chummy partnerships into corporations, which limited their liability if anything went wrong, while allowing them to raise money from outside investors. As Wick Simmons, who'd seen Hayden Stone go through a series of mergers in the 1970s, put it, ‘suddenly, other people's money came into the business, and the ability to take risks was huge.’

“All of it coincided with a rush of new blood. With transactions growing, Wall Street firms began hiring a new crop of young employees, including some of those tens of thousands of Baby Boomers emerging from MBA programs every year. Even more significantly, there were new leaders—men who didn't necessarily hail from the old-guard families, but who'd grown up in the swelling American middle class and gotten to the top thanks to their smarts and aggressiveness. Felix Rohatyn was turning the investment firm Lazard Freres into a powerhouse, mostly on the strength of the strategic advice he was able to give corporate CEOs. At other firms, leaders were starting to come not from the more genteel corporate finance side of the investment houses (the groups involved in underwriting new issues of stocks and bonds), but from the rougher, gruffer trading side of the organizations, which made money for clients and themselves through savvy swapping of securities. Sandy Weill at Shearson was one member of the new guard. John Gutfreund, a longtime trader who'd risen to the top at Salomon Brothers, was another.

“Of course, as much influence as those men were having on how Wall Street was run, their impact was nothing compared to that of a young Californian named Mike Milken.”

author:	Tom McGrath
title:	Triumph of the Yuppies: America, the Eighties, and the Creation of an Unequal Nation
publisher:	Grand Central Publishing
pages:	33-36