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Wall Street: Men and Money
Every now and then I peruse a book by the author Martin Mayer titled “Wall Street: Men and Money,” that Mr. Mayer, still going strong today, wrote way back in 1955.
Following are some remarks Mayer makes on the topic of “how well Wall Street works, how well it serves the national interest.” 54 years later are there any comparisons to today? Lessons? You decide.
Wall Street works more efficiently than ever before, and more responsibly. Over the last twenty years the financial market has changed from a roughhouse guessing game to a profession. Its leaders, by and large, are no longer the rich and the lucky, but the imaginative, the experienced and the scrupulous. There are standards now, standards of excellence and ethics, where once there was honor among thieves. The problems that arise within the Street are solved quickly and intelligently; ability is recognized; incompetence and corner-cutting are punished.
This is within the Street, inside a professional world that knows a man by his actions rather than his background. To the outside, however, the Street even today too often presents its old face of class pride, the pride that props up the Street’s ugliest habit: its insistence that the ordinary man is incapable of handling his own money.
History as well as prejudice lies behind this general distrust of the public intelligence: Wall Street has seen generation after generation of otherwise capable middle-class people throw away their savings in the market through avarice, ignorance or laziness. But finance is a public business, dependent for its very existence on public participation and understanding. The premise of public incompetence leads finally to attitudes of either timidity or arrogance, both equally damaging.
Timidity is in the argument that the public should be discouraged from any participation in finance. “Money,” said an underwriter recently, “is always money. You have to work to earn it, and you need skills. Not many people can handle two professions at once, and the man who earns his money as a doctor doesn’t have the time or the training to earn money as an investor. He can’t buy advice – bad advice is so cheap he gets it for nothing, and all the good advice is reserved for people like me and my brother-in-law. Even the good advice isn’t worth very much: as the old saw says, ‘Inside information and a long pocketbook have ruined many a man.’ So the ordinary man who comes down to Wall Street to invest is actually gambling with the family savings, because he has no way of knowing what he’s doing, he’s just counting on his luck. Don’t tell me about mutual funds. I know about mutual funds.
“Personally,” he goes on, warming to the thought, “I’d rather we had a wholly professional market, so we didn’t have to worry about what Walter Winchell would say next Sunday on television. We have a job to do down here, and it’s not an easy job at best, and the government makes it harder every year. Sure, a lot of people live on public interest, and a lot more live off the public’s mistakes. But except for the fact that some of my friends would lose their jobs, I’d see no reason to grieve over the bankruptcy of three-quarters of the member firms of the New York Stock Exchange. The public would be better off, because it would hold onto its money; and American business would be better off, because we could do our job more efficiently without this haze of alternating panic and enthusiasm. You can’t stop people from playing the market, and you shouldn’t try to stop them; but for the love of God let’s not encourage them.”
This is not a new attitude: it has been for fifty years the accepted philosophy of the Street’s most responsible, most conservative men. Appalled by the daily mistakes of their own highly trained subordinates, they see no hope for the untrained public. They would say, moreover, that they are not denying to the public the rewards of capitalism: “Everybody earns money on his savings, and through the financial market, too. Your doctor friend can put his money in the savings bank, or in life insurance, and the bank or the insurance company will invest it for him. Sure, they’re very conservative and take big fees out of the earnings. But they guarantee the safety of his money, and pay him a small income on his savings, and that’s a far better result than he’s likely to achieve if he goes into the market by himself.”
But the end result of this intelligent, timid attitude is that people who work outside the financial market earn 2 or 3 percent a year on their money, people who work the Street earn 6, 8, even 10 percent. Staying out of the market is not the prudent solution: a man loses money by not investing his savings just as surely as if he had invested them in a bad stock. If the stock market today is too risky for public safety (which may be true), then it is the excessive risk which must be eliminated, not the public. Timidity would bar the gates; arrogance, less responsible, tries to hustle the public thoughtlessly inside: “If you don’t know what stocks you’d like to buy, your broker will be glad to advise you.” Starting with the attitude that they know best what should be done with the public’s money, semi-professional publicists print and distribute every year millions of pages of misunderstood oversimplification. Finance, they say, is not complicated at all; we can tell you how it works in four short paragraphs, written by our advertising agency. Now, all you have to do is drop the enclosed postcard to your stockbroker, and he will invest your money for you….
But investing is like marrying: each man has his own plans and resources, and must make his own choice. An investor needs help in understanding long-run prospects, and the factors that influence them; brokers live on the day-to-day fluctuations of the market, and have no foundation from which to judge long-term trends. The broker knows when to switch; the customer must know what to buy.
Some of the knowledge that an investor needs comes from the better brokerage house research departments; some is cast his way by the professional public relations people of Wall Street….These men work mostly within the financial community, supplying information to people who need it. When they go out among the public they talk seriously about serious subjects – securities as a way to make money with money, banking as a service industry.
Wall Street needs more like them, and more and better research departments. The Street cannot survive as an active or useful market if intelligent, middle-class people continue to hand over all their savings to banks and trust departments, life insurance companies and mutual funds. In the final reckoning the Street lives by selling imagination, a commodity that cannot ordinarily be sold to the dead-white brains of institutional investors. Insurance companies must buy high-grade bonds, they have no choice in the matter; and Wall Street can scarcely expect to be well paid or much loved for marketing Aaa debt securities to Aaa institutions. Corporations can do such work themselves, and will.
What will save finance as a profession is individual customers who can ask the right questions and measure risks, but warm to the flame of imagination. To win such customers Wall Street need merely mind its own business, quite literally. When the Street speaks of home and mother and the American Way of Life there arises a smell of stale candy; when the Street speaks of money, it speaks with authority.
The 1950’s are a new period in time: Puritanism and class guilt have both gone out of fashion. Young men are no longer reluctant to come down to Wall Street and work with stocks and bonds; people in general are no longer ashamed of making money with money. Money has, at long last, become respectable.
That was the actual conclusion of Mr. Mayer’s book, by the way.