Old Wall Street’s Preserved Fish

What early New York financier’s name described pickled herring, finnan haddie and other storable seafood?

That was the question posed by WQXR’s Know-It-All New Yorker contest this week. Answer: Preserved Fish.

Born in 1766, Preserved (a Quaker name, properly pronounced “Pres-ser-ved”) left the farm to become cabin boy on a whaling ship. By age 21 he was a ship’s captain. By his 40’s, whale oil had made him rich enough to move to New York, where he and a cousin started a shipping company. Preserved helped found the New York Exchange Board (forerunner to The New York Stock Exchange) and in 1829 became president of the Tradesman's Bank of New York. 

More on Preserved Fish here.

Wealth Is Just Luck? Two Views

Wealth is just luck? Jim Gust questioned, reacting to a research study. Like most topics these days, the question has become politicized. Liberal Democrats think wealth is just a lottery ticket away; old-line Republicans say you have to work and sweat for it.  Jim leans toward the latter view.

Michael Lewis does not. In his frequently cited 2012 address to graduating Princetonians, the author insisted his wealth and success was luck all the way. At a dinner party he happened to run into people from Salomon Brothers. Salomon Brothers happened to put him to work flogging mortgage-backed securities. And he happened to realize he could write a best seller about grown men manufacturing derivatives.

All luck? Maybe, but his M.A. in economics and his extraordinary talent for turning financial intricacies into ripping good yarns didn't hurt.

Here's a more realistic view of the role of luck, heard on NPR the other day. Read or better yet listen to Sir James Dyson, inventor of the bagless vacuum cleaner.

When the interviewer asked if he believed in luck, Sir James mentioned hard work and perseverance before mentioning luck. Then he backtracked:

I do believe, though, that you create your own luck. Because luck is around. You know.  

I did long-distance running at school. And you only succeed by doing a huge amount of training and then having great stamina, understanding that other people are also feeling tired. So when you feel tired, you should accelerate. That's when you start winning.

I've learnt that with developing new technology, that when you feel like giving up is precisely the point everybody else gives up. So it's at that point that you must put in extra effort. And you do that, and then success is literally just around the corner. 

Whose view of luck do you favor? Michael Lewis? Sir James Dyson?

Before deciding, you should know that Sir James almost certainly has the larger yacht.

Yacht Nahlin, built in 1930 and restored by Sir James

Can Wall Street Be Saved From Itself?

Sitting around waiting rooms needn't be time wasted, it's a chance to catch up with last month's magazine articles. Did you miss this Time cover story, based on Rana Foroohar's Makers and Takers: The Rise of Finance and the Fall of American Business? Take a look. We may be hearing some of its themes repeated during the election campaign.

Even staunch believers in unfettered capitalism may nod in agreement with observations such as

An IPO—a mechanism that once meant raising capital to fund new investment—is likely today to mark not the beginning of a new company’s greatness, but the end of it. According to a Stanford University study, innovation tails off by 40% at tech companies after they go public, often because of Wall Street pressure to keep jacking up the stock price, even if it means curbing the entrepreneurial verve that made the company hot in the first place. 

Jodie Foster Takes On Wall Street's Money Monsters

What if  CNBC's Jim Cramer was good-looking – really good-looking, like  George Clooney?

What if a poor soul who lost big on a stock tip decided to blow Cramer to smithereens? On live TV?

For answers we'll have to check out "Money Monsters," starring Clooney and Julia Roberts and directed by Jody Foster. Jody deems the film major enough to entitle her, after 50 years in show biz, to a gold star. (Yes, 50 years. She started at age 3.)

When Wall Street Was Sitting Pretty

These days Wall Street creates fear and anxiety, as illustrated in The New Yorker cover mentioned here.

Fifty Septembers ago the magazine offered a much prettier picture. Wall Street in the vicinity of The New York Stock Exchange was a symphony of color, superimposed on financial headlines.

At the time the Dow Jones Industrial Average was flirting with 1,000, a lofty height unimaginable back in the Depression. Members of the Greatest Generation who started investing after WWII were doing very well indeed.

The New York Stock Exchange was still a big deal in 1965. To build new business for its member firms the Exchange ran a series of ads. Here's one.

The ad's advice is prudent. Investors should buy stocks only with money they won't need in the foreseeable future, define their goals, study the companies that interest them. And, of course, consult a registered representative at a member firm. 

Today we know The New Yorker cover painted too rosy a picture. The mid-1960's marked the crest of the great postwar investment boom. The Dow wouldn't flirt with 1,000 again until the '80s.

If that 1965 New Yorker cover marked the end of an investment era, might this year's cat-and-mouse cover also herald a turning point? Since the Dot.Com bust of 1999, stock prices have soared, plunged, soared and, lately, plunged again. Plenty of sound and fury, more than enough fear and anxiety, but little or no net progress.

Back in 1999, Warren Buffett forecast that investors might have to wait 17 years for the beginning of another great bull market. That is, until 2016. So cheer up! Maybe we have only one more year of fear and anxiety to go.

Will the Mouse of Wall Street Find More Cheese?

"The stock market is all about fear and anxiety, best shown in how a mouse reacts to a cat." So reasoned Dutch cartoonist Joost Swarte, creator of this week's New Yorker cover,"The Mouse of Wall Street."

Swarte's analysis was incomplete. A Facebook comment offers the necessary addition: "Fear, anxiety and greed."

Can the mouse still expect greed to be rewarded, despite the market correction? The New Yorker's James Surowiecki offers room for hope. Surowiecki points out that the economy looks better than the market. With obvious exceptions like Apple, China's woes shouldn't do significant harm to American companies.

Yale's Robert Shiller sees the mouse in peril. CAPE, the modified p/e ratio he helped to develop, continues to run dangerously high. 

It is entirely plausible that the shaking of investor complacency in recent days will, despite intermittent rebounds, take the market down significantly and within a year or two restore CAPE ratios to historical averages. This would put the S.&P. closer to 1,300 from around 1,900 on Wednesday, and the Dow at 11,000 from around 16,000. They could also fall further; the historical average is not a floor.

What do you think? Will the mouse find more cheese, or will the Dow collapse?

Elder Abuse for the Man Who Once Ran Salomon Brothers?

At 98, William Salomon still goes to the office provided him by Citigroup. (Sandy Weill acquired Salomon Brothers along with Travelers as he built his universal bank.)

With the office came a secretary who kept track of Mr. Salomon's appointments and paid his bills. Karen Febles is now accused of embezzling almost $2 million from her boss. Apparently the thefts began around 2008, the year that Salomon's wife of more than 70 years died.

Secretaries, it seems, aren't as faithful as they used to be. But then, Wall Street isn't what it used to be, as Mr. Salomon lamented in 1991:

“In my time, the customer was God and we would no more take advantage of him than we’d fly out the window."

Could Women Have Saved Lehman Brothers?

Picture a group of top-notch trust officers. Estimate how much they make in a year.  Compare your estimate with the annual fortunes – typically between $10 million and $20 million – received by the top 50 employees of Lehman Brothers before it collapsed. (The top 50 were subordinate to Lehman's corporate officers, whose presumably higher earnings went on public record.)

"The one thing which is most startling about this list," Felix Salmon observes, "is the number of women on it: exactly zero. One can’t help but suspect that the all-male culture at the upper reaches of Lehman was a corrosive and damaging thing, which in some way helped lead to the bank’s demise."

Woman are thought to be more prudent investors, on average, than men. Would a healthy infusion of female managing directors help Wall Street manage its greed?

If so, help may be on the way. Watch for alumnae of Westover School.

Wall Street in Winter – 1830s

Wall Street, N. Y. Public Library Digital Gallery

If you ever had to navigate around great mounds of snow in New York City, you can appreciate this i830s view, looking down Wall Street from Trinity Church. No mountains of snow. No snow plows. The snow was left in the street to provide a slippery surface for sleighs.

Sometimes simpler is better. (Say, is there an asset-allocation moral there?)

The Solution that Became the Problem

Why did this 1971 brokerage ad deal with such dull subjects as error-reduction and bookkeeping? Because all heck had broken loose at brokerage firms in the late 1960s. As "gunslinger" fund managers snapped up hot stocks at unprecedented rates, antiquated back offices collapsed under mountains of paper.

"Wall street in 1968," wrote John Brooks in The Go-Go Years,  "…cut its own throat through its complacency, greed, and lack of foresight."

Can't have been pretty in 1971, either. Some formerly hot stocks plunged 40 percent or more as the gunslingers ran for the exit.

Computers eventually solved the problem. A 20-million-share day may have shook Wall Street back then. Now a one-billion-share day is routine.

But the 20th-century solution has bred a 21st-century hazard. Wall Street finds itself under attack by program traders wielding metaphorical death rays rather than Colt revolvers. This week's 60 Minutes devoted a segment to How speed traders are changing Wall Street.

Most people don't know it, but the majority of the stock trades in the United States are no longer being made by human beings. They're being made by robot computers, capable of buying and selling thousands of different securities in the time it takes you to blink an eye.

 Should computers telling other computers to execute zillions of instant trades worry you? Yes, according to a current and a former senator. See Preventing the Next Flash Crash.

The marketing question is, does program trading worry investors? Do they feel threatened by the prospect of a major flash crash?

“Mortgage Modification” Leads to Tranche Warfare, then Court

Wall Street started moving to Greenwich and Stamford in Connecticut after 9/11. Staff had an easy commute from Grand Central; honchos got to live near their Greenwich megahomes. Recent arrival: Royal Bank of Scotland's massive new trading arena.

Reporter Teri Buhl has the good luck to cover the Greenwich and Stamford goings-on. Here she offers a close-up example of why the subprime mortgage mess is so difficult to clean up: Tranche warfare goes to court.

Stories such as this reinforce the notion that there are two types of people: Those who admit they don't understand derivatives and liars.

Bridge: “Wall Street in Miniature?”

Bear Stearns CEO Jimmy Cayne was a whizz at bridge. So was Bear-Stearns co-president Warren Spector. In The New Yorker, Malcolm Gladwell muses on how bridge may have contributed to their undoing.

It makes sense that there should be an affinity between bridge and the business of Wall Street. Bridge is a contest between teams, each of which competes over a “contract”—how many tricks they think they can win in a given hand. Winning requires knowledge of the cards, an accurate sense of probabilities, steely nerves, and the ability to assess an opponent’s psychology. Bridge is Wall Street in miniature, and the reason the light bulb went on when Greenberg looked at Cayne, and Cayne looked at Spector, is surely that they assumed that bridge skills could be transferred to the trading floor—that being good at the game version of Wall Street was a reasonable proxy for being good at the real-life version of Wall Street.

It isn’t, however. In bridge, there is such a thing as expertise unencumbered by bias. That’s because, as the psychologist Gideon Keren points out, bridge involves “related items with continuous feedback.” It has rules and boundaries and situations that repeat themselves and clear patterns that develop—and when a player makes a mistake of overconfidence he or she learns of the consequences of that mistake almost immediately. In other words, it’s a game. But running an investment bank is not, in this sense, a game: it is not a closed world with a limited set of possibilities. It is an open world where one day a calamity can happen that no one had dreamed could happen….

Nursery Rhyme for Bad Times

From the November 1929 issue of Trust Companies, the predecessor to Trusts and Estates:

Speaking of Business

The online archives of American Heritage, spanning half a century, are a welcome resource. Check out this collection of quotations regarding business and money compiled by Hugh Rawson and Margaret Miner.

They include this thought from Peter Cooper that wealth managers might share with their clients:

Cooper, whose many business accomplishments included building the first steam locomotive in America and introducing the Bessemer blast furnace in this country, is remembered best for founding the Cooper Union school in New York City. He used to say that his life fell into three parts: 30 years to get started, 30 years to gain a fortune, and 30 years to dispose of it wisely.

American Heritage magazine has had its share of near-death experiences but still attempts to limp along, at least online. See John Steele Gordon's new column, Wall Street’s 10 Most Notorious Rogues.

When Wall Street Really Was The Street

Figuratively speaking, mighty Wall Street is disappearing. Today Merrill Lynch moved another step closer to the history books with the resignation of its ex-CEO from BofA. A year ago, NYSE Euronext's acquisition of The American Stock Exchange removed another segment of Wall Street history – a reminder of the days when much of The Street's business was conducted…in the street.

Until 1953, the American Exchange was known as the Curb Exchange, and that's what most Wall Streeters continued to call it. To learn why, drop by the current exhibit at the Museum of American Finance. Or check out their slide show.

The kerbstone brokers didn't move indoors until 1921. This photo from the Library of Congress was probably taken shortly before the move.

"Portrait of a Wall Street Investment Banker" Sells for $17 Million

As Jim Gust reminded us recently, the contemporary art scene often seems a weird, unfunny joke: "Beanie babies for rich people."

Here's an exception – one of those rare cases when art and reality collide, producing an aesthetic statement of unintended significance and unexpected power. Damien Hirst's pickled shark just sold at a Sotheby's auction in London for some $17 million. Though Hirst originally gave his work a different title, it's real subject is obvious:

Wall Street Investment Banker as a Dead Shark

Wealth managers have the unenviable task of explaining how the financial economy jumped the now deceased shark. See Wall Street's Unraveling for Robert Samuelson's helpful summary. For this month's transition from mortgage-derivitives mess to credit-default-swaps disaster, see the WSJ's Worst Crisis Since '30s.