USUALLY it is the customers who suffer more. That is the point of the very old story about the visitor being taken around the waterfront, and having the yachts pointed out—That is Morgan’s yacht, that is Gould’s yacht, and so on—and the customer says, “But where are the customers’ yachts?” The brokers make as much money selling for customers as buying for customers, the reasoning goes, so it doesn’t matter.

  That was not always the case this time. The customers could get busted right to zero, but some of the brokers managed to make it well below zero.

  The two incidents I felt most personally among the casualty lists did not involve brokers; I just don’t know many brokers. Of the broker’s misfortunes in a moment.

  One summer night I had a drink with a gentleman who was on his way back to Texas, from which place he had sprung with a reputation for open-handed daring. For a brief period he was well known, and he had been in one of our seminars, a happy new millionaire. Now the hedge fund he was running seemed to have evaporated, and rather than hang around New York he decided he had better get his toes back in the good ol’ Texas dirt and see if he could find himself again. We talked about some of the things that had gone on, and he looked at his watch. He said he’d better be off to the bus terminal. The bus terminal? I have nothing against buses, but that is a long bus trip, and I offered to lend him $41.05, the difference between the air coach fare and the bus fare. He turned it down. “I don’t know when I could pay it back,” he said. “Anyway, it’s a good way to see the country.”

  Shortly afterward, I got a call from another gentleman I had met once but did not know. Could he speak to me confidentially? He could. Had I heard what happened to his firm? I gathered it was busted. It was, he said, and so was he, and he was selling his wine cellar. He knew I was interested in wines, so naturally he thought of me.

  A wine collection can be just as valuable an asset as a stamp collection or a spoon collection or what-have-you. Somebody who has paid attention to his wines not only has vintages that have appreciated, but has those that can’t be found anywhere on the open market. They have all been bought and many of them have been drunk, so they are unobtainable at any price. I listened intently, pencil in hand. I expected him to say he had, say, three cases of that, a prize case of something else.

  “I have four bottles of La Tâche 1962,” he said.

  “Four cases of La Tâche,” I repeated. “Very good. What do you want for those?”

  “Not four cases,” he said. “Four bottles. I want thirty dollars a bottle. Well worth it.”

  “Go on,” I said.

  “I have three bottles of Chambertin-Clos de Bèze 1964.” I began to get very depressed.

  “Tell me the cases,” I said.

  “I don’t actually have cases,” he said. “Of course, I could put twelve bottles into the same box and make up a mixed case.”

  He read me the rest of the list. All excellent wines, obviously picked with great care over several years. But they were individual bottles.

  “Listen,” I said, “that’s a very nice collection. But even pricing it generously, your whole cellar is only worth about six hundred.”

  “Make it six-fifty and it’s yours,” he said.

  “You just can’t be that broke,” I said. “In Texas a man can only be busted down to his house and his horse. There must be something in some statute in this part of the country that says a man can only be busted down to his last twenty bottles.”

  “I owe the money,” he said. “Do you want it or not? I may have other buyers.”

  “If I was ever busted down to my last six-fifty,” I said, “and they came for my wines, the day before I would go down in the cellar and pull the corks and have a festival they would talk about for fifty years.”

  In fact, I proposed just that: I would bring a large Brie, some splendid French bread and a corkscrew, and we would invite a convivial group, charge admission at the door, and do justice to the last remaining assets.

  That idea didn’t sell. A buyer came along who bid up—$730, I believe—and the wine collector watched his bottles depart one by one.

  “What do you do all day?”

  I asked this of Dan, who had run both institutional accounts and an in-house fund at a leading institutional brokerage house. Dan’s background was impeccable: Princeton and the Harvard Business School. He had been at the firm about seven years, and as of the Big Bear, was in his late thirties. His portfolios had been volatile, to say the least; some of them had performed quite spectacularly earlier in the decade, but he had paid the price for the volatility in more recent markets. His personal account showed the streak of a true gambler: stocks were rarely leveraged enough (that is, the profits didn’t move fast enough unless he borrowed and bought more); usually he was into calls and sometimes into commodities. While he was a partner, or stockholder, in the firm, it was decided—“mutually,” he said—that they should part company.

  “It was very pleasant at first,” he said. “The only time I’d ever had off from working was vacations, timed to benefit the kids, and so on. Now I picked them up at school every day and helped with the marketing. I decided that with Wall Street in a convulsion and contraction this was no time to go looking for another job. I read the New York Times every day. I mean I read it. I used to spend ten minutes with the papers. I found I could spend three hours with the Times alone. I didn’t tell very many people I’d left—I didn’t think that would help.

  “Then it was summer and I went to the park with the kids every day. Summer is vacation time, and people don’t know whether your vacation is in June, July, or August. So they just assumed I was on vacation.

  “I went to one or two job interviews, but it was plain that going to work at that moment would not be advantageous. I never knew whether I would have gotten those jobs, but I think I would have had a good chance. But they wanted me to relocate—one to Hartford, one to Toronto. I wasn’t ready to do that. Furthermore, I began to ask myself what I wanted to do for the rest of my life. Maybe I’d had enough of the financial world. Maybe I’d go into government.

  “Fall was a bit rougher. The kids went back to school, and obviously I couldn’t go sit in the park anymore. I went on a couple more interviews that didn’t promise much.”

  I asked Dan what he was living on at the time. He said he gradually sold off some of his stocks, and he had sold the stock of the firm in which he had worked. He made a few turns in the market. I asked Dan’s wife how she liked having him around all the time.

  “At first I liked it a lot,” she said, “and even on balance I liked it. If your husband has been working long hours in an absorbing job, with some travel, it’s nice to have him around for lunch and to help with the marketing and to get to know his children. But he did get discouraged from time to time, and then I really had to be careful with him. He could have real flashes of depression and anger. Don’t ever cross him on the New York Times, by the way. He knows everything in that paper.”

  Eventually, which is to say about sixteen months after he and his job had parted company, Dan became a financial consultant to a governmental agency. He had decided not to go back to Wall Street.

  “That whole place,” he said, “is just devoted to making a lot of money. And I wanted to make more than anybody, really to pile it up. You don’t need all that much. What was all that about, anyway?”

  It was, as I said, some of the brokers who managed to make it well below zero. The only way their customers could have gone more broke than that would have been to borrow more than was legally available. The principle was very simple. A gentleman would go to work for a firm and, his eye on the golden apple, strive for years to become a partner. He would work late, take out-of-towners to the hockey games, land accounts, put a syndicate together, or whatever one had to do to become a partner in his particular area. Then one day the partners would come to him and say, Rodney, you’ve made it, you can have fresh orange juice on a silver tray at eleven every morning.

  There would be some legal mechanics. If the firm was worth $10 million and they had decided to make Rodney a 1 percent partner, then he would be expected to put up $100,000. He could then start earning a very handsome share of the partnership. Of course, if he didn’t have the $100,000, the partnership would lend it to him. Sort of a fringe benefit.

  In the recent unpleasantness, firms that got into serious trouble often asked their partners to put up more money. Or various other lenders were called in, and their money would have to be repaid before the partners had a partnership. If the whole effort failed, the firm might be merged away on very unfavorable terms, such as $1.50 per desk, 75¢ per chair, and zip for the partners. The trouble is, that $100,000 loan would still be listed as a personal liability for Rodney. In the old days, he would have gone to debtors’ prison or to Australia.

  One unlucky gentleman to whom I was introduced had worked for years at a distinguished firm. But his efforts were not rewarded with that golden apple of partnership, and he got another offer, this time a partnership at Goodbody & Company. Goodbody quite happily loaned him the partnership money, and for a year or two he reaped the handsome rewards that Wall Street partners reap. Then, as we have seen, Goodbody got deeper and deeper into trouble, and finally, with numerous midwives and witch doctors attending, Goodbody got merged into Merrill Lynch at $1.50 per desk, and let us say quickly that everybody breathed very hard on Merrill to do it since Goodbody was so large there was practically no one else that could swallow them. Our gentleman found himself without a job—he did get another one—but along with him went that loan he had signed. “My life is very simple,” he said. “I am fifty-four years old, I have three children in school and college, I have a job, no assets, and I owe five hundred and forty-five thousand dollars.”

  The way this works can be illustrated with the story of a man we shall call Phil. Phil was in research, and at forty-five, he was making $75,000 a year at one of the leading retail brokerage firms. Phil did well and they offered him a partnership. To buy the partnership, Phil put up $6,000—Phil did not come from a moneyed family—and the firm loaned him $30,000. The firm at that time had a capital account of $4 million. The only problem was that the liabilities of the firm seemed to increase geometrically. The figures showed that the partnership was deeper and deeper in the red, and so was Phil.

  “I had an East Side apartment and three kids in school, boarding school,” Phil said. “In February or March of 1970 the senior controller showed me the real figures, which even the senior partners weren’t up on. In fact, as the firm started to go, we began to get monthly financial statements that broke down the loss per partner and said at the bottom, Please remit, or something like that.”

  Phil tried to get out of his contract. “You couldn’t get a lawyer on Wall Street in those days,” he said. “They were all afraid of retribution. I finally got a kid I knew on the Harvard Law Review—not even a lawyer—but there was nothing I could do. I owed the firm three hundred and fifty thousand dollars. It was just too ridiculous to think about. I mean I thought about it, I still think about it; I couldn’t pay them a thousand, much less three hundred and fifty thousand.”

  The firm went busted—it was reorganized, let us say—and Phil found himself on the sidewalk for the first time in his life.

  “You go through various psychological things when you’ve been laid off. You begin to doubt your ability. All sorts of things. Even at that, I was luckier than some. There was one partner who had inherited his money. He had put up all the money as a subordinated lender to the firm, and he had made a handsome return out of it, playing golf with the president. He lived in a big house, owned chauffeured limousines, had never thought about money a day in his life. His wife is sixty-two years old and she just went to work. How can a man like that start wearing Thom McAn shoes?

  “I job hunted for a while. My bank account was down to eighty dollars, my wife divorced me—she was going to do that anyway—and I started on marrying my second wife. Then I broke my hip moving furniture for her. It was really pretty depressing. It’s not that your friends desert you, it’s that they don’t know what to do with you. When you’re back, they call, but while you’re out, they don’t call, and you don’t call them because you don’t want to put them in an awkward position. There was one job I really wanted, and when I was turned down, it really toppled me. I think the guy who interviewed me was really interested. Then he asked the opinion of a senior man and the senior man said, Nah, he’s a has-been. Or maybe he said shopworn. Even now, when I hear the expression ‘has-been’ or ‘shopworn,’ I cringe.”

  Phil got a job with another firm, I would think somewhere in the $15,000 to $20,000 range. He still has his $350,000 debt, but he doesn’t think about it quite so much anymore. “I’ll tell you one thing,” he said. “It’s like having to pay a percentage of your income as alimony. It cuts down on your ambitions.”

  The Great Winfield is on the casualty list even though he retired with a considerable fortune. Winfield went to Wall Street in cowboy boots and jeans, had his own firm, and made a reputation as a tape-trader, which is to say he watched stock symbols dancing across the screen, bought those that danced well, sold those that did not dance well, and so on. He also sometimes promoted companies of dubious virtue, and once he got me involved in a cocoa scheme that I reported on some years ago.

  I thought Winfield should be on the casualty list because without his firm and his audience he no longer had quite the same aura, and because I sent him an account which went down 90 percent, a notable score even for those years. Winfield had gone all the way up in Leasco, but his accounts also went from 67 to 11 in that stock, and then he found a company in Brooklyn that rebuilt old air conditioners. Somehow it got rechristened Atmospheric and Pollution Controls—did it not, after all, cleanse the atmosphere and control pollution, roomwise?—but the stock went from 26 to 6. Many years ago, Winfield had bought a ranch in Aspen, Colorado, because he liked to ski and he liked the West, and now the ranch’s borders were sprinkled with condominia—just his luck. He had a hot hand in good years, but it was gone, and according to him, so was the business.

  “It was a great business for a while, but it’s over. Over, over. The government, the SEC, they’ve ruined it. There won’t even be any more characters like me.”

  In his heyday, the Great Winfield was noted for his bubbly confidence. “This is a stock,” he would say, “that is going from ten to two hundred.” Solitron Devices had done just that; the new one would be backed with the same conviction. In the Great Winfield’s philosophy, what one should do in the market was to find a Kid with a Hot Hand, one who really needed to win, and let him find the stocks that would go up ten times in a year. That was what he liked: ten times in a year.

  I saw the Great Winfield once after he had left his firm. He was now, at forty-seven, a graduate student in art history at Columbia. He had a Pan American stewardess—he was always partial to Pan American. I picked up the list on his desk.

  Columbia Gas

  Virginia Electric Power

  Texas Utilities

  Southern California Edison

  Southern Company

  American Electric Power

  South Carolina Electric and Gas

  “What the hell is this?” I said. “Utilities?”

  “That’s my portfolio,” he said.

  “The Great Winfield in utilities?”

  “Don’t laugh. That portfolio is going to double in only twenty years. Maybe fifteen. Riskless. A sure thing.”

  “You used to have stock that doubled in a week.”

  “Things change, m’boy, things change. We have to recognize them when they do.”

  On a trip, I stopped by the office of Irwin the Professor, the master architect of computer-based technical analysis. Irwin’s professing included computer applications, management sciences and some advanced mathematics, but he spent more time with his own companies than he did with his students. Irwin’s companies have names in their titles like “computer,” “decision,” “application,” “technology,” and so on, and he works in a new office building about three blocks from the university. Irwin’s computers monitored stocks: the price, the volume, the percentage move. Then they determined the stock’s Behavior Pattern. Once the computer knew the stock’s Behavior Pattern, it knew when to buy and sell—the ultimate in technical analysis and charting.

  Irwin’s computer had certain anthropomorphic qualities.

  “When we first put the computer on the air,” he said, “we asked it what it wanted to buy and we couldn’t wait to see what it reached for. It said, ‘Treasury bills. Cash.’ We couldn’t get it to buy anything. So we checked out the program again, and while we were checking it out, the market went down. Then we asked it again. The computer insisted on staying in cash. We begged it to buy something. ‘There must be one stock somewhere that’s a buy,’ we said. You see, even computer people are victims of these old atavistic instincts from the pre-computer days. The computer just folded its arms. It wouldn’t buy anything. Then, just when we were worried that it never would buy anything, right at the bottom it stepped in and started buying. The market started going up, and the computer kept on buying. Then one day it came and asked us for margin. It wanted to keep buying. So we gave it some margin. After the market went up some more, it sold out a bit and came back to being fully invested.”

  A brokerage firm had signed up Irwin’s computer and was selling the service to customers. On my trip, I asked Irwin how the computer portfolio had done. Irwin said it had gone down 30 percent in the bear market, and that the broker had canceled the service. Another casualty. I asked what had gone wrong with the computer.

  “Nothing,” Irwin said. “Nothing was wrong with the computer. It was the people we had tending it. They kept interfering. They made interim judgments. They couldn’t leave the program alone. It’s people that are the problem. The computer couldn’t have lost thirty percent by itself. The computer was fine.”