Having been given a few hours’ reprieve, the Cogan, Berlind people, who were to take over the merged firm, raced for the Teterboro Airport, chartered a Lear jet, flew to Oklahoma City, and sat up all night with Golsen. At dawn Golsen was still shaking his head. At 8 A.M. Rohaytn and Bunny Lasker got on the phone in a conference call. “They hit me with a whole trainload of social responsibility,” Golsen said. The government, said others, was aware of the situation. Golsen capitulated. At 9:55 A.M., five minutes before the liquidation would have been announced, the Dow Jones ticker flashed the news of the merger.

  But the duties of Rohaytn, Lasker and the other worriers were far from over. Two other great firms were taking on water fast: Francis I. du Pont, with 275,000 accounts, the third largest brokerage house in the United States, and Goodbody & Company, 225,000 accounts, also one of the largest in the country. It did not take an adding machine to figure that if they both went down, the exchange’s trust fund would be out of money and then some, and the whole run-on-the-bank script would be back in operation. Both of these accounts have been rendered elsewhere in the press. You could make a book out of all those adventures alone, or better yet, a successor to Mission: Impossible, with a cliff-hanger each week ending at the last commercial.

  It was not easy to get people to take over Wall Street firms that were losing millions of dollars a month. Remember the alternate uses of money: you could get 9.35 percent a year, every year, in that good old telephone bond, and never worry about another thing. But in a takeover you had to put up more than money. You had to have the expertise to take over and, if necessary, shut down branch offices; you had to take over and straighten out the tangled records and finances; in short, you had to take over and run a large and failing business. Who needed that? Obviously, only a major financial institution could do it. There had been pressure from mutual funds and insurance companies to join the exchange, but that pressure had been resisted by the existing members, the brokers, for fear it would hurt their own businesses. So the exchange had no institutional members. Only two or three brokers could take over someone as big as Goodbody. It was decided that Merrill Lynch—by far the biggest broker—should have the new acquisition. Merrill drove a hard-nosed bargain: the exchange community was to put up $30 million against losses incurred in straightening Goodbody out, and absolutely no other firm should fail or the deal was off.

  That left du Pont, and the du Ponts of Wilmington, Delaware, were in no mood to help. The candidate on the white horse was clear: it was a Texas billionaire called Ross Perot. Perot was not at all the traditional loud, cigarchomping, super right-wing, cartoon Texas oilman. His money was all in shares of Electronic Data Systems, or EDS, a computer software company. Perot was so straight and H. Alger-like that even stricken Wall Streeters could not believe it. As a boy, he had gotten up at 3:30 A.M. and ridden twenty miles on horseback to deliver the Texarkana Gazette to poor neighborhoods that no one else wanted to service. He was an honors graduate of the Naval Academy. His billion came from the high price at which EDS shares sold, but he said often that the day he became an Eagle Scout was more significant than the day he became a billionaire, and he gave several million to the Boy and Girl Scouts. He had joined IBM as a salesman and had met his yearly quota by the third week in January. He started EDS with $1,000, and was turned down eighty times before he made his first sale. Perot is five feet six, has a crew cut and wears straight ties. His night life is playing basketball with his wife and five children, or taking everybody out for a hamburger.

  Perot first came into the news because of his efforts to take Christmas packages to prisoners in North Vietnam; his chartered planes had gotten as far as Laos.

  The Nixon Administration knew both Wall Street and Perot. Attorney General John Mitchell was a partner in a law firm specializing in municipal bonds; Richard Nixon himself had been a senior partner of that firm. Peter Flanagan, a special assistant to the President, had been a partner in Eastman, Dillon. Mitchell had managed the 1968 campaign, to which Perot had been a contributor. Furthermore, Perot certainly knew Francis I. du Pont and Company, even if he did not know Wall Street; EDS had been hired to do the computer work for the firm, and in fact the firm accounted for 15 percent of EDS’s revenues.

  “John Mitchell was very helpful in getting Perot involved,” said an exchange governor. That whole story need not be recounted here. The cynics said that if EDS revenues were $50 million, and 15 percent of that came from the du Pont contract, then it should have been worth $100 million to keep that business alive, and anyway, maybe Perot wanted EDS to take over all the computer work for the stock exchange and a lot of other firms. The believers say Perot wanted to save Wall Street and the system that had been so nice to him. One friend of mine who knows him well says that Perot is “half Boy Scout and half horse trader, totally sincere at both, and very good at both.”

  Perot took over du Pont. First he put in $10 million; then he put in another $30 million; so far, he has had to put up about $50 million, but the place is still in business.

  Taking over Hayden, Stone had involved teams of people; taking over Goodbody had enlisted the biggest firm in Wall Street; the final role—and it is so extremely rare that this falls to one man—had fallen to a single individual, who said that if Wall Street had been impaired, “even temporarily, the consequences would have been dire, not only for industries, but for the cities, counties and school systems of the country.”

  It would be easy, said the current chairman of the Securities and Exchange Commission, to point out errors, omissions and failures in the last five years. “Firms and self-regulatory authorities were thrashing about,” wrote Mr. Casey, in his transmittal letter to Congress, “in all directions, fighting to avoid catastrophe. Time and time again they had to select the lesser evil. Decisions had to be made in a rapidly changing situation.”

  Maybe Congress could understand if it read War and Peace, said Mr. Casey, in what surely must be the only time the SEC has ever reported to Congress by quoting Tolstoy. There was Kutuzov, facing Napoleon before Moscow. And, said Casey, said Tolstoy:The commander-in-chief is always in the midst of a series of shifting events and so he never can at any moment consider the whole import of an event that is occurring. Moment by moment the event is imperceptibly shaping itself, and at every moment of this continuous, uninterrupted shaping of events, the commander-in-chief is in the midst of the most complex play of intrigues, worries, contingencies, authorities, projects, counsels, threats, and deceptions, and is continually obliged to reply to innumerable questions addressed to him, which constantly conflict with one another.

  An order (to retreat) must be given to (the adjutant) at once, that instant. And the order to retreat carries us past the turn to the Kaluga road. And after the adjutant comes the commissary-general asking where the stores are to be taken and the chief of the hospitals asks where the wounded are to go, and a courier from Petersburg brings a letter from the sovereign which does not admit of the possibility of abandoning Moscow, and the commander-in-chief’s rival, the man who is undermining him (and there are always not merely one but several such) presents a new project diametrically opposed to that of turning to the Kaluga road.

  Everybody knows what happened. Kutuzov survived. Wall Street survived. No other major firms went out of business. Congress, mindful of the 1,500 letters a month the SEC was getting, and of its own mail, passed the Securities Investor Protection Act of 1970, which created an agency that could borrow up to $1 billion from the U.S. Treasury, if necessary, to protect customers against losses if it became necessary to liquidate the firm in which their securities and cash balances were held. That took the pressure off the industry and off the New York Stock Exchange, and restored some public confidence.

  Securities in the “fail to deliver” class dropped from $4.1 billion at the end of 1968 to $1 billion at the end of 1971. The narrow-tie computer people were given new prestige, more money, and some partnerships, or the equivalents in corporate form.

  The piece of paper—the stock certificate—is still at the center of the transaction, and delivery is still made by gentlemen in Salvation Army overcoats. That is still troubling, but the mechanism of transaction, it is safe to say, has everyone’s attention. And, said the chairman of the SEC, “looking down the road a little” (not the Kaluga road, a metaphoric road), “the time will come when the execution of a trade will be electronically conveyed to a point where securities are transferred by electronic record with paper print-out and payment is made by similar electronic means.”

  The future of the New York Stock Exchange is not totally clear, but what is clear is that it will not be moving to Dubrovnik. The structure of the securities industry is going to be quite different, but that concerns the people in it more than the multitude of investors. The involvement of Congress in passing the Securities Investor Protection Act means a continuing involvement of Congress; the government rarely leaves any endeavor where it has created an additional staff.

  So. Bad things happened that need not and should not have happened; but catastrophic things did not happen—at least not catastrophic enough to send the whole business to Dubrovnik.

  The individual investor, it seems fairly safe to say, slept unaware of the liquidity crunch, and read in the papers about the problems of brokerage firms. All he knew was that his stocks were going down. But what of They, the big boys, the professionals? They with the research and the computers and the experience—was the hand steady at the helm? The gaze steely and cool? There are answers to these questions, because this is an industry that keeps score daily, unlike almost any other in the world. But statistics provide rather bloodless answers.

  Let us go back, just for a sense of atmosphere, to see how far we have come. For it was not so long ago that you could have panic in the Street—and that is a buying panic as well as a selling panic.

  III:

  The Pros

  1:

  NOSTALGIA TIME: THE GREAT BUYING PANIC

  JUST one term ago the President then incumbent said he did not choose to run. The response of the marketplace was unmitigated enthusiasm. The previous volume records had occurred in the great selling convulsions of 1929 and 1962. The I-do-not-choose-to-run speech triggered off a buying panic, and now there were new volume records.

  With all the brouhaha about Vietnam and the cities recently, a Wall Street panic seems like very small potatoes, almost irrelevant beside the cosmic problems. But panic there was, and very interesting to a handful of students of mass psychology. The panic is interesting because it is a reverse panic, therefore requiring a new line in the dictionary. The old line in the Random House Dictionary reads:pan-ic (pan’ik) n., adj., v. . . . 3. Finance, a sudden widespread fear concerning financial affairs leading to credit contraction and widespread sale of securities at depressed prices in an effort to acquire cash.

  That is the dictionary definition. All the rest about panics you can ask Granddad about. The roar on the Floor increases. The phone lines jam. The volume of all the shares traded breaks new records.

  Now you can see that we did indeed have a panic: sudden widespread fear and credit contraction. The difference in 1968 was that this time cash was sold at depressed prices to acquire stocks. The panic was so great that all the old 1929 volume records have gone out the window. The new 1968 records belong to the Great Buying Panic. It was, in general, a much happier panic, since it was only some of the professional money managers who bore the brunt of the malaise. Everybody else got to feel smart. The board-room watchers felt smart because the stocks they forgot to sell were going up. And downtown the brokers felt like absolute geniuses because they all met their 1975 profit projections eight years ahead of time, and any industry that far ahead of its projections must be populated by geniuses indeed. The President did not choose to run, and peace is bullish. Are the causal relationships that simple?

  I happened to be having breakfast on April 1, the morning the panic began, with Poor Grenville. This epithet is at least partly ironic. Poor Grenville runs a swinging fund, and with his tall, blond, Establishment looks, Poor Grenville is a Hickey-Freeman model or an ad for the Racquet Club, not poor. One of Poor Grenville’s great-grandmothers had a duck farm, and part of the duck farm is still kicking around in the family. There aren’t very many live ducks on it any more, since the duck farm ran roughly from Madison Avenue east, bounded by, say, 59th Street and 80th Street, but then you never know how much the descendants get their fingers on, what with estate taxes and trusts and all. Poor Grenville was suddenly called poor because he had just gotten nicely into cash—$25 million of it—in 1966, when the market turned around and ran away. If you are a true performance-fund manager, you should be 100 percent invested when the market is moving up.

  Now here it was only March of 1968, and Poor Grenville has just gotten himself back into cash—$42 million this time—and the President has just said he isn’t going to run and peace is in the air. Poor Grenville was very fidgety at breakfast because last year he had had to come up fast on the outside to stay in the performance-fund derby at all. Win, place and show in the derby means the salesmen can sell that record into hundreds of millions.

  “I think it’s a whole new ball game,” Poor Grenville said that morning. “I have to lose all my cash, right away.”

  So I stuck around after breakfast, just to see how Poor Grenville would spend $42 million. I asked Poor Grenville why he had sold so much in the preceding weeks.

  “I wasn’t that unhappy with some of the stocks,” Poor Grenville said. “But I didn’t like the international monetary situation. I thought Washington had lost control. I thought it would take high interest rates to get the balance of payments back in line. And Johnson—who could believe Johnson? Confidence is an important factor.”

  “And now the international monetary situation is okay, and you believe Johnson,” I said. “All from that one sentence last night, ‘I do not choose to run.’ ”

  “I don’t believe anything he says,” Poor Grenville said. “It’s probably some trick. The international money situation is still fouled up. So what, it’s still a new ball game. It doesn’t matter what’s true; what matters is what everybody else thinks. Every fund you and I know is about to come piling in. Let’s get on the phone.”

  So we got on the phone. Poor Grenville put in an order for 20,000 Burroughs at 170. That’s $3.4 million. Burroughs had been in Poor Grenville’s notebook to buy at 150, but this was a new ball game. Poor Grenville also tried for a block of Mohawk Data at 140, and bid for a block of Control Data. These were the stocks that helped Poor Grenville come up fast on the outside last year. The market opened and while we were waiting for the first $20 million to go to work we gossiped on the phone with some other managers around the country.

  “Oh, we might nibble a little this morning,” said one West Coast denizen coolly. He was so cool he had been in his office since 5 A.M. practicing his buying. “Actually, we bought a lot last week.”

  “I can see the history of this whole event shaping up,” I told Poor Grenville. “If the market goes up this week, it’s last week all the smart fellows will have bought.”

  “Nibble, hell,” Poor Grenville said. “I hear he is loaded with cash. I bet he’s in there bidding for my Burroughs.”

  Poor Grenville called the broker he had picked for the Burroughs. He was told Burroughs hadn’t opened yet. Nor had Control Data. Nor had Mohawk. Heavy buyers on the floor. No sellers. Temporarily, the great auction market had come to a halt. Poor Grenville began to nibble at a fingernail. He called the broker back again and raised the bid to 172.

  “That’s an awful big order for the floor on a day like today,” the broker said. “Have you tried the block houses?”

  Block houses are Wall Street firms who arrange large trades, blocks, like Poor Grenville’s 30,000 shares. We called two block houses. One of them thought he could get a nice block of 30,000 Burroughs for Grenville at 200. “Robbers, thieves,” said Grenville. “That’s one million dollars more than Friday. You think a million dollars grows on trees?”

  The first figures on the market came in. The volume was setting new records. The market was up $17.

  “Look at them all piling in, the greedy bastards,” Poor Grenville said.

  The Burroughs broker called back. Burroughs was trading at 184. It had opened on a large gap, which is to say it did not go up a neat point or two at a time, but simply started a whole fifteen points or so higher than it had last closed. “Idiots,” Poor Grenville said. “Do they think peace comes overnight? Don’t they know the Korean War went on for two years after the talks started? Okay, I’ll take it at one eighty-four.” The broker said he would call back, and in a few minutes he did.

  “How much did I get at one eighty-four?” Poor Grenville wanted to know.

  “You didn’t get any,” the broker said. “Burroughs is one eighty-nine.”

  “Madness,” Poor Grenville said. “See if you can get it at one eighty-eight.”

  Poor Grenville had researched Burroughs, had worried over when the computer operation would become profitable, had even tried out one of the new electric accounting machines. He had carefully considered what he wanted to pay for it. Now, in two hours he had raised his bid on the Burroughs from 150 to 170 to 172 to 184 to 188, and he still didn’t have any. He called the broker back.