The third parallel between present and past, which will be vividly and also
painfully revealed, concerns one of the great constants of capitalism. That is
its tendency to single out for the most ostentatious punishment those on whom
it once seemed to lavish its greatest gifts.
In the years before the 1929 crash the system accorded fortune and prestige to
a greatly featured croup of men—to Arthur W. Cutten, M. J. Meehan, Bernard E.
("Sell'em Ben") Smith, and Harry
F. Sinclair, all market operators of major distinction; also to Charles E.
Mitchell, the head of the National City Bank as it then was, and Albert Wiggin,
the head of the Chase National Bank, both deeply involved in the market on
their own behalf; to Ivar Kreuger, the Match King, international financier (and
sometime forger of government bonds); and to Richard Whitney, soon to become
president of the New York Stock Exchange and its most uncompromising public
All suffered a fearful fall after the crash. Called before a congressional
committee, Cutten, Meehan, and Sinclair all had grave lapses of memory.
Mitchell and Wiggin, the great bankers, were both sacked; Mitchell went through
long and tedious proceedings for alleged income-tax
evasion, and the large pension Wiggin had thoughtfully arranged for himself was
revoked. Ivar Kreuger went out one day in Paris, bought a gun, and shot
himself. Harry Sinclair eventually went to jail, and so, for embezzlement, did
Richard Whitney. Whitney's passage into Sing Sing, in dignified, dark-vested
attire, wearing, it has been said, the Porcellian pig of his Harvard club, was
one of the more widely circulated news portraits of the time.
The young professionals now engaged in much-admired and no less publicized trading,
merger takeover, buy-back, and other deals, as they are called, will one day,
we can be sadly sure, suffer
a broadly similar fate. Some will go to jail; some are already on the way, for
vending, buying, and using inside information. Given the exceptionally oblique
line between legitimate and much-praised financial knowledge and wrongfully
obtained and much-condemned
inside information, more are known to be at risk. But for most the more mundane
prospect is unemployment and professional obloquy, and for some, personal
insolvency. Expensive apartments will become available on the upper East Side
of Manhattan; there will be property transfers in the Hamptons. David Stockman,
said by the press to have a car sent out for him to Connecticut each morning by
his employer, may end up taking the train.
S. C. Gwynne, a young onetime banker, tells in his excellent book Selling
Money of his services in the late seventies and early eighties to the
international division of Cleveland Trust, now AmeriTrust, a relatively
conservative player on the world scene. He journeyed from Manila to Algiers and
Riyadh in search of loans. It was a time of admiring reference to the recycling
of funds on deposit from the OPEC countries to the capital-hungry
lands. And he tells us that
by December 31, 1982, more than $200 million in loans would be in trouble in Mexico, Brazil, Venezuela, Poland, and the Philippines.... By 1984, thirteen of the seventeen officers who had staffed the [international] division in 1980 would be gone, and Ben Bailey, [the] deputy manager, and most of the members of the senior credit committee that approved the foreign loans would take early retirements.
The end for those in the present play will come when either recession or a tight-
money crunch to arrest inflation makes the debt load they have so confidently created
no longer tolerable. Then there will be threats of default and bankruptcy, a
drastic contraction in operations, no bonuses, a trimming of pay and payrolls,
and numerous very, very early retirements. And from many who did not themselves
foresee the result, there will be a heavy-handed condemnation of the failure to
see that this would be the result. For those who
engage in trading operations at the investment houses the day of reckoning
could be when the market goes down seemingly without limit. Then will be
rediscovered the oldest rule of Wall Street: financial genius is before the