What Goes Up
The Uncensored History of
Modern Wall Street as Told by
The Bankers, Brokers, CEOs,
and Scoundrels Who
Made It Happen
Eric J. Weiner
(Little Brown)

Part II

The funny structure of What Goes Up might put people off at first. The quotes and interviews are broken into bits, and arranged chronologically into thirty chapters, including "The Go-Go Boys," "The Thundering Herd," "A License to Print Money," "Dawn of a Bull Market," and "The Technology Age."

What's surprising, at least to this reviewer, is that --- in most cases --- it works, and works well. Each chapter starts off with the editor's short summary that sets the stage. For instance, in "Killing the Golden Goose," we discover the sordid truth of the Reynolds Tobacco-Nabisco merger, or better, shotgun marriage. Then there is the subsequent attempt to void this disastrous union.

Weiner gives a brief, and goes right into interviews with RJR Nabisco president and chief executive officer E. Ross Johnson, pitting him against the scornful words of Henry Kravis, head of KKR (the leading LBO organization of the day).

Although the gossip and backbiting can get tedious, it tells exactly of a typical Wall Street inflammation of financial egos, a disease that damn near wrecks the companies (and lives) of several of the principals.

§     §     §

The best chapter in the book, by far, is titled "Black Monday," being a chronology of the week before and the days after Monday, October 20, 1987. On that day, the stock market was down 500 points on the Dow, an astounding drop for a single session, exceeding those of 1929.

As the story is carved out by the author, many of the characters come to tell of living with the second of what Adam Smith labeled the main ingredients of being an heavy investor in the market: Greed on the Upside, Fear on the Downside. Only in this case, Fear was transformed for many on the long side into Naked Terror. Including the fair-haired-wunderkind of the 1980s, Peter Lynch, manager of the Fidelity Magellan Fund.

Lynch happened to be in Ireland, on holiday --- and his fund, in one single trading day, went down in value by two billion. That's 2,000,000,000 rutabagas. What would you do if you woke up of a Tuesday to find that your baggage had been lightened by two billion?

But the drama of Black Monday revealed here, and the messages for the average investor, are:

1. These things come out of the blue;
2. The specialists who are supposed to "make the market" simply walk away from their telephones, letting the stocks go into free fall;
3. Terror becomes universal --- from the most sophisticated to the most innocent young novice.

There were three decisions from on high that may have saved us from another 1929. The first was one by the Board of Governors of the NYSE that the market would not be shut down; specialists could choose to close down trading in selected stocks from time to time, but the market as a whole would stay in session during business hours.

The second was the announcement from Alan Greenspan, brand new to his job at the Fed, that the government would assure complete liquidity to banks to cover any extraordinary demands to cover losses.

Finally, and much less well-advertised, there was an announcement from the Securities and Exchange Commission that all large corporations who wished to do so could implement, immediately, plans to buy back company stock. (SEC rules normally required an extensive and much-delayed filing for such moves; thus they violated one of their more important rules).

All this may have been what did the trick. Large corporations effectively merged with the United States government to cover the asses of large investors who, over the past three years, had played havoc with the stock market, using it as their own personal lake to troll for large, and often illegal, catches.

My own personal favorite quote out of the debacle was one that came from Michael Labranche, head of a NYSE specialist firm, who talked about the real fear, after Monday's close. Which was, what would happen on Tuesday?

It was not assuring:

By midmorning we were testing the low levels of the day before. It actually became worse than the day before because at one point before noon IBM had one million shares for sale and no bids. They just shut it down. That was like the bellwether stock. There were a bunch of other stocks that stopped trading, too. I remember thinking, "That's not good. That's really not good." It was just quiet. Silent.

The market did come back, surprisingly, and quickly. The last word, the one we might choose to trust, trust most of all, came from the mouth of Jerry Corrigan, then-President of the New York Fed:

Anybody who tells you that they know exactly why the market came back is full of prunes.

--- A. W. Allworthy