Carnival Barker: Step right up, Ladies and Gentlemen! Watch in amazement as the darkest secrets of American Finance are revealed. Behold the cast of characters, from the lowly dialer to the account opener to the retail broker—commission men all on the Street of Dreams. Be forewarned: you are about to partake of sights so horrifying, so monstrous, I urge any of you who are easily frightened or who experience nightmares, look away! Those of you with weak hearts or nervous disorders, for God’s sake, put this book down and run screaming in the opposite direction!
In the future, the latter half of the twentieth-century might very well be looked upon as the Golden Age of Finance. Sandwiched around the 1970s malaise were two of the most fantastic bull markets the world has ever seen. The first, the post–World War II expansion, ran for two decades, ending in 1966. It included the rebuilding of war-torn Europe and the reconstruction of Japan. It also saw the massive build-out of suburban America, with its interstate highway system and modern car culture. But it wasn’t just the private sector that boomed; while suburbanites were busy keeping up with the Joneses, the space race had the military complex busy keeping up with the Khrushchevs. Mind you, these are not socio-economic criticisms. They are merely reminders of the investing themes of an era that helped to create trillions of dollars in wealth.
Following an inconvenient bear market, the next bull was even more glorious. The technology sector boomed, and with it, markets saw wild growth in the stocks of cellular, software, semiconductors, storage, Internet, telecom, networking, and new media companies. So what if it all ended disastrously? There was a financial party to be had while it lasted.
And, oh, what a party it was: America was booming in the second half of the twentieth-century. As she grew, so too did her finance sector. In 1960, U.S. manufacturing profits totaled four times the size of finance profits. By 1980, earnings from manufacturing were merely twice the size of finance’s. But finance slowly closed the gap, and by 1995 its profits were greater than those of the manufacturing sector. By 2005, the finance sector had swelled to 20.6 percent of U.S. GDP versus a mere 12 percent for manufacturing, according to Kevin Phillips, author of Bad Money.
America had become thoroughly “financialized.” Formerly operating in the service of industrial economy, the financial services sector now was the U.S. economy. The tail no longer wagged the dog—it had taken over the entire wolf pack.
All of this financial paper didn’t sell itself; it took fast-talking salesmen to jam $45 trillion in bonds and $25 trillion in stocks down America’s throat. How that was done is what this book is about. It is unlike any other you may have read before. Countless tomes have looked at Masters of the Universe, the Big Swinging Dicks of Wall Street. This writing is not about them. Rather, it tells the story about lunch-pail guys—the average finance professionals, the stockbrokers, whose spiels sold America on a vision of high finance and fast money. These men and women worked the capital market trenches, slinging bullsh*t to get America to invest in herself—and pocket some commissions along the way.
The work before you is really two books in one. It is told from the perspective of a young man who jumps into the glamorous world of finance, only to discover the corruption that lay coiled at the heart of the brokerage business. It is a work of history as well as a morality play. If you pay attention as you read it, you will be both entertained and educated by the time you finish.
—Barry Ritholtz
January 2012