Page numbers refer to the print edition but are hyperlinked to the appropriate location in the e-book.
An Adventure in Constructive Finance (Glass), 47–49
Aetna Property and Casualty, 288
Aldrich-Vreeland Act of 1908, 24, 37
Alleghany Corporation, 65–66
A. L. Williams & Associates, 294, 298
American Bankers Association, 22, 30, 44
American Car and Foundry Company, 67
American National Bank of Chicago, 126
Amingues, Marie Louise, 180
Associates First Capital Corporation, 303–304
A. W. Jones Associates, 209
B&O (Baltimore & Ohio) Railroad, 25, 47
Baby Pompadour (Graham), 179
Bache Halsey Stuart Shields, 298
Baltimore & Ohio (B&O) Railroad, 25, 47
Bankers Trust Company, 19, 56
Bear, Stearns & Company, 289
“bimetallism” doctrine, 22
Bogle Financial Markets Research Center, 130
Bogle, John C., 88, 110–132, 219, 308, 312, 318n14; background of, 113–114; Bogle rule, 108; cost matters hypothesis, 125, 131; education of, 114; efficient market hypothesis, 124–125; flywheel-type growth, 126–128, 131; founding of Vanguard Group, 112, 117–118; health problems, 129; index fund investing, 121–125; investment costs and fees, 111, 119–121; involuntary resignation, 130; love of mutual funds, 114; Mayday end of fixed-commission schedule, 112; post-Vanguard years, 130–132; “proscriptions and prescriptions” ideas, 118–121; speeches of, 127; Wellington Management Company, 116–117
Brookings Institution, 104
Buffett, Thomas Graham, 179
Buffett, Warren, xii, 196, 200; association with Weill, 293, 299; view of derivatives, 183–184, 199; view of Graham, 135, 175–176, 179–180, 214
Carnegie Endowment for International Peace, 284
Carnegie Steel Company, 8
Carter, Mary Elizabeth, 206
CBOE (Chicago Board Options Exchange), 188–189, 195
CBWL (Cogan, Berlind, Weill & Leavitt), 266, 289–291
CCNY (City College of New York), 163
Center for Responsive Politics, 310
central bank: development of Aldrich Plan, 19–20, 22, 24, 28–33; early attempts at, 21; Morgan as de facto, 10, 14, 21, 23, 29, 55; opposition to, 21–23, 30–31, 33, 37, 43, 50, 314n16; recognition of need for, 14; Warburg's view of, 25–29. See also Federal Reserve
Chamberlain, Lawrence, 164
Charles Merrill & Company, 95
Chase Securities Corporation, 76–78
Chicago Board Options Exchange (CBOE), 188–189, 195
City College of New York (CCNY), 163
CLOs (commercial loan obligations), 263
CMH (cost matters hypothesis), 125, 131
Cogan, Berlind, Weill & Leavitt (CBWL), 266, 289–291
commercial loan obligations (CLOs), 263
Common Stock and Common Sense (Donaldson et al.), 275
Control Data Corporation, 293
Corporate Bond Quality and Investor Experience (Hickman), 224
corporate restructuring, xiv
cost matters hypothesis (CMH), 125, 131
Council of Economic Advisers, 51
The Creature from Jekyll Island, 50
credit default swaps, 190
Cuban Dominican Sugar Company, 74
Davis, Polk and Wardwell, 66
Decline and Fall of the Roman Empire (Gibbon), 162
“Defects and Needs of Our Banking System” (Warburg), 26
Democracy in America (de Tocqueville), 13
derivatives, 135, 182–200; Buffet's view of, 183–184, 199; collateralized mortgage obligations, 258–259, 261, 263; convergence trades, 193, 218; credit default swaps, 190; equity vols, 195, 197; exchange-traded funds, 190; interest-rate swaps, 190, 196; misconceptions regarding, 189; mortgage-backed securities, 251, 255–258, 260–263; stock options, 185–189. See also Scholes, Myron S.
de Tocqueville, Alexis, 13
Dimensional Fund Advisors, 126, 190
“The Discount System in Europe” (Warburg), 28
Dodd-Frank Act of 2010, 312
Donaldson, Lufkin & Jenrette (DLJ), 190, 247, 266–267, 269–271, 273–284; capital levels, 278–279; commission arrangements, 276–277; formation of, 273–275; making case for small-company investing, 275–276; personnel arrangements, 278; public offering, 269–271, 279–283
Donaldson, William H., 266–284, 312; background of, 271–272; capital levels, 278–279; commission arrangements, 276–277; education of, 271–272; end of fixed-commission schedule, 282; formation of Donaldson, Lufkin & Jenrette, 269, 273–275; making case for small-company investing, 275–276; personnel arrangements, 278; post-DLJ career, 284; public offering, 269–271, 279–283
Doriot, Georges F., 133–134, 138–158, 283, 309; American Research and Development Corporation, 134, 139–140, 144–155; background of, 141–143; compensation problems, 151–152; consulting career, 143; Digital Equipment Company, 134, 140, 148–151; education of, 141–142; personality of, 140–141, 153–154; private equity firm, 155; teaching career, 143; venture capital, 134; war years, 144–145
Dow Jones Industrial Average: during 1960s, 210; during 1970s, 215; during Hoover administration, 58; inclusion of financial services companies, 298, 308; stock market crash of 1929, 56
Draper, Gaither & Anderson venture fund, 149, 152–153
Drexel, Anthony J., 5, 10, 224
Drexel, Harjes & Company, 5, 10
E. A. Pierce & Company, 98–99
Eastman Dillon & Company, 95
Edison Electric Illuminating Company, 8
efficient market hypothesis (EMH), 124–125
EMH (efficient market hypothesis), 124–125
employment: aftermath of stock market crash of 1929, 57, 59; expansion of Fed's mission, 52
Employment Act of 1946, 51
Enterprise Associates, 144
exchange-traded funds (ETFs), 190
Executive Life Insurance Company, 241
Family Life Insurance Company, 107
Federal Home Loan Mortgage Corporation (Freddie Mac), 260–261
Federal National Mortgage Association (Fannie Mae), 256, 260–261
The Federal Reserve System: Its Origin and Growth (Warburg), 48–49
Federal Reserve (the Fed), xiii, 16, 38; Depression-era mistakes, 51, 57; emergency loans to investment banks, 52; first hundred years of, 50–53; governance of, 44–45; holding company regulation, 53; margin accounts, 208; “mission creep”, 50–53; quantitative easing, 52; rescue of LTCM, 197–198; Warburg's tenure on board, 45–47. See also central bank
Fidelity Management & Research, 289–290
Financial Services Modernization Act of 1999, 301
Fireman’s Fund Insurance Company, 293
First Bank of the United States, 21, 30
First Index Investment Trust (Vanguard 500 Index Fund), 113, 125–126
First Investors Fund for Income, 230
First National Bank, 40, 47, 66
Fitzgerald, F. Scott, 164
Freddie Mac (Federal Home Loan Mortgage Corporation), 260–261
fund of funds approach, 216, 219
Gibson Greeting Cards, 156, 236
Glass, Carter, 15–16, 34, 36–53, 310–311; Aldrich Plan and, 37–38, 44, 47; background of, 38–39; efforts to win populist support for reforms, 43–45; Federal Reserve Act, 40–46; Fed's expanding mission, 50–53; Pecora hearings, 63–64; political views of, 39; Pujo hearings, 40–41; recognition of need for reform, 41–42; as secretary of the Treasury, 49–50; view of Mitchell, 70; view of origins of Federal Reserve, 47–49; view of stock market crash hearings, 59
Glass-Steagall Act of 1933, xiv, 15, 40, 50, 64, 79, 100, 225; opposition to, 68–69, 311–312; repeal of, 299–301
Good to Great (Collins), 126
Government Employees Insurance Company (GEICO), 169–173
Graham, Benjamin, xii, 133–135, 160–180, 214; as academic, 173–176; annual rate of return, 172; arbitrage, 167–168, 177; background of, 161–163; changes in marketplace, 176–178; education of, 163; founding of Graham-Newman, 167–168; GEICO investment, 169–173; good investment as good speculation, 171–172; intrinsic value and value investing, 164–173, 178; introduction to bond investing, 164–165; investment as business proposition, 169–170; personality of, 179–180; shutting down Graham-Newman, 176–177; stock market crash of 1929, 135; writings of, 135, 174–176, 178–179
Great Depression, 86; Doriot's career as consultant, 143; Graham's currency stabilization plan, 179; Merrill's involvement with Safeway Stores, 97–98; mistakes made by Fed, 51, 57
The Great Gatsby (Fitzgerald), 164
Groupe Bruxelles Lambert, 233
Guggenheim Exploration Company, 166–167
Harriman Ripley & Company, 225
Hayden Stone & Company, 291
hedge funds, xiv, 192, 201–202, 311; assessment of performance, 210–213; “children” of Jones, 213–214; contraction, 215–216; development of, 207–210; front running, 212; fund of funds approach, 216, 219; mediocre performance of, 218–219; performance fees, 214; reenergizing of market, 216–217. See also Jones, Alfred Winslow; Long-Term Capital Management; Scholes, Myron S.
HFRX Global Hedge Fund Index, 218
High Voltage Engineering Corporation, 146, 148
House Banking and Currency Committee, 11, 37–40, 310
House Committee on Financial Services, 310–311
House Foreign Affairs Committee, 39
Humphrey-Hawkins Full Employment Act of 1978, 52
inflation: bond-backed banknotes, 28; effects on debtors/lenders, 22; Fed and, 50, 52; Volcker's austerity program, 254
International Acceptance Bank, 47
Interstate Commerce Commission, 3
Johns Manville and Standard Brands, 66
Jones, Alfred Winslow, 201–202, 204–220; assessment of fund performance, 210–213; background of, 205–206, 322n1; “children” of, 213–214; contraction, 215–216; development of hedge funds, 207–210; education of, 205–206; front running, 212; management style, 211–213; margin accounts, 208–209; performance fees, 214; short sales, 207–209; technical analysis, 206–207; Tiger Management, 216–217; writings of, 206
J. P. Morgan & Company (House of Morgan), 2, 10, 24, 73, 83, 85, 95, 266; inclusion in Dow, 298, 308; investment banking offshoot, 225; passage of Glass-Steagall Act, 68; Pecora's investigation of, 62–69; preferential treatment of high-ranking customers, 65–67; proposed merger with Travelers, 300–301; stock market crash of 1929, 55; value-at-risk technique, 193
J. S. Morgan & Company, 4–5, 10
J. W. Seligman & Company, 24
Keynes, John Maynard, 171, 214
Kidder, Peabody & Company, 216
Kidder Peabody, Dillon Read, 95
Kleiner Perkins Caufield & Byers, 158
Knickerbocker Trust Company, 23
Kohlberg Kravis Roberts, 156, 237
Kuhn, Loeb & Company, 73, 95–96, 289; Doriot and, 142–143; Glass-Steagall Act, 68; rise of, 25; Warburg and, 15, 19, 24–25, 27, 32, 45
Lautaro Nitrate Company, 74
Life, Liberty and Property (Jones), 206
limited partnerships, 153, 155
Lindbergh, Charles, Sr., 50
Little Orphan Annie (comic strip), 20
Long-Term Capital Management (LTCM) hedge fund, 135, 184, 191–199, 310; collapse and rescue of, 197–198; disastrous diversification initiatives, 194–197; early outsized returns, 193–194
Luthringshausen, Wayne, 188
Massachusetts Mutual, 230
Mercantile National Bank, 23
Merger Mania: Arbitrage, Wall Street’s Best Kept Money-Making Secret (Boesky), 240
Merrill, Charles E., 86–87, 90–108, 114, 158, 308; advertising, 102; background of, 94; compared to Mitchell, 92–93; democratization of stock ownership, 104–105; formation of Merrill Lynch, 95–96; health problems and death of, 103; “investigate, then invest” philosophy, 86, 93, 101; involvement with Safeway Stores, 97–98; Merrill Lynch after, 105–108; pre-crash advice, 93, 96–97; responsible approach of, 92–93; retail investment banking, 94–96; securities retailing for small investor, 98–102; training and compensation for account executives, 101–102
Merrill, Charles, Jr., 105
Merrill Lynch, 52, 86–87, 92–94, 114, 282, 316n1; diversification, 107, 287; formation of, 95–96; under O’Neal, 108; promote-from-within strategy, 105–106; under Regan, 106–107; securities retailing for small investor, 98–102; under Shreyer, 107–108; wartime growth, 103
The Microbe Hunters (de Kruif), xii
Milken, Michael R., 202, 222–248; association with Drexel, 224–226, 228–241; background of, 223–225; compared to Ranieri, 252; downfall, 241–243; education of, 223–224; guilty plea, 246–247; indictment of, 246; investigation of, 243–245; as investment advisor, 230; leveraged buyouts, 236–240; liquidity issue, 228; making case for junk bonds, 226–230, 257; move to California, 233–236; new-issue junk bonds, 231–233; post-release career, 248; recipe for disaster, 238–241
Mitchell, Charles, 56, 66, 85–86, 288; background of, 69–70; bonus system, 71–72; compared to Merrill, 92–93; investment pools, 74–76; Latin American securities, 73–74; Pecora hearings, 58, 69–76, 78; rehabilitation of, 83; sales tactics with unsophisticated investors, 72–73; “wash sale” of stock, 70–71
monetary policy: European-style currency management, 30; Fed's expanding mission, 51–52; fixed currency, 28–29; government bond backing, 28–29, 43; Great Depression, 51; Volcker's austerity program, 254
Morgan Guaranty Trust, 150
Morgan, J. Pierpont, xii, 1–12, 40, 224, 237, 309; as America's de facto central banker, 10, 14, 21, 23, 29, 55; assertions regarding his power and influence, 11; Corsair Pact, 1–2; early Wall Street years, 5–6; education of, 4, 133; father's career guidance, 4–5; formation of General Electric, 8; formation of U.S. Steel, 8–9; health problems, 4, 6, 9, 12; importance of credibility and reputation, 2–3; “morganization”, 6–9; negotiating strategy, 1; Pujo hearings, 11–12, 40, 63; reorganization of banking companies, 10; resuscitation and consolidation of railroads, 6–7; rise of socialist ideologies, 10–11; view of self-regulated capitalism, 14
Morgan, J. P., Jr. (Jack), 16; Pecora hearings, 62–65; view of Glass-Steagall Act, 68, 83, 311–312
mutual funds, 87–88, 112–113, 152–153; defined, 114; expense ratios, 120–121, 131; governance of, 118–119; indexed, xiii, 88, 112–113, 121–125, 189–190; investment costs and fees, 119–121; no-load, 119–120; passive management, 113; retail investing versus, 114–115; Wharton School study of, 118–119, 122–123
National Banking Acts of 1863 and 1864, 28–29, 43
National Citizens’ League for the Promotion of a Sound Banking System, 32
National City Bank, 19, 100; Merrill and, 85–86, 92–93; Mitchell and, 56, 66; panic of 1907, 23, 27; Pecora hearings, 58, 69–75, 78
National City Company, 69–75
National Prohibition (Volstead) Act of 1919, 49
National Reserve Association, 31, 34, 49
National Venture Capital Association, 157
New Deal, xiii, 15, 40, 86, 100, 177. See also names of specific legislative acts
New York Central Railroad, 1–2, 24
New York Stock Exchange (NYSE): American Research and Development Corporation listing, 149; capital rules, 265; Donaldson as chairman, 284; limits on advertising, 102; Mayday end of fixed-commission schedule, 112, 212, 266, 282; panic of 1907, 23, 27; paperwork problems, 291; Pecora hearings, 79–81; as pre-SEC watchdog, 15; public ownership, 269–271, 279–281; retail investors, 87; stock market crash of 1929, 56, 58; wartime and postwar growth, 103; Whitney and, 79–81, 84
Northern Pacific Railroad, 24
Northern Securities Company, 14
Pan American World Airways, 233
Pecora, Ferdinand, 15–16, 53–84, 308, 311; background of, 60–62; expansion of investigative scope, 61; investigation of House of Morgan, 62–69; investigation of Mitchell, 69–76; investigation of Whitney, 79–82; investigation of Wiggin, 76–79; origin of hearings, 58–60; passage of Glass-Steagall Act, 68, 79–80; passage of Securities Act, 79; passage of Securities Exchange Act, 82; post-hearing career, 82–83; revelations of preferential treatment at House of Morgan, 65–67; sensationalism of hearings, 63–65; stock market crash of 1929, 55–57
Pennsylvania Engineering, 242
Pennsylvania Railroad, 1, 24
Pew Financial Reform Project, 262
“A Plan for a Modified Central Bank” (Warburg), 27
Platinum Grove Asset Management hedge fund, 199
The Principles of Bond Investment (Chamberlain), 164
Prudential Insurance Company, 292
Racketeer Influenced and Corrupt Organizations (RICO) Act of 1970, 245–246
Radio Corporation of America (RCA), 80
A Random Walk Down Wall Street (Malkiel), 123–124
Ranieri, Lewis, 203, 250–264; association with Salomon Brothers, 251–256, 258–260, 262–263; collateralized mortgage obligations, 258–259; compared to Milken, 252; creation of mortgage-backed securities, 255–257; education of, 252; effect of Volcker's austerity program on S&Ls, 254–255; personality of, 252–253; problems with mortgage-backed securities, 257–258; pros and cons of legacy, 262–264; securitization, 256; subprime mortgage crisis, 260–262
RCA (Radio Corporation of America), 80
Reliance Insurance Group, 290, 297
Reminiscences of a Stock Operator (Lefevre), 122
retirement and pension plans, 87; hedge funds, 217; venture capital investing, 157
RICO (Racketeer Influenced and Corrupt Organizations) Act of 1970, 245–246
Rockefeller, John D., 23, 27
Rockefeller, John, Jr., 20
Roosevelt, Franklin Delano, xiii, 15, 39–40, 50, 58–59, 61, 82–83, 86, 145, 179
Royal Dutch Petroleum, 24
SBIC (Small Business Investment Company) program, 149
Scholes, Myron S., 133–135, 182–200, 310; background of, 184–185; Black-Scholes option pricing model, 183–189; collapse and rescue of hedge fund, 197–198; convergence trades, 193; derivatives, 135; disastrous diversification initiatives, 194–197; early outsized returns, 193–194; education of, 184–185; exchange-traded funds, 190; Long-Term Capital Management hedge fund, 184, 191–199; losses, 198–199; Platinum Grove Asset Management hedge fund, 199; private sector activities, 189–191; stock options, 185–186
Second Bank of the United States, 21, 30
Securities Act (Truth in Securities Act) of 1933, 15, 69, 79, 81–82, 177
Securities and Exchange Commission (SEC), xiii, 15–16, 53, 86; action against Drexel, 245; approval of Vanguard plan, 120; disclosure requirements, 177, 241; Kennedy as chairman, 82; Mayday end of fixed-commission schedule, 112, 212, 266, 282
Shakespeare, William, 38–39
Shearson Loeb Rhoades & Company, 288, 292
Sherman Antitrust Act of 1890, 14
Small Business Investment Company (SBIC) program, 149
Small-Cap Index Fund, 128
St. John’s University, 252
Storage and Stability (Graham), 179
Taft, William Howard, 33, 41
taxation: capital gains, 156–157; efforts to save S&Ls, 254–255; Mitchell's “wash sale” of stock, 71; Pecora's investigation of House of Morgan, 65
Taxes and Business Strategy (Scholes et al.), 191
Thorndike, Doran, Paine & Lewis, 116–117
Total Stock Market Index Fund, 128, 131
Troubled Asset Relief Program, 108
Trust Company of America, 23
Trustees’ Equity Fund, 117
Truth in Securities Act (Securities Act) of 1933, 15, 69, 79, 81–82, 177
Union Pacific Railroad, 24, 47
United Copper Company, 23
University of Michigan, 94
U.S. Treasury Department: Aldrich Plan, 32; auction procedures, 191; panic of 1907, 23, 29
value-at-risk (VaR) technique, 193–194
Vanguard 500 Index Fund (First Index Investment Trust), 113, 125–126
VaR (value-at-risk) technique, 193–194
Volstead (National Prohibition) Act of 1919, 49
Wall Street Under Oath (Pecora), 76
Warburg, Paul M., 15–16, 18–34, 37–38, 41; as advisor to Aldrich, 30–31; background of, 24–25; book tracing origins of Federal Reserve, 48–49; development of Aldrich Plan, 19–20, 22, 24, 28–33; education of, 133; move to New York, 25; panic of 1907, 23–24, 26–27; personality, 20; political attacks against, 33; post-political career, 47–48; selling message of bank reform, 32; tenure on Federal Reserve Board, 45–47; view of central banking, 25–30
Weill, Sanford I., 266–267, 286–305, 312; background of, 288–289; boutique business model, 289–290; Citigroup, 288, 300–304; Cogan, Berlind, Weill & Leavitt, 289–290; culture clash, 301–302; financial supermarket failures, 287–288, 304–305; Hayden Stone, 291; Primerica Corporation, 293–295; removal of Glass-Steagall barriers, 299–301, 305; Salomon Brothers, 298–299; Shearson/American Express, 292–293, 296; state-of-the art back office, 290–291; Travelers Group, 297–299
Wells Fargo & Company, 25
Wesray Capital Corporation, 156
Wharton School of the University of Pennsylvania, 118, 202, 223–224
White, Weld & Company, 107
The Worldly Philosophers (Heilbroner), xii
Yale School of Management, 284