The Way We Live Now?

Henry James used to bemoan the fact that he lacked the technical knowledge of American business with which to fill in the commercial careers of such of his characters as Christopher Newman in The American or Adam Verver in The Golden Bowl. But he needn’t have worried. We sufficiently sense the lifetime obsession of that old goldbug, Abel Gaw, of The Ivory Tower in James’s description of his answer to his daughter’s inquiry if he is tired:

He turned to her his small neat finely-wrinkled face, of an extreme yellowish pallor and which somehow suggested at this end of time an empty glass that had yet held for years so much strong wine that a faint golden tinge still lingered from it. “I can’t get any more tired than I am already.”

Michael M. Thomas has not suffered from James’s problem. He knows almost too much about finance and financiers, too much, that is, for a novelist. And he not only knows the wheelings and dealings of investment bankers; he knows their families, their social lives, their houses and art collections, their boats and sports and vacation spots, their vices and occasional virtues. Not since Sinclair Lewis has an American novelist been able so authentically to fill in the highly complicated and variegated background of his characters.

This talent at times carries him right out of Hanover Place. In the manner of Disraeli in Sybil, he occasionally lectures his reader, dropping the curtain on the vivid antagonisms of his entertainingly articulate and quarrelsome characters to give a discourse on the horrors of corporate takeovers and where the needed funds may be found:

The disparate enterprises for which Lester Vivian worked as de facto global coordinator of finance had recently produced a new product…. It sold for cash, had low manufacturing costs—which offset a somewhat antiquated distribution system—and required zero investment in marketing and advertising. The regulation to which it was notionally subject was hopelessly inefficient. Its demand demographics seemed virtually perfect…. It had been originally offered under a number of different regional names, but the one that seemed to be emerging as the clear consumer preference was “crack.”

The extreme topicality of Hanover Place may cost it some readers a decade hence, but not in 1990 when Thomas is dealing with the essentials of our business structure. His novel is unabashedly one with a moral: that if we allow the greedy game of the corporate takeover to follow its rampant course, not only our economy but what national morality we have will collapse. Perhaps these things have already happened; perhaps the foundations have been fatally sapped. On the other hand, Thomas’s readers might note that public indignation may have already been aroused by the recent indictments for securities fraud and the bankruptcy of some of the firms promoting the takeovers. Perhaps his novel would have been more effective had it been published two years ago.

His chronicle covers the story, from 1924 to 1990, of the Warrington family and the downtown Manhattan investment banking firm that they have controlled since its founding in 1814 (all business projects are subject to the veto of the chairman, who must be a male Warrington). In 1924 Howland Warrington, heir apparent of his father Fletcher, marries Lyda, an eminence grise to the males of the family who will provide the coordinating force of the novel. The firm, as the author informs us in his preface, bears some resemblance to Lehman Brothers (of which he was a partner in the 1960s), both in its heyday and in its dissolution through internal dissension and greed.

S.L. Warrington & Son is depicted at the beginning of the tale as a benevolent despotism where “as far as possible in any business predicated on money-spinning” the partners “played by the rules.” The firm, by Wall Street standards, was only moderately rich.

Influence was something else, however, and here The Firm excelled all but Morgan. Influence was based not merely on the ability to mobilize vast sums of one’s own and others’ capital, but on character, presence, financial ingenuity, market prescience—and a reputation mostly deserved, sometimes not, for those qualities.

The partners, like Fletcher and his son Howland, are largely Protestants, Ivy Leaguers, Social Registrites of at least some inherited wealth, members of exclusive clubs, and sportsmen. Yet it is a nonpartner, and one without apparent chance of becoming one, a young Jewish trader, Morris Miles, who saves the firm in the fall of 1929 by imparting to Fletcher Warrington the information he has gleaned by peeking at the confidential draft of a speech to be made by the famed market commentator Roger Babson while the latter had briefly left his office. Babson in a week’s time would publicly predict the market crash. Howland, a World War I veteran and hero, whose creed is that an investment banker’s role should lie more in building up new businesses than in quick profits, is still enough of an idealist to advise his father not to act on information so shabbily obtained. But Fletcher has no such compunctions and goes short across the board, causing his firm to ride triumphantly through the Great Depression.

Thomas makes much of this incident because, having so many scandals to record, he wishes to make it quite clear at the outset that he is not a nostalgic sentimentalist, setting up the past as a model of virtue. On the other hand, he has no wish, as he has elsewhere written, to join the error of those who cry out, in respect to the many securities frauds of the 1980s, “Well, wasn’t it always so? What about Jim Fisk and Jay Gould? What about Teapot Dome? What about Richard Whitney?” Thomas wants to establish just what the Warringtons were—not angles, by any means, but still considerably superior to anything we have in investment banking today.

And actually, was what Fletcher did so bad? Would it even today have violated the rules against insider trading? To act on another man’s opinion that a crash was coming? One may doubt it. Howland, if troubled over the incident, still goes along with his father in making Morris Miles a partner, despite his snooping habits. And as the years pass Howland and Fletcher, although disagreeing mildly over questions of policy—support of new industry as opposed to mere trading—are essentially in accord. The Street sees little to choose between them. Both are honorable men.

World War II brings death to Howland’s two oldest sons, twins, aviators, and gallant if uninteresting young men. Famous historic disasters wreak havoc with Thomas’s characters. A Warrington has fallen at Antietam; another in the Blizzard of ’88, and the parents of Lyda go down on the Titanic. But Howland’s younger sons, Andrew and Jay, survive to carry on the business and to represent opposite sides in the coming conflict between tradition and greed.

When Howland tells Jay, a smartaleck whiz kid, that the small investor is the backbone of their business, the latter shows little awe for parental wisdom:

“Yeah, yeah,” said Jay. “Come back in a few years and tell me all about those small investors, Pop.” Howland studied his glass. He loved the idea of “people’s capitalism,” of millions of small, stable, individual stockholders, men and women who followed the exhortation developed by the Exchange’s advertising agency and “owned their share of America.” It was a vision that played to his own notion of his and The Firm’s heritage and destiny. Jay was quite right, however, Hanover Place wasn’t really set up to service the small investor; it wasn’t The Firm’s style.

Thus is the issue joined between the old guard and the new and the death knell sounded for a Saturday Evening Post America. Jay is a very different kind of Warrington. He “would take some mutual-fund guy from Kansas City out on the town, get him drunk and laid, and the next day it would pay off with an order for a hundred thousand shares or ten million bonds.”

In 1969 we find the firm, like other first-class investment houses, still reluctant to get involved in unfriendly takeovers, but a year later it becomes incorporated in order to shield the partners from individual liability, and the “venerable selling point” that they had committed their own fortunes to their dealings ceased to apply. In 1984 Andrew Warrington, who, unlike his younger brother, still clings to the old values, finds himself outvoted on the issue of supporting a management buyout, in which the stockholders are to be persuaded to part with their shares at half their true value on the basis of a rigged appraisal prepared “on company time, at company information.” Andrew decides that things have gone too far for him to exercise his veto; he will take a vacation in which to ponder his future course. He is drowned swimming off his own beach in the Hamptons, and his mother, Lyda, despairing of preserving the old traditions, sells the firm. She will devote her last few years to organizing an art museum.

The savage, pungent, witty verbal give-and-take among Thomas’s characters, with its many obscenities and colorful insults, makes the parts of the novel devoted to arguments lively reading, but their very vividness has startled some critics into speculating that some of the opinions voiced may be those of the author. I submit, in this consideration, some of the remarks of Miranda, Lyda’s hysterically anti-Semitic daughter (whose real father, unbeknownst to her, is her mother’s one-time Jewish lover):

Why is it that the police can beat a black youth half to death, and no one says boo, but give a Jew a parking ticket, and he screams “Holocaust!”?

And of course, because of the Holocaust, the Jews are owed compensation by all mankind, which is why we are stuck with Israel.

Among those two hundred and thirty Marines killed in Beirut, preserving Israel, Eric, there wasn’t one Jew! Would you like to know how many Jewish names there are out of the forty-seven thousand on the Vietnam Memorial? Would you like to hear that interesting statistic? Of course, the Jews have better things to do. Like getting rich selling this country to the Japanese!

But this is how Thomas describes what makes Miranda behave as she does:

Her hatred spoke to her with the chilly little voice in which madness often instructs its adherents. It taught her to mimic its own rational tones, coached her what words to use, what ones to be careful to avoid. It helped her to read the newspapers and look at television, sharpened her perceptions so that a name, an accent, a physiognomy asserted itself to her as if incised in the sky by an angel’s sword.

Thomas’s Jewish characters, with the exception of the heroic and saintly Eric Lazlo, who has been hideously tortured by the Nazis for his role in enabling Jews to escape from Germany, are decidedly unpleasant characters, but then so are most of the rest of his cast. Thomas is not unlike H.L. Mencken; discourtesy, you might put it, is his way with all. He addresses himself to the question of whether the high percentage of Jews on the list of those recently indicted for securities fraud may not arouse anti-Semitic feeling among people damaged by corporate takeovers, and this seems to me a valid concern. Indeed Thomas has claimed in an article that it has been a matter gravely discussed by leaders of the New York Jewish community. Where in my opinion he goes too far is in a final chapter, placed in the future, where he permits himself to predict, in apocalyptic style, a worldwide financial panic and the outbreak of an epidemic of ethnic hatred.

One might ask why one should read Hanover Place when there are current nonfiction books reveling in the sordid details of recent corporate takeovers. Why not go straight to the facts? The answer is that Thomas fits the 1980s’ passion for mergers and acquisitions into the long history of American investment banking and traces the gradual erosion of moral standards from a day when there were at least some to the present, when the letter of the law is the only restriction. Consider the great Wall Street law firms. There was a time in the not too distant past when they would not touch the “dirty” business of takeovers because the bringing of multiple law suits for the purpose of harassment, often a necessary maneuver in the game, was considered the province of shysters. Now they all do it.

Jay Warrington makes one remark to his brother that particularly struck this reviewer. He describes a young man at Morgan Stanley as “a real gung-ho guy, one of those clenched-fist Marine ROTC types who’d fallen in the crack between Korea and Vietnam and who was looking for a real war to fight.” Jay suggests that such men go almost crazy when engaged in a takeover. “If they can’t find a beachhead to fight on, they settle for a balance sheet.”

I recall the same point being made in a novel, alas unpublished, by a lawyer expert in takeovers, which I read in manuscript. It is also brilliantly made in the movie Wall Street.

John Kenneth Galbraith’s novel A Tenured Professor has none of Thomas’s inflamed indignation at the follies of the commercial and political worlds; in his small satirical sketch he offers instead the detachment and smooth aphoristic prose of a mild latter-day Voltaire. The blind optimism of savings bank directors, the platitudinous patriotism of the Pentagon, the grossness of redneck Southern senators, the shrill screams of ultraliberal bleeding hearts, the smug stupidity of Washington bureaucrats—none arouses more than a chuckle of urbane derision from the witty and acerb Harvard professor, not even Harvard itself, though there is a hint of concealed affection in the following:

By long custom, social discourse in Cambridge is intended to impart and only rarely to obtain information. People talk; it is not expected that anyone will listen. A respectful show of attention is all that is required until the listener takes over in his or her turn. No one has ever been known to repeat what he or she has heard at a party or other social gathering, only what he or she has said. There may then be further enlargement on the skill and emphasis with which the compelling point has been made; to this, also, no one has ever been known to pay attention.

Montgomery Marvin, the hero of Galbraith’s parable, is a professor of economics at Harvard and the author of Refrigerator Pricing: The Theoretical and Mathematical Paradigms. As parable heroes should be, he is “wholly commonplace in appearance,” but he is also a genius. Study of stock market activities both in history and the present day has convinced him that they are largely governed, not by “rational expectations,” as the current academic fashion has it, but by irrational decisions, triggered by unjustified optimism and pessimism, speculative euphoria and undue depression. A trip to Texas provides him with yet another component:

But here theology also entered. To have doubts was to repudiate the established tenets. The good man must have faith in Texas, faith in America, faith in the free enterprise system and faith in oil, the energy source on which the very mobility of a people by whom other than petroleum-powered movement had been forgotten. But especially faith in Texas. Doubt belonged to the cold and obsolescent North, to the lesser breeds beyond the sun.

Marvin now devises a computer system, The Index of Irrational Expectations, or IRAT, to play the market, and, needless to say, he becomes the richest man in the country. But what to do with his new wealth?

He is a man of good will. First he establishes chairs at universities for peace studies. Then he takes over all of Harvard’s embarrassing South African investments at 10 percent above market. After that he creates a fund that will balance any political action committee’s contribution to promote legislation with an equal sum to opponents of the proposed law, in order to ensure that the issue will be thoroughly debated. This begins to get him into hot water with incumbent politicians, but the real trouble comes when he takes over a giant corporation, “Special Electric,” and offends Congress and the Pentagon by declining to take contracts for what he considers unnecessary armaments and by employing independent newscasters on the company’s TV stations who tend to advocate a more peaceful foreign policy.

Nemesis follows. The SEC now finds that the use of IRAT constitutes insider trading, using an argument that recalls Houdini getting out of a sunken barrel:

While the use of inside information in the older sense was not alleged, the IRAT measurement of irrationality “and the actions proceeding therefrom” not only gave to the possessor, namely Marvin, an unfair advantage, but they were also used by others as inside information to the profit of those who had inside knowledge of Marvin’s operations. The result, it was said, was “to have at one remove from illegal manipulation the effect of inside information based on that manipulation.” In unfair competition with a certain winner, the inevitable losers were unfairly treated. Eventually the free market would be damaged, perhaps destroyed.

The use of IRAT is proscribed and Marvin’s holdings in Special Electric liquidated. But he is still a tenured professor at Harvard, and thus can still talk to his peers in Cambridge, confident that no one is listening.