Anthony Peters, SwissInvest Strategist
In my mind, living through two full sized crashes in one career is more than enough and I haven’t even added in the collapse of Third World Debt in the early ’80s which was resprayed and renamed LDC (less developed countries) debt until it, in turn, collapsed and was subjected to another respray and renaming, thus becoming Emerging Markets.
Then there was the Asian Flu and collapse of post-Soviet Russia. I have also not added in the dot.com crash of 2001 which was the implosion of all implosions.
In the 25 years, I have seen the disappearance of some of the great names on the Street – E.F.Hutton (see YouTube clip), Payne Webber, Salomon Brothers, Drexel Firestone and many, many more.
It wasn’t better. It wasn’t worse. It was just different. Do I miss it? Yes I do. Would I want to do it again? I’m not sure my liver could cope.
Here in London there were Baring Brothers, S.G.Warburg, Samuel Montague and so on.
Wood Gundy, the Canadian broker became a victim of its own success in 1987 as it held sole underwriting rights for Canada in the deal of the year, the privatisation of BP, which also got caught up in the crash. Winning the mandate was a huge feather in the firm’s cap but when markets went to hell in a handcart, Gundy got crushed. CIBC came to the rescue.
In the States, things were a bit better organised as the sole underwriter for US also hit the buffers. Had the Fed not stepped in, discreetly injecting liquidity, there would today most probably be no more Goldman Sachs.
The Perfect Storm
Back to Monday, October 19th. The previous Thursday night had seen the great hurricane hit the South of England and the Friday had been a non-event with practically nobody being able to get out of their house. Public and private transport were at a near stand-still. There is a theory that part of the ferocity of Monday’s price movement was to do with London coming in and trying to catch up with New York’s Friday sell-off but when coming in and seeing how London had traded, the Yanks panicked and shovelled what they had left straight out of the door. The outcome was carnage.
In 1987, Bloomberg was a rarity – it was a proprietary system developed by Michael Bloomberg with Merrill Lynch as his old employer, Salomon Brothers, had shown no interest. The first little beige boxes with black on orange monochrome screens were being licensed to other firms and I happened to be with Irving Trust (also gone) which was one of the early third party users. The messaging system hadn’t been invented yet and most news came down tie lines to an array of little loudspeakers which were provided by the brokers. Reuters were kings of the business. PCs were in their infancy. Most, but not all, firms had a mobile phone which weighed about 20 pounds although the first Motorola “bricks” were popping up.
Bonds were quoted on a price basis and to the nearest ⅛. Liquid issues had ¼pt bid/ask spread but ½pt was normal. 1 million was a round lot. Market makers were obliged to make a tradable two way price good for 50,000 or more. Clients had the right to ask the two way and it was the salesman’s task to second guess whether he might be a buyer or seller. Dealers provided a list of bonds in which they made markets in and that is what they did.
At 5pm we’d close the books and the entire firm would go to the pub. We had company cars – Chase Manhattan gave all its new traders a Porsche 924 (not a Porsche at all in purists’ books but a re-badged Audi) – and after three hours in the beer would drive them home. Birthdays were frequently celebrated with strip-o-grammes on the floor for both the boys and the girls.
We were paid £30,000, got half of that again in bonus and still thought ourselves very lucky. Mortgage rates were 14% but we had a bank-provided subsidy which funded us down to 4½% – still a taxable benefit – and were therefore the envy of our peers.
Go back and look at some of the early Alex cartoons - there is one where the bankers of Megabank are paintballing against the brokers and where Alex tells his men “Don’t shoot until you can see the whites of their socks”.
It wasn’t better. It wasn’t worse. It was just different. Do I miss it? Yes I do. Would I want to do it again? I’m not sure my liver could cope.
_______________________________________
Alas, it’s that time of the week again so all that remains is for me to wish you and yours a happy and peaceful week-end. May you cast your mind back the twenty five years too and may you remember more than just school homework not done.
I will be out next week. You’re on your own.
(p.s.: Please permit me to categorically deny the accusation that I am old enough to have been through the Crash of ’29 as well.)