The
Dow Jones Industrial Average crossed the 10,000 mark in March of 1999, a
figure so incomprehensibly great that it was anyone’s guess what it
signified. The leaders of American opinion reacted as though we had
achieved some heroic national goal, as though, through some colossal
feat of collective optimism, we had entered at long last into the
promised land of riches for all. On television, the rounds of triumphal
self-congratulation paused for a nasty rebuke to the very idea of
financial authority brought to you by the online brokerage E*Trade, a
company that had prospered as magnificently as anyone from the
record-breaking run-up: “Your investments helped pay for this dream
house,” declared a snide voice-over. “Unfortunately, it belongs to your
broker.” And behold: There was the scoundrel himself, dressed in a fine
suit and climbing out of a Rolls Royce with a haughty-looking woman on
his arm. Go ahead and believe it, this sponsor cajoled: Wall Street is
just as corrupt, as elitist, and as contemptuous toward its clients as
you’ve always suspected. There should be no intermediaries between you
and the national ATM machine in downtown Manhattan. You needed to plug
yourself in directly to the source of the millions, invert the hierarchy
of financial authority once and for all. “Now the power is in your
hands.”
In the rival series of investment fairy tales broadcast by
the Discover online brokerage (a curious corporate hybrid of Sears and
J. P. Morgan) a cast of rude, dismissive executives, yawning and
scowling, were getting well-deserved payback at the hands of an array of
humble everymen. Again the tables of traditional workplace authority
were rudely overturned by the miracle of online investing: The tow-truck
drivers, hippies, grandmas, and bartenders to whom the hateful company
men had condescended were revealed to be Midases in disguise who, with a
little help from the Discover system, now owned their own countries,
sailed yachts, hobnobbed with royalty, and performed corporate
buyouts—all while clinging to their humble, unpretentious ways and
appearances just for fun. And oh, how the man in the suit would squirm
as his social order was turned upside down!
In the commercials for
his
online brokerage, Charles Schwab appeared in honest black and white,
informing viewers in his down-home way how his online brokerage service
worked, how it cut through the usual Wall Street song and dance, how you
could now look up information from your own home. “It’s the final step
in demystification,” he said. “This internet stuff is about freedom.
You’re in control.” To illustrate the point other Schwab commercials
paraded before viewers a cast of regular people (their names were given
as “Howard,” “Rick,” and “Marion”) who shared, in what looked like
documentary footage, their matter-of-fact relationship with the
market—the ways they used Schwab-dot-com to follow prices, how they
bought on the dips, how they now performed all sorts of once-arcane
financial operations completely on their own. The stock market was about
Rick and Marion, not Charlie Schwab.
In another of the great
stock market parables of that golden year, the Ricks and Marions of the
world were imagined in a far more insurgent light. Now the common people
were shown smashing their way into the stock exchange, breaking down
its pretentious doors, pouring through its marble corridors, smashing
the glass in the visitors’ gallery windows and sending a rain of shards
down on the money changers in the pit—all to an insurgent Worldbeat
tune. As it turned out, this glimpse of the People Triumphant in
revolution—surely one of the only times, in that century of red-hunting
and labor-warring, that Americans had ever been asked by a broadcasting
network to understand such imagery as a positive thing—was brought to
you by Datek, still another online trading house. What the people were
overthrowing was not capitalism itself but merely the senseless “wall”
that the voice-over claimed always “stood between you and serious
trading.”
Exactly! As the century spun to an end, more and more of
the market’s biggest thinkers agreed that “revolution” was precisely
what was going on here. Thus it occurred to the owners of Individual
Investor magazine to send gangs of costumed guerrillas, dressed in
berets and armbands, around Manhattan to pass out copies of an
“Investment Manifesto” hailing the “inalienable right” of “every man and
woman . . . to make money—and lots of it.”
Meanwhile, the
National Association of Real Estate Investment Trusts ran ads in print
and on TV in which a casually dressed father and his young son capered
around the towering office blocks of a big city downtown. “Do we own all
this, Dad?” queried the tot. “In a way we do,” answered his father.
This land is their land—not because they have bought it outright, like
Al, the country-owning tow-truck driver in the Discover spots, but in a
more intangible, populist, Woody Guthrie sort of way: Because they have
invested in REITs.
Not to be outdone by such heavy-handed
deployment of 1930s-style imagery, J. P. Morgan, the very
personification of Wall Street’s former power and arrogance, filled its
ads with hyper-realistic black and white close-ups of its employees,
many of them visibly non-white or non-male. Literally putting a face on
the secretive WASP redoubt of financial legend, the ads reached to
establish that Morgan brokers, like Schwab brokers, were people of
profound humility. “I will take my clients seriously,” read one. “And
myself, less so.” The ads even gave the names and e-mail addresses of
the Morgan employees in question, a remarkable move for a firm whose
principal had once been so uninterested in serving members of the
general public that he boasted to Congress that he didn’t even put the
company’s name on its outside door.
Faced with this surprisingly
universal embrace of its original populist campaign against Wall Street,
E*trade tried to push it even farther: The changes in American
investing habits that had brought it such success were in fact nothing
less than a social “revolution,” an uprising comparable to the civil
rights and feminist movements. In its 1999 annual report, entitled “From
One Revolution To the Next,” E*trade used photos of black passengers
sitting in the back of a bus (“1964: They Said Equality Was Only For
Some of Us”) and pre-emancipated white women sitting in the hilarious
hairdryers of the 1960s (“1973: They Said Women Would Never Break
Through the Glass Ceiling”) to establish E*Trade itself as the rightful
inheritor of the spirit of “revolution.” The brokerage firm made it
clear that the enemy to be overthrown on
its sector of the
front was social class: Next to a photo of a man in a suit and a row of
columns, a page of text proclaimed, “They said there are ‘the haves’ and
the ‘have-nots.’” But E*trade, that socialist of the stock exchange,
was changing all that: “In the 21st century it’s about leveling the
playing field and democratizing individual personal financial services.”
The company’s CEO concluded this exercise in radicalism with this funky
rallying cry: “Bodacious! The revolution continues.”
*
Whatever
mysterious forces were propelling the market in that witheringly hot
summer of 1999, the crafters of its public facade seemed to agree that
what was really happening was the arrival, at long last, of economic
democracy. While the world of finance had once been a stronghold of WASP
privilege, an engine of elite enrichment, journalist and PR-man alike
agreed that it had been transformed utterly, been opened to all. This
bull market was the götterdammerung of the ruling class, the final
victory of the common people over their former overlords. Sometimes this
“democratization” was spoken of as a sort of social uprising, a final
victory of the common people over the snobbish, old-guard culture of
Wall Street. Sometimes it was said to be the market itself that had
worked these great changes, that had humiliated the suits, that handed
out whole islands to mechanics, that had permitted little old ladies to
cavort with kings. And sometimes “democratization” was described as a
demographic phenomenon, a reflection of the large percentage of the
nation’s population that was now entrusting their savings to the market.
However
they framed the idea, Wall Street had good reason to understand public
participation as a form of democracy. As the symbol and the actual
center of American capitalism, the financial industry has both the most
to lose from a resurgence of anti-business sentiment and the most to
gain from the ideological victory of market populism. For a hundred
years the financial industry had been the chief villain in the
imagination of populist reformers of all kinds; for sixty years now
banks, brokers, and exchanges have labored at least partially under the
regulations those earlier populists proposed. And Wall Street has never
forgotten the melodrama of crash, arrogance, and New Deal anger that
gave birth to those regulations. To this day Wall Street leaders see the
possibility of a revived New Deal spirit around every corner; they
fight not merely to keep the interfering liberals out of power, but to
keep order in their own house, to ensure that the public relations
cataclysm of 1929-32 is never repeated. This is why so much of the bull
market culture of the Nineties reads like a long gloss on the experience
of the 1930s, like a running battle with the memory of the Depression.
Take
the stagnant-to-declining real wages of American workers, for example. A
central principle of “New Economy” thought is that growth and
productivity gains have been severed from wage increases and handed over
instead to top management and shareholders. Since the redistributionist
policies of “big government” are now as impermissible as union
organizing, stocks of necessity have become the sole legitimate avenue
for the redistribution of wealth. In other eras such an arrangement
would have seemed an obvious earmark of a badly malfunctioning economic
system, a system designed to funnel everything into the pockets of the
already wealthy, since that’s who owns most of the stock. After all,
workers can hardly be expected to buy shares if they can’t afford them.
But
toss the idea of an ongoing financial “democratization” into the mix,
and presto: Now the lopsided transformation of productivity gains into
shareholder value is an earmark of
fairness—because those
shareholders are us! Sure, workers here and there are going down, but
others, through the miracle of stocks, are on their way up.
Furthermore,
ownership of stock among workers themselves, an ideologue might assert,
more than made up for the decade’s stagnant wages. What capital took
away with one hand, it was reasoned, it gave back with the other—and
with interest.
This idea of stock prices compensating for lost or
stagnant wages had long been a favorite ideological hobbyhorse of the
corporate right, implying as it did that wealth was created not on the
factory floor but on Wall Street and that workers only shared in it by
the grace of their options-granting CEO. What was different in the 1990s
was that, as the Nasdaq proceeded from triumph to triumph, economists
and politicians of both parties came around to this curious notion,
imagining that we had somehow wandered into a sort of free-market magic
kingdom, where the ever-ascending Dow could be relied upon to solve just
about any social problem. Now we could have it all: We could slash away
at the welfare state, hobble the unions, downsize the workforce, and
send the factories overseas—
and no one got hurt!
Naturally
the idea was first rolled out for public viewing in the aftermath of a
serious public relations crisis for Wall Street. One fine day in
January, 1996, AT&T announced it was cutting 40,000 white-collar
jobs from its workforce; in response Wall Street turned cartwheels of
joy, sending the company’s price north and personally enriching the
company’s CEO by some $5 million. The connection of the two events was
impossible to overlook, as was its meaning: What’s bad for workers is
good for Wall Street. Within days the company was up to its neck in Old
Economy-style vituperation from press and politicians alike. Then a
golden voice rang through the din, promoting a simple and “purely
capitalist” solution to “this heartless cycle”: “Let Them Eat Stocks,”
proclaimed one James Cramer from the cover of The New Republic. “Just
give the laid-off employees stock options,” advised Cramer, a hedge fund
manager by trade who in his spare time dispensed investment advice on
TV and in magazines, and “let them participate in the stock appreciation
that their firings caused.” There was, of course, no question as to
whether AT&T was in the right in what it had done: “the need to be
competitive” justified all. It’s just that such brusque doings opened
the door to cranks and naysayers who could potentially make things hot
for Wall Street. Buttressing his argument with some neat numbers proving
that, given enough options, the downsized could soon be—yes—
millionaires,
Cramer foresaw huge benefits to all in the form of bitterness abatement
and government intervention avoidance. He also noted that no company
then offered such a “stock option severance plan.” But the principle was
the thing, and in principle one could not hold the stock market
responsible; in principle the interests of all parties concerned could
be fairly met without recourse to such market-hostile tools as
government or unions.
And in ideology all one requires is
principle. Thus it turned out to be a short walk indeed from Cramer’s
modest proposal to a generalized belief in the possibility of real
social redress through stocks. After all, since anyone can buy stocks,
we had only ourselves to blame if we didn’t share in the joy. The
argument was an extremely flexible one, capable of materializing in
nearly any circumstance. In a November, 1999 think-piece addressing the
problem of union workers angered by international trade agreements, a
New York Times
writer found that they suffered from “confusion” since even as they
protested, their 401(k)s were “spiking upward” due to “ever-freer
trade.” To Lester Thurow, the answer to massive and growing inequality
was not to do some kind of redistribution or reorganization but to
“widen the skill base” so that anyone could “work for entrepreneurial
companies” and thus have access to stock options. For lesser bull market
rhapsodists the difference between “could” and “is” simply disappeared
in the blissful haze. Egalitarian options were peeking out of every
pocket. The cover of the July, 1999 issue of
Money carried a
photo of a long line of diverse, smiling workers—a familiar populist
archetype—under the caption, “The employees of Actuate all get valuable
stock options.” Inside, the magazine enthused about how options “are
winding up in the shirt pockets of employees with blue collars, plaid
collars and, increasingly, no collars at all.”
By decade’s end the
myth of the wage/stock tradeoff was so widely accepted that its truest
believers were able to present it as a historical principle, as our
final pay-off for enduring all those years of deindustrialization and
downsizing. In a January, 2000 Wall Street Journal feature story on how
the good times were filtering down to the heartland folks of Akron,
Ohio—a rust belt town that had been hit hard by the capital flight of
the Seventies and Eighties—the soaring stock market was asserted to have
gone “a long way in supplanting the insecurity of the 1980s, when the
whole notion of employment for life was shattered, with something else: a
sense of well-being.” Yes, their factories had closed—but just look at
them now! The
Journal found a blue-collar Akron resident who played golf! And an entrepreneur who drove a
Mercedes! Who needed government when they options?
The
actual effect of widespread use of stock options in lieu of wages, of
course, was the opposite. Options did not bring about some sort of New
Economy egalitarianism; they were in fact one of the greatest causes of
the ever widening income gap. It was options that inflated the take home
pay of CEOs to a staggering 419 times what their average line-worker
made; it was options that unleashed the torrent of downsizing,
outsourcing, and union busting. When options
were given out to
employees—a common enough practice in Silicon Valley by decade’s
end—they often came in lieu of wages, thus permitting firms to conceal
their payroll expenses. In any case, the growth of 401(k)s, even in the
best of markets, could hardly be enough to compensate for declining
wages, and it was small comfort indeed for those whose
downsizing-induced problems came at age 25, or 35, or 45.
Options were a
tool of wealth concentration, a bridge straight to the Nineteenth
century.
And yet the fans of the bull market found it next to
impossible to talk about options in this way. Only one interpretation,
one explanatory framework seemed to be permissible when speaking of
investing or finance—the onward march of democracy. Anything could be
made to fit: The popularity of day trading, the growth of the mutual
fund industry, the demise of Barings bank, the destruction of the Thai
currency. The bubble being blown on Wall Street was an ideological one
as much as it was anything else, with succeeding interpretations
constantly heightening the rhetoric of populist glory. It was an
“Investing Revolution!” It was all about “empowerment”!
And there
were incredible prizes to be won as long as the bubble continued to
swell, as long as the fiction of Wall Street as an alternative to
democratic government became more and more plausible. Maybe the
Glass-Steagall act could finally be repealed; maybe the SEC could
finally be grounded; maybe antitrust could finally be halted. And, most
enticingly of all, maybe Social Security could finally be “privatized”
in accordance with the right-wing fantasy of long standing. True, it
would be a staggering historical reversal for Democrats to consider such
a scheme, but actually seeing it through would require an even more
substantial change of image on Wall Street’s part. The financiers would
have to convince the nation that they were worthy of the charge, that
they were as public-minded and as considerate of the little fellow as
Franklin Roosevelt himself had been. Although one mutual fund company
actually attempted this directly—showing footage of FDR signing the
Social Security Act in 1935 and proclaiming, “Today, we’re picking up
where he left off”—most chose a warmer, vaguer route, showing us heroic
tableaux of hardy midwesterners buying and holding amidst the Nebraska
corn, of World War II vets day-trading from their suburban rec-rooms, of
athletes talking like insiders, of church ladies phoning in their
questions for the commentator on CNBC; of mom and pop posting their very
own fire-breathing defenses of Microsoft on the boards at Raging Bull.
This was a boom driven by democracy itself, a boom of infinite
possibilities, a boom that could never end.
Excerpted with permission from “One Market Under God” (Doubleday Books).
Thomas Frank is a Salon politics and culture columnist.
His many books include "What's The Matter With Kansas," "Pity the
Billionaire" and "One Market Under God." He is the founding editor of
The Baffler magazine.
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