Good Time Charlie : Part 1

What Goes Up: The Uncensored History of Modern Wall Street as Told by the Bankers, Brokers, CEOs, and Scoundrels Who Made It Happen
by Eric J. Weiner

The ups and downs, the schemes and scams, the IPOs and hostile takeovers, the egos, the brilliance, the greed and the glory - this is the story of Wall Street told by the men and women who made it happen.

For those who want to understand how Wall Street became what it is, who want to know the biggest deals really happened, who wish they had been a fly on the wall when it all went down, this is the book.

Chapter 1

If you had to name the one person in the last hundred years who was most responsible for bringing individual investors to Wall Street, your list of candidates would have to begin with Charlie Merrill. Merrill and his firm, Merrill Lynch, probably did more than anyone to sell the stock market to America in the first half of the twentieth century. Considering Wall Street's traditional insular culture, it's hardly surprising that its first great democratizer was a true outsider. Merrill had none of the family connections and breeding that defined the upper crust of the financial world. His background was in grocery stores, and he brought many of those retail concepts to Wall Street through Merrill Lynch.

Charlie Merrill and his partner, Edmund Lynch, formed Merrill Lynch in 1914. They made a fortune for themselves and their customers through the Roaring Twenties by investing in the chain stores, like Safeway and McCrory, that were sprouting up around the country. These were the growth stocks of the day, and they were shunned by Wall Street's old guard, as personified by Morgan Stanley and Kuhn Loeb. But Merrill and Lynch didn't care. They kept on pitching stocks that others ignored and built a fairly substantial business with branches in Chicago, Detroit, and Los Angeles connected to the home office on Wall Street through a Teletype wire. Things were looking good.

But then, in 1928, Charlie Merrill became pessimistic about the stock market and his business. And here's where his story really begins.

EDWIN PERKINS (financial historian and author of Wall Street to Main Street: Charlie Merrill and Middle Class Investors):

In March of 1928, Charlie Merrill started to have some serious doubts about the market. He sent out letters to his customers telling how he felt. Of course, the people he had the hardest time convincing were Eddie Lynch and his partners. They thought it was one of those "new eras," like we heard about not too long ago. But Merrill got quite cautious and he sent letters to all their customers, not necessarily saying sell, but saying that now might not be a great time to be buying stocks on margin [with borrowed money]. And he urged the people with margin accounts to sell off some of their securities and pay off their debts.

CHARLIE MERRILL (cofounder and former chairman of Merrill Lynch and Company):

The advice we have given important corporations can be followed to advantage by all classes of investors. We do not urge that you sell securities indiscriminately, but we do advise, in no uncertain terms, that you lighten your obligations, or better still, pay them off entirely. Many fine reputations have been built up in this era of extraordinary prosperity, which will not stand the acid test when troublesome times are here. Take advantage of the present high prices and put your own financial house in order.

EDWIN PERKINS:

That was his feeling in early 1928. By 1929, he became even more convinced that this was true. In his letters he would quite often cite reports coming out of the Federal Reserve Bank saying that things were getting a little exuberant, sort of like when [Fed chairman Alan] Greenspan said that there was "irrational exuberance" in the market in the 1990s. I think Merrill was saying the same thing in 1929. He took it to heart. But the rest of his partners did not. At one point in 1929, Lynch went on vacation in Europe and gave Merrill power of attorney over his stocks, and Merrill sold every single one of them. Lynch wasn't happy about that at all, but later it turned out he was lucky that Merrill did that.

After the crash, Charlie Merrill and Eddie Lynch decided to downscale. Lynch was pretty certain he was ready to cash in his chips. He pretty much dropped out entirely. In the meantime, they sold their retail business, the branches that existed, to E. A. Pierce, which was around as sort of a regional brokerage chain. But it wasn't a total sale, because Merrill Lynch invested a million or so dollars in that firm. They, in a sense, became silent partners. And they kept the Merrill Lynch office on a skeleton staff in New York. They didn't look for new business, but when any of the bonds from the old business came through and needed to be financed, they'd handle it. There wasn't much business, but that's the way it was for the rest of Wall Street in the 1930s. Charlie, meanwhile, continued as a private investor, but he really focused most of his attention on Safeway and the chain stores he owned.

ROBERT NEWBURGER (executive director of the New York Stock Exchange Alliance of Floor Brokers and member of the exchange since 1940):

When I came to Wall Street [in 1933] Merrill Lynch was E. A. Pierce and Company. Ed Pierce had the office at 40 Wall Street, and E. A. Pierce had more branch offices than anyone else, about five more than Bache and Company. Both of them had their main offices at 40 Wall Street, oddly enough. Ed Pierce came to work at about six o'clock every morning and stayed there until late at night. He was a real shirtsleeve fellow, and he built up quite a business.

EDWIN PERKINS:

Like many other brokerage houses on Wall Street, E. A. Pierce fell on hard times through the 1930s. By 1939 it was facing dissolution. Pierce and Win Smith [a former Merrill Lynch executive who went to E. A. Pierce] were looking around to see who they could merge with. What Smith decided to do was try to convince Merrill to come back into the business. He showed him how with certain economies of scale here and there the company could be salvaged.

ROBERT MAGOWAN (former Merrill Lynch executive and Charlie Merrill's son-in-law):

Merrill was getting bored about 1940 after sitting on his ass for ten years. It looked like an opportunity, the only one left, and he had all the money.

Copyright © 2005 by Eric J. Weiner

About the Author

Eric J. Weiner is a financial journalist and former Wall Street reporter for the Dow Jones News Service. His stories have appeared in countless publications, from the Wall Street Journal to the Village Voice. He lives in Brooklyn, NY, with his wife, Paige.