Good Time Charlie : Part 2

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

(Page 2 of 5)

EDWIN PERKINS:

The other thing I think that might've helped that decision was the death of Eddie Lynch. He died in 1938. And Lynch and Merrill had had some conflicts in the twenties and Merrill wasn't too eager to go through that again. But Smith convinced Merrill that if he could come in and put up some money, he could be the single senior partner. He could make all the major strategic decisions. That appealed to Merrill. So he decided to come back into the business in 1940. You really could say that the modern era of Wall Street began right there.

WINTHROP SMITH JR. (former Merrill Lynch executive vice president and son of former chairman Winthrop Smith Sr.):

To be successful in business you have to realize that a great time to do something often is when nobody else thinks it's a great time. The contrarian usually is a step ahead. When you look at this industry back then, nobody wanted to get in and a lot of people wanted to get out. The world looked terrible in 1939. We hadn't really emerged yet from the Depression and Europe was at war. Why would you want to take a risk at that time?

JOE NOCERA (financial journalist and author of A Piece of the Action):

Win Smith said, "The firm is about to fold. Please come and save it." That's the perfect kind of appeal to a guy like Charlie Merrill because being the savior and the center of attention is exactly what he craved.

WINTHROP SMITH JR.:

It really did take Merrill a while to warm to the concept. A fellow by the name of Ted Braun was very important in all this. He was a consultant who had worked with Merrill in California during his Safeway days and ended up being a consultant to Nelson Rockefeller and others. Braun did some market research that convinced Merrill - and reinforced my father's conviction - that out of the adversity that was happening there was a real opportunity to do something different.

JOE NOCERA:

What made Charlie Merrill different from the rest of his contemporaries on Wall Street was, he had a populist instinct. That's what he brought to the table right from the start. Charlie Merrill did not grow up wealthy. He was a poor boy, basically. He had to drop out of college for a while because his father was this sort of itinerant doctor who went broke. So he had to go out and make some money to pay for classes. Through a variety of circumstances he ended up on Wall Street basically as a kid. And even though he evolved into this extremely rich and powerful financier, he always stressed that the little guy could do this too, which was a foreign notion in the early part of the twentieth century.

DONALD REGAN (former Merrill Lynch chairman, treasury secretary, and White House chief of staff):

How do you take the mystery out of finance? How can you explain this business to somebody else so the curtain parts for him, too? "Take the mystery out of finance!" It's what Merrill kept advocating.

JAMES MERRILL (poet, author, and son of Charlie Merrill):

My father despised secrecy. Demystification had been the key to his own great success: no more mumbo jumbo from Harvard men in paneled rooms; let the stock market's workings henceforth be intelligible even to the small investor.

WINTHROP SMITH JR.:

There was a famous Roper Survey in 1939 that showed most people in this country thought livestock was traded on the New York Stock Exchange, not stocks and bonds. In fact, most people didn't know the difference between a stock and a bond. There was a real lack of information. And the truth is, until the SEC [Securities and Exchange Commission] was formed in 1933 the little guy didn't get a break.

There wasn't a transparent system. There wasn't a system of checks and balances. You had poor understanding and frankly not a good environment for the individual to participate. You also had Wall Street firms that were run very poorly and very unprofitably. But even though times were tough, Charlie Merrill could see that there would be a great need to recapitalize the United States in the near future to fuel the coming growth after the war. The individual investor could be a fundamental part of that growth. But what was needed was education. People were going to have to understand how to invest. There was going to have to be a different approach. The clients' interests had to be served, not the firm's interests, or this would never work.

There also was an understanding that firms were going to have to be run differently. A lot of the principles Charlie Merrill learned from Safeway and the chain stores were brought to Merrill Lynch. It's a high-volume, low-margin business that has to be run like a business, not a club. If you looked at a lot of the Wall Street firms in 1940, like J. P. Morgan, they operated in palaces with mahogany walls and stuffed leather sofas. Merrill said most of the business is done by telephone so you don't need mahogany walls and leather sofas. You had to run the business efficiently. The whole idea of sales per square foot was a merchandising principle that Charlie brought to this firm. The other thing was advertising, which Wall Street firms never did. Charlie brought advertising to Wall Street. He did everything from print advertising to sending people out across the country in wagons and setting up shop in places like Williamsport, Pennsylvania.

DONALD REGAN:

Charlie Merrill was against the establishment on Wall Street from the time he started. Remember that Merrill and Eddie Lynch originally were known as "the boy bandits" of Wall Street. Why? Because they cut prices, did things differently than anyone else. They went after the chain stores for business. It may seem funny now, but chain stores were controversial back then. I remember in my high school days at Cambridge Latin in the 1930s one of the major topics of the debating team was: "Resolved: Chain Stores Should Be Abolished." Individual towns couldn't stand having a major store - a Kroger or Safeway or A&P - on Main Street.

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.