The Book of the Week is “King of the Club” by Charles Gasparino, published in 2007.
The subject of this book “… was suffering from the downside of loyalty; he spent so much time surrounding himself with people he could trust that he forgot he also needed smart people who could get a job done in times of crisis, and he was now facing… the greatest crisis of his career.”
Sounds familiar. It was actually “Richard Grasso and the Survival of the New York Stock Exchange.” When he was fifteen years old, Grasso began trading stocks in an account held in his mother’s name, getting stock tips from his drug-store-owner-employer.
The author was rather vague about Grasso’s two years of military service which allegedly began in the mid 1960’s, spent: “…in Fort Meade, Maryland, though he did make periodic trips to Vietnam.” Apparently, Grasso’s eyesight was good enough to get him drafted by the U.S. Army, but not good enough to get him hired by the New York City Police Department, his first-choice employer after the military.
Grasso therefore began work as a back-office Wall-Street clerk at the New York Stock Exchange (NYSE) in early 1968. The author failed to mention whether Grasso was told to put his stocks in a blind trust, or whether his new employer had a “don’t ask, don’t tell” policy.
Grasso meteorically moved up through the ranks. He was innovative in executing new marketing initiatives for the exchange. He also poached companies that were listed on either the American Stock Exchange or the NASDAQ– that provided fierce competition to the NYSE. All three were stock markets of corporate entities that wanted to sell their shares far and wide. But the companies could be listed in only one place. Grasso convinced them that the NYSE was the best place to list.
By 1980, Grasso controlled NYSE listings, its trading floor and almost all its trading operations. In the mid-1980’s, the chair of NASDAQ, Bernie Madoff, claimed his market’s trading was more fair for investors because it executed trades electronically, thus multiple players were interacting continuously while setting impartial prices. The argument went that electronic trading made the market more “efficient”– as no buyers or sellers had significantly better pricing information than others on which to trade, theoretically.
In 1990, Grasso stepped up to the second-most powerful position at the NYSE. He was in charge of the exchange listees and, at the same time, in charge of regulating them. He did the legwork of bringing new business to the exchange. His boss, the chairman, did the public relations work of delivering speeches globally and persuading the federal government to keep conditions favorable for the exchange.
Several of the NYSE’s board of directors were Wall Street executives who passively continued to keep the status quo– lavishly rewarding Grasso monetarily for his undivided attention to lavishly lining their pockets year after year when times were good.
There was honor among thieves, as Grasso’s henchmen turned a blind eye to the various forms of illegal activity that allowed them to make obscene amounts of money on the trading floor. Until there wasn’t honor among thieves– as conditions changed.
From a not-for-profit-organization-legal-standpoint, most of the parties and individuals involved were engaging in various highly unethical activities, at best; conflicts of interest abounded as participants in the exchange network cooperated in a way that maximized profits for everyone until, as usual, some individuals got too greedy.
Being head of the New York Stock Exchange is not unlike leading the U.S. government. The marriage of politics and commerce is always fraught with conflicts of interest. Some are avoidable. It’s a shame that politics in particular tends to attract dishonest attention whores with hubris syndrome whose ethics are in the basement. Of course, they usually use the “everybody does it” excuse and change the subject if they can.
But there ought to be equal justice under the law for any of the accused– after an investigation of where the evidence leads— with NO jumping to conclusions, assumptions or biases prior to a thorough review of all evidence, if any. Along these lines, one would do well to ignore the superlative-laden, repetitive, sensationalist drivel emanating from the teleprompter box, um, er– idiot box.
Anyway, starting in the late 1990’s, unbridled greed led to a bunch of scandals. There was Long Term Capital Management, Enron, WorldCom, the dot-com crash, various major SEC violations committed by big-name brokerages; not to mention 9/11’s impact on the financial markets. All on Grasso’s watch. Yet, his pay kept soaring, anyway. It wasn’t pay-for-performance anymore.
Finally, Grasso got the same treatment, figuratively speaking, as other major historical figures. One week he was flying high and the next, kicked to the curb. Grasso was suffering from a bad case of hubris syndrome. In early September 2003, herd mentality / groupthink seized the board; jealousy (possibly subconscious) of his pay package reached critical mass.
Read the book to learn of the usual occurrences in such a situation (investigation, litigation, political machination and myth propagation) that led to the changing of more things, and more of same.