The stuff of Legends: The High Drama in the Canyons of Lower Manhattan seems to be coming to an end – the New York State Appellate Court ruled 3-to-1 this week that Richard Grasso, former high-wattage Chairman and CEO of the New York Stock Exchange from 1995 to 2003, can now keep his $190 million in compensation. And he can begin to get on with the rest of his life, after a fabled only-in-America life story, with a narrative reminiscent of Horatio Alger tales (but the Alger-kids didn’t grow up to be fabulously wealthy, as Dick did).
His former employer, the New York Stock Exchange, has already moved way beyond Dick’s years – since he left, the Exchange became a private company (publicly-traded), an electronic platform with global reach, with more electronic than floor-based trading, and many of Dick’s old colleagues have moved on. It’s a very different place now.
Dick Grasso was long held in high regard by rank and file stock exchange employees; he was the first CEO to rise from the lowest ranks (he started as a clerk) and succeeded to the highest levels of Wall Street’s arguably most important institution. When asked his background, Dick was known to quip…my family was in steel, oil and rubber – they owned a gas station! No one knew the Exchange like Dick Grasso; he knew every tic of the market and the reasons behind same. He literally grew up there, the only place he ever really worked, moving steadily through the chairs and into the top operating slot under Chairman Bill Donaldson, and then on to chairman and CEO.
Disclosure: I worked with Dick years back and consider him a good friend and former close colleague, and we saw each other regularly over the years since I left the NYSE. (The “Big Board” in those days, as compared to the “littler boards” – American Stock Exchange, NASDAQ and all the other exchanges around the country.) To illustrate my point about Dick’s knowledge, one day a few years back I was in his office with a client in tow when Dick kept looking up at the giant ticker on the opposite wall. He excused himself and went to a phone – came back and said, “…there is something wrong with Company X…they shouldn’t be trading at that volume at this hour of the morning…and with those price fluctuations…” He was right; a call to the company revealed the reasons why – so I would ask you: Could you track this kind of action for up to 3,000 different companies trading on the floor? Naahhh…that’s why Dick Grasso was, well, Dick Grasso! A New York original.
Most folks don’t really understand the NYSE, which has been a very complex organization over the decades (and still is, now that it also is a publicly-traded corporation and merged with Archipelago). The Exchange is an auction marketplace; people come to buy and sell and a thousand different forces exert themselves to shape the price of the transaction.
The NYSE was founded almost as soon as the new federal government of these United States of America. Merchants in those days gathered on the streets and in nearby coffee houses to do business. They especially gathered under a buttonwood tree near the corner of Broad and Wall streets in 1792 to trade the bonds that represented the indebtedness of the U.S.A. (Broad Street was laid out by the Dutch founders as a canal with thoroughfares on each side; Wall Street was marked by the wall built by settlers to keep Native Americans, wolves and the nearby English out of the little outpost of New Amsterdam.)
In 1790 the new federal government began issuing bonds ($80 million worth) to pay the debts left over from the American Revolution – these were the first publicly-traded securities in the USA and these transactions birthed the American securities industry and financial marketplace. Two years later the NYSE was created by the 24 brokers – every type of security was a “stock” in those days. (Their binding document was “The Buttonwood Agreement.”) They moved their business inside as well, there near the corners of Broad and Wall.
The NYSE is about money but also all about legends and tales and myths and story-telling. And what interesting characters have occupied (and perhaps still haunt) the old corner – Alexander Hamilton, the treasury secretary who created the original bonds to be sold, created our financial markets and tragically died young in a duel with the vice president of the United States across the Hudson River in Weehawken, New Jersey! (Wall Streeters walks past his grave on Rector Place in the Trinity Church graveyard. Sometimes they are heard to whistle…past the gravesite…on days the market is down.) Aaron Burr, the straight-shooting VP who left the field victorious, founded what would become the familiar Chase Bank (it goes like this: originally Bank of the Manhattan Company / then Chase Bank / Chase Manhattan / JPMorgan Chase, headed by another colorful fellow today, Jamie Dimon. And before him was David Rockefeller, grandson of the famous John D., founder of Standard Oil and a force on Wall Street.)
Great robber baron and swashbuckling railroad entrepreneurs camped out here: Jay Gould, James Fisk, Commodore Cornelius Vanderbilt, and more. Andrew Carnegie’s original company morphed into the first billion-dollar (market cap) American industrial company: US Steel. Hetty Green, the “Witch of Wall Street,” haunted the canyons and built a fortune worth hundreds of millions’ of dollars – when the dollar was really worth something!
In 1896 Mr. Dow of the Dow Jones Company created the first stock index made up of NYSE-traded stocks – 12 in all, and General Electric is the survivor – and the company’s little newspaper for insiders (The Wall Street Journal) had begun publication in 1889…with the majority of coverage centering on NYSE affairs and Wall Street activities. Bernard Baruch, advisor to US presidents, and the wise man of Lafayette Park (where he held forth on a bench opposite the White House), was once a seat-holder of the NYSE.
NYSE history includes JP Morgan, richest man in America, who almost single-handedly saved the markets in the 1907 panic (which led directly to formation of the Federal Reserve System). Anarchists went after him and his bank, opposite the Exchange, and the façade still contains shrapnel scars almost 100 yeas later. There were many more strong personalities in the parade of the NYSE through American life over the past two-plus centuries. Dick Grasso is perhaps the latest “colorful character” in the life of the NYSE. In so many ways in recent years he was The NYSE! Before the fall in 2003.
The Exchange was central to the US securities markets; as more Americans began to invest in securities the “brand” became better known and we could argue, more respected here and abroad. The NYSE had long been a membership-owned organization, actually owned by individual members and “member firms,” such as floor-based brokers and traders. In 1972 the NYSE, in part to head off pesky congressional intervention in its affairs, became a not-for-profit under New York State laws. (Many other changes were taking place at this time, including “the Big Bang,” when fixed commission rates were eliminated. Enter Charles Schwab & Co and discount brokerages. Member firms themselves went public and Merrill Lynch began issuing stock.)
This is about the time Dick Grasso entered the hallowed halls of 11 Wall Street – Mecca of the American financial markets. He took the subway to work from his home in Queens County. The year he arrived the Exchange eliminated paper transfer of stock certificates and switched to electronic record-keeping. The next year the “Blue Room” trading floor opened. Soon after the first African-American member was admitted – big changes were coming to the NYSE! And those changes included escalating volumes of share trading; the shift of ownership to institutional investors (now three-quarters or more of the market); massive deployment of very expensive technology; the launch of the Intermarket Trading System, with all trades linked on all exchanges, which really marked the emergence of today’s National Market System (NMS).
And through all these changes Dick Grasso kept making his contributions, helping to make the NYSE progress and grow stronger, and keeping himself on the rise up through the ranks, in time coming to personify the grand institution to many Americans. He understood the importance of the three constituencies that kept the NYSE at the top of the heap: (1) the Wall Street community (brokers); (2) the listed companies whose shares were traded; and the (3) investors whose commissions kept the broker-members happy and flush. A delicate balance, and Dick Grasso worked to keep the key players happy. (The fourth and fifth forces in The NYSE’s life are Congress, dispenser of securities laws and the Securities & Exchange Commission, regulators of Wall Street.)
In 1914 when the Great War broke out in Europe, the NYSE suspended all activities…not for days…or weeks – but from July 31 to December 15th of that year! The American financial markets, led by the NYSE, would be the dominant global players from 1915 on – the New World had surpassed the Old in still one more way. (There is still only one “New York Stock Exchange,” right? How many exchanges can you name in Europe? Oh yes, there is that London Stock Exchange.)
In November 1963 the tragic events in Dallas – President John F. Kennedy was assassinated – created panic at the NYSE and the institution stopped trading again, re- opening after the Day of National Mourning. And then came the morning of September 11, 2001 – and the terrorist attacks on downtown Manhattan. Ground Zero at the World Trade Centers was a quick walk from the vast complex at Broad and Wall streets. Dust and dirt – and panic — engulfed the corner of Broad and Wall streets. The Exchange closed that Tuesday, for the remainder of the week.
The opening the following Monday was the signal that Americans were going back to work – the nation looked on as Dick Grasso and uniformed responders gathered around him banged that opening bell. Cheers went up that could be heard across America on CNN, CNBC etc. The stories have been told and re told about how hard everyone worked behind the scenes to open the Exchange for business – while the world looked on and cheered. Chairman Dick Grasso led the efforts, or so the stories go until the recent troubles. (Symbol of the Fall: The NYSE has taken down a plaque recognizing Dick’s efforts; it was celebrated at the time by Governor George Pataki and Mayor Rudy Giuliani and other well-knowns.)
So now we come to the end of the Grasso Era, too soon after the heroics of the September 2001 events. Now Secretary of the Treasury Henry Paulson (then at Goldman Sachs) was according to public accounts a leader in the denouement of the chairman. Other powerful men on the board agreed it was the end of Dick’s time. The Exchange had made public the extent of Richard Grasso’s compensation (and especially the dazzling total of all comp owed – wow!) Even the faithful at the corner of Wall and Broad were shocked and expressing disappointment at the size of the comp package.
Then-Attorney General Eliot Spitzer, who later moved on to the governor’s office and on to his own fall from fame and grace, didn’t like what he was seeing – this was a New York State not-for-profit! Under his jurisdiction! This cannot stand! I am the Sheriff of Wall Street! This is reverse Robin Hood! (And then there were the reported personal feud details – the adjoining urinal standoff etc.) This did become personal – for Dick, of course. And expensive – The Wall Street Journal’s story today by Aaron Lucchetti noted the affair cost some $70 million or more. Not to mention the bruises and humiliation for the man in the center of it all who grew his career from lowly clerk to the most powerful post of the most powerful financial institution in America, if not on the world stage!
And here we are in early July 2008 – Dick Grasso gets to keep his money. Eliot Spitzer has been de-camped from the powerful post of Governor of New York and is nowhere to be seen – it was his lawsuit that Dick just won on appeal. The new attorney general, the very able Andrew Cuomo, probably won’t pursue the case in appeal. Smart move, Andrew. There are really no winners here. Rudy Giuliani, Dick’s downtown buddy, is back in the private security business after a run for the presidency. John Thain, who moved from Goldman Sachs to succeed Dick at the NYSE, has moved on to the top job at Merrill Lynch. He did his thing: He carried out Dick’s grand dream of taking the Exchange public, and left the corner of Broad and Wall victorious.
The one important question that will be raised by bobbling heads on cable TV tonight will be: What does this say about the salaries in Corporate America – is this a free pass now for greedy CEOs? (Let’s not forget that the powerful tend to take care of their own – Dick was paid as much as $31 million in some years by his board, made up of the most powerful forces on Wall Street and in Corporate America. Dick had earned his pay, the most influential of the most powerful argued as the board comp committee approved this and that in rewards. But times have changed for CEOs and CEO pay over the past few years. This will probably not be a “go – green light” for outsize pay packages. Like so many other aspects of life at Broad and Wall, this was uniquely about the NYSE.)
All this shall come to pass: Dick Grasso will join the long parade of truly legendary characters who have given Wall Street and the New York Stock Exchange the special flavor and curious appeal that fascinate Americans and even folks in distant lands. (Did we mention yet poor Richard Whitney, NYSE president, who served a prison term at Sing Sing for fraud?) Unfortunately for Dick, he will always have certain adjectives precede his name in news stories. His story will be told again and again. But at least he gets to keep his money.
Oh, speaking of legends — about that original buttonwood tree (a kind of sycamore). Of course, the tree was itself a legend. (As I’ve said, Wall Streeters love legends and myths and creation stories and powerful narratives about heroes and folklore about winning and losing great fortunes!) The famed tree stood on the corner until June 14, 1865 when a powerful storm blew it over. “Today, the buttonwood is remembered as the site of the founding of The NYSE. Whether it actually happened that way is less important than the buttonwood’s symbolizing a time when the original NYSE trading post was a living tree on a busy commercial thoroughfare…(1).”
As the great Kurt Vonnegut would say…and so it goes…the old buttonwood is long gone…those post traders are fast disappearing from the NYSE floor…the Exchange itself has changed dramatically…flying digits carry trades ‘round the world…and now, the legend of Dick Grasso winning his $190 million fight will be added to the lore at the corner of Broad and Wall! What a place, Wall Street – it’s got a thousand stories, and now one fascinating tale more for future generations!
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(Footnotes: (1) We quoted liberally here from the great history of The New York Stock Exchange edited by its former senior VP and corporate secretary Jim Buck, another valued colleague of ours at The NYSE. Another great leader, but a quieter man of his time. It’s worth reading: published by Greenwich Publishing, Lyme, Connecticut. For great reading of the drama of Dick Grasso and the Exchange, see the current book by Charlie Gasparino – “King of the Club.” Speaking personally, it was good to “grow up” at the corner of Broad and Wall, and to learn so many fascinating things about the world’s capital markets. I am indebted to all of my former colleagues there for their patient teaching, and camaraderie friendship – especially including one Richard Grasso, formerly of Queens, New York!)
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