Bull Run Wall Street, the Democrats and the New Politics of Personal Finance by Dan Gross, Daniel Gross, Daniel Gross

From the Publisher

During the historic bull market of the last decade, a series of powerful tremors rocked the financial world: global economic crises; the Internet explosion and day trading craze; the 401k boom. Perhaps the most seismic shift of all was the "democratization" of the stock market, as middle class investors joined the party and the Democratics followed suit, effectively ending a century-old tradition in which Republicans, never Democrats, were the party most solidly aligned with Wall Street. These developments have defined the last decade and will help set the political agenda for the next. We are entering an era when the personal finance is the political.

In Bull Run, journalist Daniel Gross outlines these important changes and explores their implications for our country, our pocketbooks, and our two major parties. His fresh take on Wall Street, his provocative opinions on the new relationship between politics and finance, and a wealth of enlightening stories and examples make this book a must for Wall Streeters, business leaders, and anyone who wants to understand what's happening in the market--and what might happen next.

About the Author:

Daniel Gross was educated at Cornell University and holds an A.M. in American history from Harvard University. He has written on business, politics and history for publications including The Washington Post, New York, The New Republic, The New York Observer, and Investment News. Gross's first book, Forbes Greatest Business Stories of All Time, was a Business Week and New York Times business bestseller, and a finalist for the Financial Times "Lex" award, given to the best business history book of 1996. He lives in Manhattan with his wife and daughter.

Library Journal

One of the more salient features of the 1990s bull market has been the creation of enormous new wealth. Here, Gross (Forbes Greatest Business Stories of All Time) pulls back the financial curtains to reveal the "democratization of money" he sees as the result. With the growth of pension funds, labor and education retirement funds, mutual funds, and new investment groups, investment has become more decentralized. Since 1990, the percentage of Americans owning stocks and mutual funds has doubled, from 23 to 46. As a result, argues Gross, Wall Street is no longer the purview of "old-moneyed" Republicans; a lot more people have ownership stakes in stocks and bonds. Much of this new wealth has found its way into the hands of Democrats, benefiting Bill Clinton, Al Gore, and other Democratic politicians. Unfortunately, the excessive cash has also caused problems, resulting in calls for campaign finance reform. Unlike books that offer insight into how people acquire and keep wealth, e.g., Thomas J. Stanley and William D. Danko's The Millionaire Next Door (Longstreet, 1996), this book explores the consequences of wealth. Appropriate for larger public libraries.--Richard Drezen, Washington Post News Research, Washington, DC Copyright 2000 Cahners Business Information.\

Booknews

For the first time in American history, a majority of citizens have a stake in the public equity and debt markets. This study outlines changes in the wake of the latest historic bull market and explores their implications for the country, individuals, and the two major political parties. Gross has written for publications including and . His first book, , was a business bestseller. Annotation c. Book News, Inc., Portland, OR (booknews.com)

Internet Bookwatch

There have been major shifts and changes in the American financial world over the past two decades driven by the aging baby boom generation, the Internet and computerized day trading, global economic crises, and the "democratization" of the stock and markets. In Bull Run: Wall Street, The Democrats, And The New Politics Of Personal Finance, Daniel Gross examines how the changes in attitudes and policies of the Democratic party under the influence of the Clinton administration has led to an unprecedented period of sustained stability and growth in the American financial community, the rapidly increasing percentage of Americans owning stocks and mutual funds, with the result that today a majority of citizens have a personal stake in public equity and debt markets. Gross offers provocative opinions backed with true-life stories illustrating the new relationship and interdependence of politics and finance, Wall Street, Main Street, and Washington. Bull Run is highly recommended, informative reading for do-it-yourself investors seeking to understand American financial markets -- and what the on-coming decade might bring.

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Table of Contents

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Chapter One

The Democratization of Money

Using a cab driver as a straw man is one of the oldest journalistic tricks in the book. For decades, writers parachuting into new territory with the intent of reporting on a certain individual, a sports team, or a trend have used a conversation with a hack driver as a dramatic device. Aside from sparing the writer the effort of having to seek out and interview an authentic working-class individual, talking shop with a cabbie lends a certain blue-collar authenticity to even the most elitist reporter. If the salt-of-the-earth cab drivers are talking about a topic, the logic goes, it must merit our attention—no matter what the subject matter.

    For example, writer James Atlas traveled to Washington in 1989 to do some reporting for a New York Times Magazine article about the middlebrow intellectuals' topic du jour, the assertion by political theorist Francis Fukuyama that "History Had Ended." In the piece, Atlas reported on his casual conversation with a Washington cab driver about Fukuyama's neo-Hegelian thesis—which goes to show that some clichés are endlessly elastic. Thus it is with some trepidation that I kick off this book with an anecdote about an encounter with ... a cab driver.

    In early April 1998, I flew into Boston on one of those perfect spring days that make you realize why the Puritan settlers chose to disembark there 370 years ago. Brilliant sunshine sparkled on the Charles River, where crew teams knifed their boats through the water. The air, infused with the slightest essence ofsalt, was warm but crisp. As I climbed into a cab at Logan Airport, I noticed that the driver—a slightly disheveled man with heavy black-rimmed glasses and sparse, yellowed teeth—was perusing a document whose distinctive rectangular shape and green tint I recognized as a statement from Fidelity Investments.

    Spotting a fellow Fidelity Investments account holder—one of the 12 million in the country—I made small talk. "Checking your investments?" I asked snarkily. Over the next half hour, I would come to regret the question and wonder why I didn't instead bury my nose in the Boston Globe.

    The cabbie's name was Sheldon Appel, and he had one of those inordinately heavy Beantown accents you hear only on Boston-area talk radio or in the Fenway Park bleachers. "Let me aaahsk you a few questions," he said, launching into a routine he'd obviously performed before on unsuspecting passengers. He proceeded to aaahsk me if I worked in a field related to finance (yes), what my income was (none of his business), and if I was married (yes). Then he made me look silly. In rapid sequence, he fired off a series of complicated questions about personal finance: What's the difference between a Keogh and a SEP-IRA plan, and how much money can a person legitimately stow in each annually? What's the level of income for a child that triggers the kiddie tax? To whom is the alternative minimum tax applicable? What's the maximum allowable home mortgage deduction? Each time, I mulled the question, fumfered for a few seconds, and mumbled an incorrect response. Peeking into the rearview mirror to check out the dull look on my face, he then ripped off the answers with an air of bemused satisfaction.

    Appearances to the contrary, Mr. Appel was apparently a savvy and experienced investor. He kept the Fidelity statements in his car, he said, because he didn't want his current girlfriend, with whom he shared an apartment, to know how much money he had. (Appel was smarting from a prior divorce.) He described his condo in Florida, and told of his ability to get in on hot initial public offerings managed by Merrill Lynch, where his girlfriend worked. As traffic backed up on Storrow Drive, and as my destination loomed achingly far in the distance, Appel began to spin tales about the IRS's efforts to get him. While I listened, my mind sporadically flashed back to Conspiracy Theory, the Mel Gibson-Julia Roberts vehicle in which Gibson played a deranged but well-meaning cab driver. When Appel mentioned the CIA in a muted voice, I checked to make sure the doors weren't locked. I began to wish I had saved $20 and taken the "T."

    But just as I was beginning to doubt my driver's sanity, he passed his statements over the front seat. One, from Fidelity, showed a balance of more than $100,000. Another, from Merrill Lynch, detailed holdings in the low six figures. Stocks, bonds, mutual funds—in all a nicely balanced portfolio. So here I was, relaxing in the backseat of a beat-up Ford, having alighted from a Delta shuttle where my fellow passengers included former White House counsel Bernard Nussbaum, wearing my one decent suit, clutching a newly leased Dell laptop, feeling rather professional. And I was being chauffeured to Harvard Square by a cabbie with a net worth in the mid-six figures—several times the size of my meager portfolio.

    So what business does our friendly cab driver have being the leadoff character in a book about the markets, the Democratic party, and the new politics of personal finance? Answer: everything.

Among the many astonishing developments of the past decade has been a phenomenon I've dubbed the "democratization of money." The democratization of money has several different meanings and distinct manifestations. Some of them, like the millions of Americans who now trade stocks with abandon on the Internet, are glaringly obvious. Others, like the growth and power of pension plans representing public employees, are latent. But whether advertised in neon or bubbling sub rosa, the democratization of money was one of the dominating and distinguishing marks of the 1990s. After the crash of 1987, the entire American financial system, from underwriters to mutual fund companies, from commercial banks to the financial news media, retooled and restructured to serve people like Appel and the 84 million other Americans who own stocks, to ply them with information and services, and to make them feel as if they are insiders in one of the greatest and longest-running confidence games around: the 1990s bull market.

    In 2000, with our brief memory spans and even shorter news cycles, it's difficult to conceive that the financial world once was quite different. But in terms of money and the markets, the events of the past decade have been simply astonishing. For much of the twentieth century, the percentage of American households owning stock hovered between 10 percent and 20 percent. As late as 1990, fewer than a quarter of adult Americans owned stock or mutual funds. But as equity values soared in the 1990s, individual investors flooded into the markets like Christmas shoppers in pursuit of Furby dolls. Since 1990, the percentage of Americans owning stocks and mutual funds has doubled, from 23 percent to 46 percent. Factor in the millions whose pension funds are invested in the markets, and for the first time in American history, a majority of citizens have a stake in the public equity and debt markets.

    In the 1990s, investing evolved from the exclusive privilege of the rich into a do-it-yourself hobby for the vast middle and upper-middle class. Along with the explosion of the Internet, this trend may prove to be one of the decade's more important and far-reaching developments. Today, more people own stocks than surf the Internet, watch the hit TV show ER, or vote—and by large margins. In November 1995, mutual fund assets, at about $2.6 trillion, first exceeded deposits in the commercial banking system. In other words, Americans for the past five years have felt more comfortable stowing their cash in the volatile markets than in federally insured bank accounts. Indeed, people are investing in stocks to the exclusion of other, more traditional instruments. The percentage of individual wealth tied up in equities soared to 28 percent from 12 percent in 1992. Meanwhile, money management firms have stumbled over themselves to pitch new offerings to small investors. Today, there are some 7,400 mutual funds, up from 3,086 in 1990. That's pretty stunning, considering there are only about 7,000 stocks traded on the principal U.S. exchanges. In addition, brokerages ranging from established behemoths like Merrill Lynch to upstarts like E-Trade (whose customer base has grown from zero in 1992 to 1.5 million today) have paved the way for even the most humble investor to play the game with the big boys. In 1996, it cost $60 to trade a stock with Fidelity; today, a Fidelity Internet trade costs under $20. Such equalizing shifts may explain why PaineWebber CEO Richard Marron dubbed the 1990s "the decade of the little guy."

    The little guys—like me and my friendly taxi driver—thrive on a steady and nutritious diet of financial media. When the market crashed in 1987, there was one failing financial news network, the unimaginatively named Financial News Network. Like many other creatures of the 1980s boom, it filed for Chapter 11 bankruptcy protection soon after the October 1987 drubbing. Today, however, no fewer than three financial television networks cover the markets with all the intensity, fanfare, and overkill the media bring to bear on sporting events.

    CNBC, the leading financial news network, was for several years after its birth in 1989 a mere blip on the Nielsen meters. In 1992 it posted a meager 0.3 rating, meaning no more than 50,000 viewers were tuning in at any given time. In the mid-1990s, CNBC was transformed from a laggard into a global, profitable brand name by an unlikely force of democratization: Roger Ailes. The paunchy media adviser to both Ronald Reagan and George Bush and one-time producer of Rush Limbaugh's television show took CNBC's helm in 1993. As the bull market continued to rage throughout the 1990s, Ailes's revamped lineup of news and talk attracted more and more viewers. By 1995, CNBC reached 55 million U.S. homes and raked in a $40 million profit. Capitalizing on the ever-globalizing economy, the network spawned CNBC Asia and CNBC Europe. Today, the networks collectively reach about 147 million homes in 70 countries. CNBC has even created its own stable of stars, including Maria Bartiromo, aka the "Money Honey." The gorgeous thirty-two-year-old market reporter, who loses her Bay Ridge, Brooklyn, accent when the klieg lights go on, is an object of devotion among the troglodytes who roam the floor of the New York Stock Exchange. The Christiane Amanpour of Wall Street, she shouts out the latest developments—relayed to her by producers—while being jostled by floor traders.

    Jealous of CNBC's profits and ubiquity in the mid-1990s, other news organizations hastened to start rivals. Ted Turner's CNNfn debuted in 1996. The same year, Dow Jones & Co., long a bit player in TV land, joined forces with ITT to buy a television station from New York City for more than $100 million, and dubbed it WBIS+. In retrospect, it should have been called WBUST. It disappeared within a year, as ITT sold its interest in the station. (Dow Jones later struck an alliance with CNBC to get more of its reporters on air.) WBIS+ was replaced on New York's cable systems by Bloomberg Television, a venture of information mogul Michael Bloomberg. The three networks—CNBC, CNNfn, and Bloomberg Television—have become a part of the American public landscape, airing silently in restaurants, hotel lobbies, and airports. In November 1999, CNBC's daytime Nielsen ratings topped those of CNN.

    The growth in financial television has been mimicked by a boom in print media. The 1990s started with one mass-circulation personal finance magazine, Time Warner's Money. In 1992 two new entrants came along. The first was Worth, a glossy lifestyle monthly backed by the venture-capital arm of Fidelity Investments. The second was Smart Money, backed by Dow Jones: It proved the rare instance in which the venerable company—working with Hearst Publications—successfully leveraged its heritage of journalistic excellence into a profitable sideline. Smart Money was run by Steven Swartz, a thirty-year-old wunderkind. Just seven years out of Harvard, the short, boyish-looking journalist had shared a Pulitzer Prize for covering the 1987 market crash as an editor and writer on the Wall Street Journal's page-one staff. Assembling a staff from the Journal, including fellow Pulitzer winner James Stewart, Swartz started a mass-circulation magazine from scratch. Chockablock with stock and mutual fund recommendations, as well as tips on how to get the most out of credit cards, Smart Money became a huge success, winning not only a National Magazine Award but proving a profitable addition to Dow Jones's bottom line. Its circulation grew from about 396,000 in 1993 to 760,000 in 1999. For its part, Worth sports a circulation of 534,000.

    The most successful purveyor of financial information in the 1990s was Michael Bloomberg. His multimedia empire now includes a global wire service with dozens of bureaus, a radio station, a television network, two magazines, and a best-selling book entitled, naturally, Bloomberg by Bloomberg. With his billboard trucks, rapidly expanding empire, political aspirations, and propensity for putting his name on everything from magazines to the napkins in the in-house snack bar, Bloomberg is the William Randolph Hearst of the 1990s. But whereas Hearst's late-nineteenth-century readers thirsted for details of the latest Spanish outrage in Cuba or of public corruption, Bloomberg's manifold info-consumers thirst for the progress of the Standard & Poor's (S&P) 500 and the performance of the latest initial public offering (IPO).

    The growth of the financial media has helped contribute to a growing sense of the markets as a shared public space, one that has room for investors large and small, and in which those with the time to monitor and plot their own investments can deal on equal terms with large institutions. Stock ownership has even trickled down to the working and lower classes to a degree. I say this not just because my friendly cab driver—a working-class, Northeastern, urban ethnic; in other words, a prototypical Democrat—has a six-figure portfolio. Rather, in the 1990s, more and more members of traditional Democratic constituencies became moneyed—in the sense that their holdings in stocks, bonds, and mutual funds soared along with the Dow. These individuals include the millions of government workers, schoolteachers, and unionized manufacturing laborers, all of whom own stocks indirectly through their active and powerful pension funds. And there are more of these folks than might be expected. Despite the antigovernment nostrums of the Reagan era and President Clinton's 1995 declaration that the "era of big government is over," total government employment in the United States rose from 15.8 million in 1982 to 20.0 million in 1998. Since 1992, in fact, the public sector has employed more Americans than the manufacturing sector. Because the vast majority of public employees are covered by pensions, and because the public sector is growing and aging, public pension plans have found themselves with ever-larger piles of cash to invest. Equity holdings of public employee pension funds rose from $120 billion in 1985 to $1.325 trillion in 1998, making them among the largest and most aggressive owners of equities in the nation. The California Public Employees Retirement System (CALPERS), for example, owns some $105 billion in stocks.

    Many of the people who run such large pension funds are popularly elected, like Carl McCall, the ambitious New York state comptroller. McCall was the only New York Democrat elected at the state level in 1994, and was easily reelected in 1998. A former banker, and the first black to hold statewide office in New York, McCall runs the state's Common Retirement Fund—a role that gives him far more juice than the traditional comptroller's duties of auditing state agencies and local governments. New York's $115 billion portfolio is larger than Fidelity's Magellan Fund, the world's largest mutual fund.

    McCall's situation is not as unique as it seems. Take a simple question: Who owns the largest portfolio of stocks today? If you guessed Warren Buffett or even Bill Gates, you're wrong. In fact, the largest single portfolio of stocks is held in escrow for a class of people whose collective attitude toward Wall Street is indifferent at best, and ideologically hostile at worst. TIAA-CREF, whose net assets top $273 billion, invests the money of some two million college professors, researchers, and employees of 9,000 nonprofit organizations. From its Manhattan headquarters, TIAA-CREF's investment officers manage a portfolio whose worth is greater than the combined market capitalizations of General Motors, Ford, and Daimler-Chrysler. In the past decade, intellectuals have frequently complained about corporate incursions into the once-protected grounds of universities. Irony of ironies, the intellectuals have been making greater inroads into publicly held corporations.

    The expanding shareholder population, the boom in the financial media, and the growing financial heft of surrogates for nontraditional investors have helped contribute to a sense that the markets as a cultural phenomenon are more democratic. After all, when critics—journalists, politicians, intellectuals—talked about money in the 1980s, they were signifying a certain group of attributes: greed, selfishness, and, almost inevitably, corruption. Rent Oliver Stone's Wall Street, or peruse the titles of the classic books on 1980s Wall Street culture: Barbarians at the Gate, Den of Thieves, Predators' Ball. These works present an almost uniformly unsavory gaggle of grasping, salivating financiers who are disloyal friends and lovers to boot.

    It was easy to be critical of Wall Street back then because it was not representative of what politicians like to call the "real America." In the 1980s, stock investing was still restricted to a small minority of the population. Furthermore, the action seemed to be taking place in private, behind the glittering glass walls of office buildings in lower Manhattan, not on the bustling floor of the New York Stock Exchange. Even the language employed to describe the most notorious activities of the decade had dark, undemocratic shadings. The most prominent and written-about financial development of the 1980s was the leveraged buyout (LBO), a tactic through which investors took a company private by buying out the public shareholders, then restructured the company and resold it for a huge profit. The intent, of course, was to cut the public shareholders out of the wealth creation. The practitioners and enablers of this black art—Henry Kravis, T. Boone Pickens, Ron Perelman, Michael Milken, among others—were the most exalted and envied financial figures of the 1980s. How different the prevailing attitude of the democratic 1990s, when the ultimate goal of any private financier is to take a company public, to let the public in on ownership and watch the shares take off like a wind-up toy. Between 1996 and 1998 alone, there were 1,141 initial public offerings, or more than one a day.

    So democratized did the markets become in the 1990s that the conventional wisdom is that one doesn't have to be a sophisticated LBO artist to succeed on Wall Street. Quite the contrary. The Motley Fool—a Web site that spawned a half dozen investment and personal finance books-holds out as its premise that a fool could invest safely in the market. The authors, brothers David and Tom Gardner, appear on the cover of their books wearing jesters' hats. A slightly different message was conveyed by the ladies of the Beardstown Investment Club, who picked stocks from their little ol' hamlet (population 6,000) 225 miles southwest of Chicago. Their first book, The Beardstown Ladies Common Sense Investment Guide, featured on its cover a picture of sixteen heavy-set middle-aged women in floral prints holding fans of dollar bills. The group, formed in 1983, claimed 23.4 percent annual returns on the stocks they picked. In the era of democratized money, the Beardstown Ladies seemed to say, every man and woman could be his or her own stock picker. Their bubble was punctured in 1998, when a reporter from Chicago magazine ran their numbers. It turned out the Beardstown Ladies' records were considerably more modest than their ghostwriter, former Time writer Leslie Whitaker, suggested. Instead of notching 23.4 percent annual returns, they instead returned about 9 percent. The unmasking of the Beardstown Ladies proves to be yet another example of the democratization of money. In the 1990s, you don't have to be a slick, wealthy insider to get rich by pulling the wool over the eyes of the investing public.

    The contrast between the financial icons of the two decades is similarly revealing. To be sure, the men who captured the most headlines in the 1980s—Henry Kravis, Carl Icahn, and Michael Milken—are still with us, though in somewhat altered form. Kravis, perhaps sensing a shift in the zeitgeist, divorced his 1980s wife, socialite/fashion designer Carolyn Roehm, and married a serious-minded Canadian economist; Milken is active in educational ventures, raises funds for prostate cancer research, and has authored a macrobiotic cookbook. But Kravis, Milken, and the rest of the 1980s Masters of the Universe have been surpassed in the popular imagination by a group of men who make money not solely for themselves or for their private backers and lenders but for public shareholders. In the age of democratized money, after all, shareholder value is the ultimate measuring stick of an executive's worth. So businessmen like Warren Buffett, Bill Gates, Jeff Bezos of Amazon.com, Michael Dell, the founder of Dell Computers, Bernard Marcus and Arthur Blank of Home Depot, and mutual fund manager Michael Price have been lionized in the press. Each became a billionaire, or near billionaire, in the 1990s. But they didn't get into the ten-figure club merely by having their chums on the board of directors grant them huge options stakes at ridiculously low prices. Rather, their wealth rose as the stock they owned in the companies they founded or bought rose exponentially—at almost exactly the same rate as stock held by their common shareholders. Over the course of the 1990s, a retiree who socked away 200 shares of Microsoft in his 40l(K) reaped the same percentage return on cash invested as Bill Gates did—7,723 percent.

    The leading moneymen of the 1990s differ from their 1980s counterparts not only in their more wholesome attitudes but also in their conduct. As Connie Bruck so deftly portrayed it in her eponymous book, the defining event of 1980s money culture was the Predators' Ball, Drexel Burnham Lambert's annual Beverly Hills junk-bond conference. Glitzy, over-the-top, and intensely private, it featured gorgeous prostitutes and performances by the likes of Frank Sinatra and Diana Ross. But Drexel, which once occupied 55 Broad Street and 60 Broad Street in downtown Manhattan, is gone. Fifty-five Broad—now dubbed the New York Information and Technology Center—has been transformed by the Rudin real estate family into a playground for cyber-entrepreneurs. It features a cozy playroom called the Hearth, with foosball and pool tables. Across the street, 60 Broad is being converted into loft apartments.

    The defining event of today's money culture, by contrast, is the annual meeting of Berkshire-Hathaway, Warren Buffett's publicly held investment vehicle. Each May, the second-wealthiest man in America invites all stockholders to plebeian Omaha, Nebraska, for a weekend. There, hotshot money managers rub shoulders with retirees who scraped together the $2,200 necessary to buy a share of the company's Class B stock. The homespun value stock investor neatly embodies the principles of the democratization of money. Here's a multibillionaire based in the heartland, making sound long-term investments in blue-chip companies like Coca-Cola, the Washington Post Co., and GEICO, sharing his wisdom and profits with adoring shareholders, and operating with a sense of openness and inclusion. How middle American, how family-friendly, how wholesome, how ... democratic.

    But what does the democratization of money mean? Embarrassing encounters between writers and cab drivers? Higher ratings for CNBC? A wider range of mutual funds from which to choose? Yes, yes, and yes. But none of these developments are as important as what I would argue is the larger meaning: its effect on politics.

    These developments, combined with secular trends in the two-party system, have altered the relationship between money and politics. And that interaction has gone practically unnoticed in this decade of unexpected developments and revolutions. Think about all that's transpired in the 1990s. A Democrat won two presidential elections for the first time since 1936; the annual federal budget swung from a $292 billion deficit in 1992 to a $77 billion annual surplus in 1999. Republicans gained control of the House of Representatives for the first time since 1952; Newt Gingrich rose from the backbenches to the podium of the House, only to resign in frustration; and the Republican majority put a president on trial for impeachment for the first time since 1869. Each of these phenomena has been the subject of relentless media overkill. But one of the more interesting upheavals has gone underreported. Specifically, I mean the reorientation of the Democratic party, through the Clinton administration, toward Wall Street, and the coincident alienation of many Republicans from one of their historical bases. These shifts, too, are an important and far-reaching manifestation of the democratization of money.

    In the 1980s, it almost goes without saying, big money was identified as Republican. Haynes Johnson opened his great book on the 1980s, Sleepwalking Through History, with an anecdote about private jets lining up on the tarmac at National Airport for Reagan's first inaugural. From that moment on, a series of political and cultural developments—the tax cuts, the stock boom, the LBO craze, Michael J. Fox's junior-Reaganite character on Family Ties, Dynasty—seemed to reinforce the historical identification between the financial upper crust and the party of Lincoln. The major financiers of the decade were, almost to a man, Republicans. So were many of the more notorious figures in the savings and loan crisis, from Charles Keating to David Paul. The biggest corporate merger of the 1980s was the $44 billion marriage of R. J. Reynolds (RJR) and Nabisco, which was Republican to its very core—quite apart from the fact that it involved an industry (tobacco) that had increasingly come to be identified with the Republican party. The cast of characters included the Forstmann brothers (Ted and Nick), Henry Kravis, American Express chairman and CEO James Robinson and his publicist wife, Linda—active Republicans all. One of the pivotal scenes in HBO's cinematic treatment Barbarians at the Gate was set at a Bush-Quayle 1988 fundraiser.

    Flash forward to the biggest serious financial services deal of the 1990s, the 1998 merger between Citibank and Travelers, to form Citicorp. The deal had a Democratic tinge to it. Both merger partners, after all, were technology-savvy, internationalist financial services companies, intent on marketing their products to a broad public, and run by Democratic executives: veteran banker John Reed and Sanford Weill, a Brooklyn-born son of immigrants. At the press conference announcing the merger, a reporter asked about potential antitrust problems. Reed remarked, "Sandy will call up his friend, the president." The following year, they recruited Clinton's treasury secretary, Robert Rubin, to join them at the helm of the nation's largest financial institution.

    Weill and Reed aren't the only prominent Wall Streeters of the 1990s who are Democrats. In fact, a new group of moneymen surfaced in the 1990s. Fueled by the information age, the resurgence of New York City, the soaring markets, and the broader consumer interest in financial services, they have supplanted the financial icons of the 1980s. Members of this group—I call them the "New Moneycrats"—include the aforementioned Bloomberg, Weill, and John Reed but also James Cramer, the hyperactive hedge-fund manager and founder of TheStreet.com; venture capitalist Alan Patricof, who hosted Clinton's visit to the Hamptons in summer 1998; Lazard Freres investment banker Steven Rattner; Jamie Dimon, formerly with Travelers; Boston buyout king Thomas Lee; former Goldman Sachs cohead Jon Corzine; investment banker Roger Altman; and former Bankers Trust CEO Frank Newman. These men have made huge donations to Clinton's campaigns, hosted administration officials at their homes, and, in the case of Altman and Newman, served in the Clinton administration.

    The New Moneycrats are not necessarily a clique, although many of them know and do business with one another. Rather, they're a class. They share a common background. Most are self-made products of the Northeastern meritocratic machine, graduates of Ivy League or comparable schools, residents of Manhattan, socially moderate, and philanthropic. They frequent the same vacation spots—namely, the Hamptons and Martha's Vineyard—and golf at the same clubs. They also share a political worldview that is equal parts inheritance from their parents' New Deal liberalism, a product of their education, and the pragmatic, broad-minded worldview required of anyone involved with big business and high finance today.

    Of course, there have always been Wall Streeters who were active Democrats, from Bernard Baruch, who helped Woodrow Wilson finance World War I, to Felix Rohatyn, ambassador to France and éminence grise of Lazard Freres, who helped New York City restructure its finances in the 1970s. Historically, many Wall Streeters chose the Democratic party because, as Jews, they didn't feel particularly welcome in the Republican party. But the tilt toward the Democrats has become more pronounced in the 1990s. In an odd time-delayed reaction, the Democratic party became yuppified in the 1990s, a decade later than the rest of the country. It's more hip to be a Democrat if you're loaded than it was in the 1980s. And it's more hip to be loaded if you're a Democrat.

    Wealthy financiers have been attracted to what they perceive to be a "new" Democratic party, one that is more comfortable with the very idea of money. This was the great hope of the self-professed New Democrats who coalesced in the early 1990s around the Democratic Leadership Council (DLC), the probusiness, moderate wing of the party that critics like Jesse Jackson dubbed the "White Boys Caucus" or "Democrats for the Leisure Class." And just as the DLC's attitude toward trade and welfare reform became ascendant in the national party in the 1990s, so did its attitude toward money and the markets.

    When Clinton first appeared on the national scene in 1992, he didn't seem likely to initiate a love affair with the markets. Clinton based his 1992 presidential campaign in no small part on class warfare, a posture best personified by consultant James Carville, a rabidly populist Wall Street basher who openly exulted in market plunges. The "putting people first" strategy he devised successfully painted George Bush as someone more concerned with capital gains than with expanding health care coverage, an out-of-touch millionaire incapable of understanding the suffering of middle-class Americans. But as so often proved the case with Clinton, there was a flip side. Aside from relying on Carville, who at times seemed to have just walked off the set of Deliverance, Clinton actively sought the counsel of a group of Wall Street insiders. Chief among them was Robert Rubin, the unassuming cochairman of Goldman Sachs, who chaired the host committee for the 1992 Democratic convention.

    After he won the election, Clinton instantly became invested in the market—not personally but politically. After all, approval ratings generally follow markets, at least downward, and it fell to Rubin to manage the markets for Clinton. As head of the National Economic Council and, later, as treasury secretary, Rubin served two important purposes. He provided insight and advice to the oddly naive Clintonites on how not to roil the markets, and he provided the markets with a reassuring face in Washington. In a sharp departure from previous Democratic administrations, the Clintonites based nearly every crucial budget decision in part on the anticipated reaction of the bond and stock markets. The strategy worked. In Clinton's first term, of course, the market turned in one of the great four-year performances in American history—rising nearly 100 percent. (Even Carville grew to love the market, although he lamented to me in early 1996 that he pulled out too early.) In fact, the market's strength probably was a key contributor to Clinton's reelection, since the continuing rise of the market and the massive growth in trading volume helped generate huge and unexpected capital-gains taxes, which in turn helped lower the annual budget deficits beyond the administration's wildest expectations. Clinton used these lower deficits as a shield to fend off the Republicans' radical budget assaults. Without the market's performance, it's fair to say, Clinton's first term would not have been as successful.

    Indeed, in many ways the most important decision of Clinton's presidency wasn't to press ahead with the 1993 budget deal but to reappoint Alan Greenspan to head the Federal Reserve Board. Greenspan, a one-time jazz saxophonist and Ayn Rand devotee, is yet another of the unlikely financial icons of the 1990s. And he, too, has been Democratized—that is to say, embraced both by Democrats and by the broader public. For most of the century, central bankers have labored in obscurity. But with the onset of the democratization of money, the man who controls the direction of interest rates, and hence the health of the stock market, occupies a much more prominent role. At first, it was unclear whether this hard-core economic conservative would find common cause with the New Democrats in the White House. But Greenspan likes access and the proximity to power as much as the next guy in Washington. He frequently plays tennis with White House officials, and he married Andrea Mitchell, NBC's White House correspondent. Like many of Washington's alpha males, he's prone to vanity and concerned with his image. While sitting behind him once on the Delta shuttle from LaGuardia to Washington, I peeked through the crack between seats to get a glimpse at what he was reading. The latest numbers from the Dallas Federal Reserve Board? A chart on the labor employment cost index, one of his favorite indicators? No. The world's most powerful economist was poring through—what else?—The Economist.

    Of course, there was never any real doubt but that Clinton would reappoint him, and that Greenspan would accept. To be sure, he occasionally incurred the wrath of prairie populists like Sen. Byron Dorgan and Sen. Tom Harkin, and of right-wing supply-siders, who agitate for lower interest rates with the single-mindedness of out-of-touch zealots. But by and large, he has been immensely popular among both Democrats and Republicans in Congress. When he treks to Capitol Hill to deliver the biannual Humphrey-Hawkins testimony, Greenspan is greeted with equally unctuous huzzahs from Democrats and Republicans.

    In 1998, Steven Glass, the former New Republic staffer whose serial fabrications went unchecked for an embarrassingly long time, penned a fictitious article in which he described New York-based bond traders who erected a small shrine to the Fed chief and celebrated his birthday. In retrospect, Glass managed to get the story 100 percent wrong and 95 percent right. Greenspan does have a cultlike following on Wall Street. Traders hang on his every public and private utterance, desperate for any clue that could signal a move upward or downward in interest rates. Wall Street economists sift through transcripts of meetings of the Fed's policymaking body—the Federal Open Market Committee—much as Roman priests once examined chicken entrails in search of omens. Greenspan is a man as much listened to as President Clinton is ignored. Whereas Clinton ladles out his words in huge servings, Greenspan serves his parsimoniously, in carefully measured dollops. After public speeches, packs of journalists scurry around the lobbies of hotels and convention centers, trying to figure out where he will exit and hoping he'll respond to furtively shouted questions. (I'm ashamed to admit I once was one of them.)

    Indeed, it was the reaction to one such public appearance by Greenspan—the 1996 event at which he injected the term "irrational exuberance" into our lingua franca—that set this book in motion. On Thursday, December 5, 1996, Greenspan was the marquee speaker at the American Enterprise Institute's $400-per-head, black-tie annual dinner and Francis Boyer Lecture at the Washington Hilton. After discussing the evolving role of the U.S. central bank, Greenspan expressed concern about the astonishing rise of the U.S. stock markets. That day, the Dow Jones industrial average closed above 6,400; it had soared nearly 25 percent in the first eleven months of 1996, and that on the heels of a 33 percent gain in 1995. The fact that stocks traded at high multiples to earnings greatly concerned the central banker, a monomaniac when it comes to inflation. "How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" he asked rhetorically. "And how do we factor that assessment into monetary policy?"

    To any listener versed in "Fedspeak"—the arcane symbolic language spoken by Greenspan and his cohort—this seemingly innocuous musing was a lightning bolt. Greenspan, this speech made clear, believed that stock markets—particularly the U.S. market—were dangerously overvalued, and that stock prices should fall. If the market's invisible hand didn't correct itself soon, Greenspan would correct them with his very visible hand, by raising interest rates. The immediate import of the remarks was largely lost on the guests, whose number included Health and Human Services Secretary Donna Shalala and Supreme Court Justice Antonin Scalia, as they dined contentedly on lobster bisque, rock cornish game hen in pear peppercorn sauce, and mocha puffs. But the reaction overseas was swift and furious. As Friday unfolded westward, from time zone to time zone, markets swooned as if in some time-delayed bit of choreography. Tokyo's, Hong Kong's, and Sydney's key indices fell 3 percent on the day. The European markets took the news even harder. Amsterdam's bourse nose-dived nearly 6.2 percent off the opening bell, with Paris's slumping 4.9 percent and London's falling 4.2 percent. In New York, the Dow plunged 145 points, or more than 2 percent, in the first thirty minutes of trading. Throughout the trading day, Greenspan's speech was the subject of much head-scratching in Washington, New York, and anywhere else investors watched the markets. Within a full revolution of the news cycle, the phrase "irrational exuberance" entered America's elastic pop-culture lingo—just as surely as had the fabled line from the movie Jerry Maguire, "Show me the money."

    That speech, and the reaction to it, first got me thinking about the democratization of money as a phenomenon. But my focus wasn't prompted so much by the catchy phrase "irrational exuberance"—which was practically buried in the 4,317-word address—as by the way Greenspan chose to begin the speech: The venerable free-market economist opened with a quote from a venerable free-market antagonist—William Jennings Bryan. Bryan rose from obscurity and poverty on the plains of Nebraska to become an agitated voice for farmers as a congressman in the 1890s. Bryan was the Democrats' presidential nominee in 1896, when there was a huge rift in the Democratic party, and the country at large, between advocates of a tight monetary policy—that is, sticking to the gold standard—and those who favored the free coinage of silver. Bryan favored expanding the money supply through the free coinage of silver, which would boost prices paid to farmers for their goods and enable them to pay off debts to "moneyed interests" on the East Coast with cheaper currency. At the Democratic convention in Chicago, Bryan, making the case for free silver, concluded by thundering, "You shall not crucify mankind upon a cross of gold."

    Greenspan used the quote to show how the issue of monetary policy and central banking had been divisive throughout American history. Of course, as Greenspan noted, Bryan's point was about the gold standard, rather than the notion of gold qua money. But Bryan's chilling metaphor has gained great resonance as it has echoed through the decades. As the years passed, Bryan became an icon among Democrats—joining Alfred Smith, Adlai Stevenson, Hubert Humphrey, and others in a long line of admirable losers. (Had he not slipped into revanchist buffoonery by taking the side of God at the Scopes "monkey trial," Bryan would rank as one of the giants of U.S. political history.) Just so, the "cross of gold" evolved into an all-purpose weapon of Democratic class warfare. After all, one would be hard-pressed to devise a better metaphor. It mingles the image of Christ on the one hand and Mammon on the other; humanity pinned by the demands of the material world; the merciful golden rule against the merciless rule of gold; the unvirtuous moneyed (in Bryan's case, Eastern bankers) against the virtuous unmoneyed (in Bryan's case, the farmers of the plains).

    The figures of William Jennings Bryan and William Jefferson Clinton, who rose to the national stage one hundred years apart at the head of the same party, make neat bookends—and not just because of the similarity of their names. Rather, Bryan's enduring legacy was as an antagonist of the "moneyed interests," a dogma to which the Democratic party held firm for nearly a hundred years. By contrast, one of Clinton's most enduring legacies may be his party's accommodation to those same interests. Of course, the moneyed interests of the 1990s—the mass of individual investors—are far less sinister than their counterparts were in the age of the robber barons; it's easier to sympathize with a taxi driver than with John D. Rockefeller. Still, the changes in the markets in the 1990s, the rise of new figures in finance, and the shifting fortunes of the Democratic party have combined to change the way many Democrats think about money and the markets.

    Furthermore, this accommodation didn't merely dictate where Clinton chose to take his summer vacations, or who received invitations to the White House coffees. Rather, it has wrought serious policy changes that affect all investors and taxpayers, and that may affect future generations as well. The Securities and Exchange Commission (SEC), for example, has been completely remade under the leadership of Arthur Levitt Jr., one of the best-pedigreed of all the New Moneycrats. Since taking over in 1993, Levitt, the son of legendary New York State comptroller Arthur Levitt and president of the American Stock Exchange from 1978 to 1989, has transformed the SEC into a vital consumer protection agency, and has overseen the launch of EDGAR, the online repository of information that has helped fuel the democratization of money. As such, he's perhaps the least appreciated and most successful Clinton appointee.

    There have been other, more far-reaching policy implications of the Democrats' accommodation to money. In an action that would have been shocking to any Democrat as late as, say, 1994, Clinton in 1997 signed into law a capital-gains tax cut—essentially giving up the one wedge issue that had consistently worked in favor of the Democrats in the 1980s and 1990s. The reduction of the capital-gains tax has been followed by the shockingly rapid mainstreaming of the notion of putting Social Security funds in the stock market. In 1996, only Steve Forbes dared to suggest such an absurd notion. In his 1999 state-of-the-union address, President Clinton proposed investing 25 percent of the anticipated budget surplus in the markets.

    The Democrats' entente with Wall Street is as much a function of their success as it is of the Republicans' failures. In short, the Republican party has essentially been taken over by what used to be Southern Democrats, and many of today's top congressional Republicans exhibit the same prejudices as their Dixiecrat forebears: a hostility toward the center of capital (New York), a deep antipathy toward the Northeastern elite, and an essentially reactionary opposition to modernism. The vicious tide of reaction that began among disaffected Southern Democrats like Tom Watson and "Pitchfork" Ben Tillman in the 1890s and pulsed through a series of similarly disaffected Democrats throughout the century, from Strom Thurmond to George Wallace, now runs squarely through the Southern Republican party. Senate Majority Leader Trent Lott, in fact, is a sort of blow-dried reincarnation of Tillman. Lott, from Mississippi, would feel about as comfortable at a dinner party in the Hamptons as most Hamptonites would feel at a catfish fry in Pascagoula. Which is to say, not very.

    Many Wall Streeters are naturally put off by the crude cultural conservatism of Lott and his Southern Republican colleagues. This alienation has been exacerbated by the increasingly shrill anti-big-business tone expressed by the Republican party's growing populist wing. In both 1992 and 1996, Patrick Buchanan scored substantial success in Republican presidential primaries by fulminating against free-trade agreements like NAFTA (North American Free Trade Agreement) and GATT (General Agreement on Tariffs and Trade). Among a growing portion of the Republicans' core constituency, there is a general hostility toward internationalism, trade liberalization, social liberalism, and non-Christians—in other words, opposition to a number of premises and ways of life that are commonly accepted and practiced on Wall Street. Meanwhile, the GOP's genteel, moderate, establishment-oriented big-business-friendly members are fading from public view as rapidly as Christian consultant Ralph Reed's clients. The most powerful businessman in the House of Representatives today is Tom DeLay, a former small-time Texas exterminator who has condemned the theory of evolution in the well of the House.

    The reversal, of course, is not complete. The Democrats are now no more the party of the satisfied rich than the Republicans are the standard-bearers of the resentful poor. (With apologies to Marx, it may turn out that the working class isn't the only group laboring under the veil of false consciousness.) Rather, we're in the midst of a transition, perhaps even a realignment, whose manifestations are cropping up here and there: Clinton carried the wealthy suburbs of Westchester County, New York, twice; Loretta Sanchez, a Hispanic Democrat, represents ur-Republican territory Orange County in Congress; the Democrats raised $123 million in soft money in the 1996 campaign cycle, nearly as much as the Republicans' $138 million; New Yorkers in the highest income brackets voted overwhelmingly for Democrat Charles Schumer over Republican Al D'Amato in the 1998 Senate race. In the first half of 1999, business donations were split evenly between Democrats and Republicans.

    Still, the Democrats' accommodation to the moneyed interests is far from a fait accompli. A rump of the Democratic party is still hanging back from the Wall Street group hug. The resistance comes chiefly from leaders of the party's shrinking left wing, who view themselves as tribunes of the disenfranchised and those who have otherwise not benefited from the wonders of the new economy. In the 2000 presidential primary, some of the battle lines were drawn around precisely the issues posed by the democratization of money, such as the wisdom of capital-gains tax cuts and putting Social Security funds in the markets. And they are sure to reappear in the general election this fall.

    The chapters that follow constitute an effort to describe how the party of Franklin D. Roosevelt and Lyndon Johnson has become, to a degree, the party of Dow and Jones, and why that isn't necessarily a bad thing. Given the democratization of money, the Democrats can be the party of Wall Street and Main Street, of the rich and the poor, of Orange County and East Los Angeles. To paraphrase Nixon's embrace of deficit spending, we're all stockholders now. Democrats who run for any office—president, senator, governor, representative—can make great use of the developments of the past decade and run squarely on the Clinton administration's record of managing the markets and improving life for investors.

    Just as investing personal capital in the markets does, investing political capital in the markets carries equal measures of risk and reward, of upside and downside. In the past decade, Democrats, like the broadening investing public, have reaped far more profits than losses from their ventures. The candidates who understand these slowly emerging truths and make the best use of the leverage they can provide will have the most success in the first election of the new millennium.