Never in U.S. financial history has there been a collection of commotions quite like the Great Stock Market Spectacular of 1986. Up! Up! Up! Down! Down! Down! The Dow Jones average of industrial stocks is taking sharper, swifter leaps and dives than ever before. Buy! Buy! Buy! Sell! Sell! Sell! The biggest stock boom on record is leading to manic levels of activity on the nation's exchanges. Win! Win! Win! Millions, even billions, are being pocketed almost overnight, in split-second transactions affecting the fate of some of America's most important corporations. Lose! Lose! Lose! At the same time, Wall Street is struggling to recover in the public eye from some of the worst insider-trading scandals in its history.
But much more than mere pandemonium is taking place. Behind the unusual eruption of financial sound and fury, an electronic upheaval is sweeping Wall Street, drastically reshaping the way stocks are traded and business is performed in the U.S. and around the world. At the center is a wave of computerization that has radically changed the speed of stock trading and injected unprecedented floods of money into the marketplace. For those with the cash or credit, the equipment and the expertise to play in the new market, the times seem utopian. One Manhattan-based private investor who is viewed with awe on Wall Street for his financial acumen is claiming that the U.S. and the world are on the "threshold of a new golden age of capitalism."
To others, the whirlwind of activity seems more like a new variation on Mark Twain's Gilded Age, a time of reckless speculation and profiteering. Amid the hubbub of buying and selling, a host of probing questions are being asked about the stock market and its relationship to U.S. capitalism in general. Has the market become more volatile, risky and perhaps more irrational than ever before? Is it suddenly too treacherous for the ordinary investor? Is the very function of the market changing, as fast-buck artists crowd in to pursue big quick returns that have little or nothing to do with industry or commerce? Have the values of the gambling hall undermined the role of stock trading as a means of productive, long-term investment? In short: Is the new stock market good for America, and for business?
Many of those questions have been asked before. In 1936 Economist John Maynard Keynes warned that "when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill- done." His comments were a reminder of the speculative frenzy of the Roaring Twenties, which led, soon enough, to the Great Crash of Oct. 28, 1929. Last week, as the 57th anniversary of that dire event rolled around, new voices raised similar cautions. Said Robert Reich, a lecturer in public policy at Harvard's John F. Kennedy School of Government: "In America, industry has become the plaything of finance." Banker Felix Rohatyn, a partner in the Manhattan investment firm of Lazard Freres and a frequent critic of Wall Street's excesses, goes further. Says he: "Now the whole world is a casino. Las Vegas, at least, closes at 5 a.m. This thing does not."