Thursday, April 3, 2014


Back in the day brokerage firms were owned by partners. If the firm lost money, the partners were personally liable. Commission charges to buy and sell stocks and bonds were extremely high but no one forced anyone to buy and sell stocks and pay those fees. When I was originally a broker at E.F. Hutton and Company and I wanted to get a quote on a stock, I walked up to the front of the room, stood in a long line, picked up the phone and was able to request one quote and only one. I then had to find my way back to the desk through the throngs of other brokers, I would give my customer the quote which really wasn't current anymore, I would write out the order on what was called a trade ticket, I would put it in a vacuum tube, it would travel a long distance and about an hour later I would know if we bought the stock or not. Times have changed.

Somewheres along the line the powers that be decided that fixed and high commission rates were not the way to grow a hearty participation in American Capitalism among the people. Rates were then lowered, then lowered, then lowered, and then lowered. It also came to pass that "money management for a fee" began its monumental growth. We now can trade billions of shares a day explained by the cult of the necessity for a liquid market. The liquidity is well out of balance with the actual need and has turned stocks into the semblance of a gambling casino with all the rules and regulations of such activity very much in place within our markets. Research is superficial and shoddy at best, but thinking, fortunately, keeps evolving through higher and higher levels.

About the same time,Donaldson, Lufkin and Jenrette found a way to pierce the wall of the New York Stock Exchange prohibition requiring all member firms to be private. The cry became "the road to growth requires public capital and we as partners can no longer foresee having enough capital to sustain significant growth". The members of the exchange tried to maintain their historical rules of private companies but the opportunity for making the existing partners wealthy men controlled the outcome. So the door was opened and privately owned firms were able to create great wealth for their owners by selling shares in their privately owned companies. There is no question that I personally benefited from this "time in history". The combination of much lower commissions and the loss of the future money management asset growth, made the traditional brokerage business a heck of lot less profitable, even with the ancillary interest income.

This is the story of what really led to the breakdown of the investment arena into a gambling casino.


Shepard Osherow. All Rights Reserved