By MICHAEL LEWIS
Anyone with eyes can see that many big, established American industries have been badly unsettled by new competitors on the Internet. One of those industries is Wall Street where brokers and bankers will probably one day be replaced by technology that can do what they do more cheaply and efficiently.
We’re living through one of those Ages of Radical Change. What is less obvious is why all this change is suddenly upon us. Why is it that the securities business in the late 1990s finds itself besieged by technogeeks? Why, more generally, did the real financial action move from Wall Street in the 1980s to Silicon Valley in the 1990s?
At least part of the answer can be found on Wall Street in the 1980s. In several ways, the securities industry created the monster that will one day destroy it.
The first and most obvious thing done by Wall Street in the 1980s was to introduce new ideas about capital.
Michael Milken’s creation of the junk-bond market is, from a distance of 20 years, an even bigger deal than it seemed at the time. It’s a shame that Milken himself has been forced to pretend he is ashamed of his work; it would be interesting to hear him talk about it.
The junk-bond market not only made it possible for people to obtain capital who would previously never have been funded, it proved that a lot of these people (Ted Turner, Rupert Murdoch, etc.) were worthy of the capital.
The junk-bond market helped to destroy a lot of old superstitions which is why it made people so angry. Specifically, it disproved the old banking saw that the only person worthy of a loan was the one who didn’t need it. In doing this it created the financial precondition for the Age of Radical Change: New people with new money-making ideas could get their hands on the capital they required to turn the ideas into businesses.
The second broad contribution made by 1980s Wall Street to 1990s Silicon Valley was a new individualism. Once a little guy can get his hands on big capital, he acquires a new kind of power, and a new sense of possibility.
The hostile and semi-hostile takeovers of our most recent financial epoch were both causes and effects of the new individualism. For instance, by the early 1980s, Exxon Corp. had guessed right about the coming future of digital technology. It had created, or funded, all sorts of little businesses in the field, including potential Internet businesses. Exxon might well have wound up, however weirdly, making a lot of money from the Internet boom.
But then T. Boone Pickens, using money provided to him by Milken, staged his hostile raid on Exxon, and Exxon was forced to retrench. Like a lot of other big companies that lived in fear of Wall Street, it ditched any investments that might be viewed as superfluous.
This is a small example of a larger phenomenon created by Wall Street. Big companies were forced to be less aggressive with research and development dollars. This created new room for little companies.
The last little contribution made by 1980s Wall Street to the 1990s boom was to ratchet up young people’s expectations.
Another new idea was born: that it was right and proper for a 28-year-old to make $1 million a year. The rope that tethered ambition to tradition was severed.
Before long, a lot of 28-year-olds were actually pissed off that they hadn’t made $1 million a year. Once the process was underway, it took on a life of its own. One million dollars became $5 million; $5 million became $50 million.
The number keeps growing. It plays the role of the mechanical rabbit at the dog track goading young people with the energy and inclination to start new things, to start big new things.
Huge financial ambition was once exceptional; now it is normal. Would it have occurred to Jeff Bezos to create Amazon.com Inc. if it had not first occurred to him, while he worked on Wall Street, that there was nothing absurd in trying to make $100 million for himself?
Michael Lewis is the author of “Liar’s Poker” and “The Money Culture,” and is a columnist for Bloomberg News.
