Published by EH.Net (January 2016)

Edward Morris, Wall Streeters: The Creators and Corruptors of American Finance. New York: Columbia University Press, 2015. xv + 344 pp. $30 (cloth), ISBN: 978-231-17054-3.

Reviewed for EH.Net by Clifford F. Thies, School of Business, Shenandoah University.

Edward Morris is a professor of finance and a former dean of the school of business of Lindenwood University in St. Charles, Missouri, and was an investment banker with Stifel, Nicolaus & Co. His book, Wall Streeters, is adapted from his course History of Modern Finance, taught through the prism of short biographies spanning the period from the late nineteenth century to the present.

Fourteen mini-biographies are compiled, beginning with J.P. Morgan. Three examine politicians instrumental in the organization of the Federal Reserve and the Securities and Exchange Commission. Two concern investment bankers who expanded the market in corporate stock following World War II. Three examine academics that contributed to our understanding of finance. Three other chapters look at recent investment bankers notable for financial innovations. The final two look at recent investment bankers who assembled financial conglomerates. The chapters are arranged in rough chronological order, with themes appropriate to each major period, and which together span the professions concerned with investment banking.

The chapters are cribbed from a relatively short list of reference materials, most of which are popular biographies and histories. The strength of the book is its survey of somewhat more than a hundred years of finance through a series of biographies. For many readers, this is more engaging than a history devoid of human quality. The author exhibits an ability to tell an informative and satisfying story within the parameters the work requires. The writing is fluid when focused on particular times and places, but jumpy at points. Short introductions of the sections help with the transitions.

Morris reveals his perspective in the introduction to the section comprising chapters 2 to 4 (p. 13). There are two perspectives, he says, the minimalists, who argue that bankers “will naturally act in a responsible manner;” and, the “realists,” who “hold no illusions,” and recognize that bankers will “look after their short-term best interests with scant attention to the long-term benefits for the public.” This is a straw man argument. In keeping with this perspective, none of the three regulators is presented badly, while only two of the nine people in the for-profit sector are presented well. Of the three in the not-for-profit sector, one is presented badly –  the one who strayed over to the dark side.

A number of deficiencies in scholarship detract from the book. For a few examples: No connection is recognized between the attempt to “to tamp down stock market speculation” by the Fed limiting margin borrowing (p. 70), and the “panic selling” that followed in 1929 (p. 56). The cause of the Panic of 1907 is given as the failure of a savings bank in Montana (p. 23), with no mention of the impact of the San Francisco earthquake of 1906 on the financial condition of insurance companies and banks. The author says the Fed was formed to be a lender of last resort, unaware that banks, operating through clearing houses, acted as lenders of last resort prior to the organization of the Fed. He presents John Kenneth Galbraith’s argument for the cause of Great Depression, and does not deal with the deep-rooted problems of the inter-war gold standard. And, of course, the author identifies the villainy responsible for the Panic of 2008 not as the public policies that promoted homeownership, but as the development of mortgage-backed securities.

Morris starts the fourth part of his book, “Wall Street has a penchant for taking good ideas to excess” (p. 201). The insinuation is that Wall Streeters know, beforehand, the point of diminishing returns to good ideas, and act foolishly even from the standpoint of rational self-interest. But, in industries characterized by change, the balancing of risk and return is often discovered by failure. This learning process is not exclusive to the for-profit sector, as is illustrated by the different reactions of the Fed to the Crash of 1929 and to the Panic of 2008. A balanced mix of biographical sketches might better equip students of finance to be deal with change more effectively; indeed, to be better agents of change upon leaving school.

Clifford F. Thies is the Eldon R. Lindsey Chair of Free Enterprise and Professor of Economics and Finance at Shenandoah University. He has recently written on the Crash of 2008 (Cato Journal) and debt repudiation by Mississippi (The Independent Review).

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