On Wall Street

Last updated: April 29, 2011 6:49 pm

Fears of return to the 1970s are overdone

Boogie nights of awful decade begat bright dawn

Here’s something to send shivers down the spine of nearly anyone middle aged or older – a repeat of the 1970s.

As unpleasant as the thought of disco, polyester and bell-bottoms making a comeback might be though, the real spectres of that decade lie in the realms of economics and politics, not fashion. Certainly for those who toil on Wall Street, this is nearly as worrying as a repeat of 2008.

Of course, one sees few actual veterans of that era on a visit to any Manhattan trading floor as most “masters of the universe” are below the age of 50.

Even that now familiar moniker was not coined until seven years after the decade ended in Tom Wolfe’s Bonfire of the Vanities. But institutional memory runs deep and the unease is real. Google, as reliable a barometer of the zeitgeist as any, indicates as much.

Search “worse than the seventies” or variations on that phrase and, with the exception of several pessimistic (and inaccurate) predictions in 1980, there is an explosion of references in just the past two years, most of them having to do with the economy.

In a speech this month to the Economic Club of New York, Federal Reserve vice- chairman Janet Yellen felt the need to address the issue by refuting the notion that the errors of that decade will be repeated.

Back then, she said, the Fed’s “monetary policy framework was opaque, its measures of resource utilisation were flawed and its policy actions generally followed a stop-start pattern that undermined public confidence in [its] commitment to keep inflation under control”.

But there are parallels galore. As if surging food and oil prices, Middle East turmoil and a Democratic president with a fondness for regulatory overkill were not enough, there is suspicion that the Fed is playing with fire by continuing with quantitative easing.

Fed chief Ben Bernanke is a far cry from G. William Miller, the Carter appointee who held the post briefly during the stagflationary late 1970s and was perhaps the least-respected person ever to do so. Still, the measures being taken today are to the Fed’s policy tools in that simpler era as fissionable material is to TNT. Mistakes will be costly.

By all accounts, the 1970s were a dark time for New York’s brokers and bankers. After wrenching ups and downs, stock prices essentially were unchanged between 1968 and 1982 while stagflation led bonds to be dubbed “certificates of confiscation”.

The infamous 1979 Business Week cover “The Death of Equities” did its part to persuade that generation’s brightest to steer clear of Wall Street. Barely a quarter of the number of Harvard Business School graduates who went into finance in 2008 did so in 1980.

And it wasn’t just profits that were awful – so was the quality of life for those lucky enough to remain employed. New York City lost 1m residents, crime surged and hundreds of thousands of finance jobs vanished.

The city nearly went bankrupt and palatial apartments on Park Avenue that fetch millions of dollars today could barely be given away for the cost of a suburban tract home in unfashionable New Jersey.

Of course the actual situation on the ground seems fairly rosy today. New York’s daunting budget woes have not impacted the quality of life yet, banks are hiring and dealmakers are busier than they have been since before the crisis.

But the smart money – people like hedge fund manager John Paulson, who profited so handsomely from the housing crash – are hedging themselves by buying gold. A weak dollar and surging commodity prices suggest plenty of others feel likewise.

There is a silver lining though. The awful 1970s sparked the wonderful 1980s. Loose money begat Paul Volcker, the Age of Aquarius begat the “me” generation and Jimmy Carter begat The Gipper.

Once the 1970s were over, a new crop of innovators such as Lewie Ranieri, Michael Milken and the cast of Nobel laureates who would later give us LTCM helped usher in a financial renaissance. The longest and strongest bull market in history ensued.

No matter how dark the boogie night, dawn always follows.

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