TOWARD RATIONAL EXUBERANCE

A history of the modern stock market, detailing its transmogrification from a “gambling hell” run by speculators and cronies to a rational, sophisticated exchange open to all.

Though Wall Street was a stock market as far back as the 1600s, former Goldman Sachs Vice President Smith begins his evolutionary history in 1901, the year J.P. Morgan put US Steel on the market. Even after 300 years, the market was still very much an insider’s game: scandal-ridden, wracked by periodic bouts of speculative excess, and lorded over by imperious figures who considered themselves above any law. The author shrewdly balances terrific biographical vignettes of such market figures as Morgan, Charles Dow, and Edward H. Harriman (the man who never met a crash he didn’t like) with economic theory and market approaches. He manages to chart the great currents that surged through the market, from 1901 (when the stock market was a “battlefield on which highly personalized conflicts between financial titans such as Hill, Harriman, and Morgan, as well as dozens of lesser combatants, were played out”) to the current era (in which nearly half of all Americans own stocks). Along the way, he does a good job of reviewing the 1929 crash (and uncoupling it from the subsequent Depression), detailing government interventions (such as the Securities and Exchange Act of 1934) in the market, chronicling the rise (largely through Charles Merrill) of the middle-class investor, introducing Harry Markowitz and the concept of portfolio covariance, debunking the notion that JFK caused the 1962 market gasp (through his heavy-handed interference in the steel industry), and poking a finger in the eye of go-go fund managers. Volatility adjustment, generally accepted accounting standards, and price/earnings ratios have a sensible place in the story, and Smith is savvy enough to admit that much of the movement of the stock market (particularly the panics and crashes) remain enigmas.

Exquisitely revealing and written with real polish: a first-class account.