Pretty soon you could hear the howling from full-commission brokers as their customers defected to the discount brokers.  Many years later, when Schwab lowered trades to $29.95, Fortune Magazine reporter Katrina Booker overheard a Merrill Lynch broker’s side of a telephone conversation with a customer.  These are the Merrill Lynch broker’s exact words, as reported by Booker.  For fun, I took a guess at what the other side of the conversation must have been like.  The exchange might have gone something like this:

Here we get a glimpse of the old-boy networking and schmoozing that cemented the high commissions in place for so many years.  Booze, ball games, yacht outings, and dinners lubricated the relationship between brokers and their customers.  Entertainment, more than investment research, often proved to be the traditional stockbroker’s fiercest weapon.  A pair of seats on the 50-yard line combined with an occasional stock tip could beat cheap trades any day.  Brokers soon learned that customers really wanted cheap trades. 

The fat commissions had fed an excessive lifestyle that was frequently lampooned by jokes and New Yorker cartoons.  Chuck begins his first book, How to Be Your Own Stockbroker, by telling a broker yacht story. 

Furious at losing customers, the brokers fought for their cartel.  To protect its sweet monopoly, the brokerage industry built high walls protecting it against any public interest reformists.  Trade groups like the Securities Industry Association opened offices in the nation’s capital to monitor legislation and make sure no one in authority considered the ill-considered arrangements made in the desperate days of the Depression.  Campaign contributions flowed to Washington, primarily to Republican candidates, who paid lip service to the music of deregulation and unfettered competition but didn’t want to rock the yachts of the traders on which they were frequently entertained. 

Reformers in the Kennedy administration started pressing the Justice Department and the SEC to challenge the issue of brokerage trading rate deregulation.  The industry’s lobbyists made lunch meant out of these efforts.  The Street partied hard with the election of Richard M. Nixon in 1968.  They thought their sinecure was secure with the White House in industry-friendly Republican hands.  And it would have been except for two entirely predictable vices of those who have more than they deserve:  greed and paranoia.