I just checked out a copy of Chris Welles’s 1975 classic, The Last Days of the Club, from my favorite library. It’s the story of the unraveling in the early 1970s of the New York Stock Exchange’s virtual monopoly on stock trading. Wrote Welles of the NYSE’s member firms (“the Club”):
Through one of the most systematic and long-standing, if little-publicized, extortions in the history of American business, they massively enriched themselves by charging investors grossly exorbitant commission rates. Excessive commissions have totaled in the many billions of dollars.
A couple of pages further on, though, Welles warned, in a passage heavy with portent:
But as the old Club fades, a new kind of financial Club is emerging. It consists of highly concentrated and extremely powerful institutional investors whose trading habits, ironically, are the most immediate reason for the shambles to which the old Club has been reduced. These institutions—mostly banks—have already all but taken over Wall Street and will soon dominate financial power in this country. The members of this new Club may well massively abuse their power in ways that will make the trangressions of the old Club seem like minor stock fraud.
I don’t want to overstate Welles’s prescience. He envisioned the new Club as being dominated by banks in their capacity as managers of pension fund money—in fact, banks were already starting to lose much of that business to specialized institutionalized investors, and corporate pensions were eventually supplanted by the 401(k). But his sense that whatever replaced the old cartel would bring with it all sorts of new potential for abuse has turned out to be spot on. The passive order-takers of the Club were replaced by something more akin to a swarm, an ever-changing array of brokerages, banks, hedge funds and other entities (vampire squid, for example) all searching for profit wherever in the financial world they can find it. It’s a vastly more competitive and less calcified set-up than what went before. But I’m not so sure it’s all that much less expensive, and it’s certainly more unstable.