Stock-Market Clash

If you had tried to predict eighteen months ago what last week’s big stories would be, you might have picked “a white-collar trial.” And you would have been right. You probably wouldn’t have said “an initial public offering,” let alone one so closely related to the white-collar defendant du jour.

We love our symbols, and Google’s IPO is said to symbolize the resurrection of Silicon Valley, the fulfilled promise of the Internet, and the rejuvenation of a cleaned-up Wall Street. Last week’s conviction of former technology banker Frank P. Quattrone, meanwhile, is said to symbolize the eradication of the excesses of the past. That the announcements came within two business days of each other and that Quattrone’s old firm, CSFB, will advise on Google’s IPO hammered the juxtaposition home.

Like other Internet successes, Google embodies the best of the nineties, the inspirational job-and-wealth-creation half of Schumpeter’s creative destruction. Frank Quattrone is supposed to represent the worst of the decade, the man who built the money-gushing “firm within a firm,” who greased “friends of Frank” with red-hot IPO shares, who made $120 million in a year while helping float companies that cost nonfriends their shirts. That this wasn’t criminal (or hidden) and that, instead, Quattrone went down for appending 22 words of encouragement to a colleague’s reminder about purging files is, symbolically, irrelevant.

As John Kenneth Galbraith has observed, the post-bubble purification process—which, in this case, helped deify the Googlers and destroy Frank Quattrone (and banish a puny research analyst or two)—is as much a part of natural market cycles as booms.

But back in the nineties, Quattrone was king. When I was a Wall Street trainee, we gawked at an article that described what it took to win: a full-court schmooze à la Frank Quattrone. After a day of pitch meetings in New York, in which he and bankers from other firms slobbered over a prospective client’s CEO, he didn’t just fly back to California on the CEO’s flight like his competitors (this went without saying). Instead, he boxed everyone else out by kneeling in the aisle next to the CEO’s seat. Eventually, in a gesture that amounted to throwing in the towel, another banker offered him a pillow.

As his power grew, Quattrone and his team helped finance hundreds of companies, some of which, like Netscape and, quickly became household names. (The team churned out plenty of tulip bulbs, too.) That his legacy presumably helped CSFB land the Google deal is not the only sign that the difference between the symbols—and the nineties and now—is less than is commonly perceived. Google’s democratic IPO auction stands in sharp contrast to the “friends of Frank” days. But the issuance of two share classes to enable existing shareholders to maintain voting control is undemocratic (not unintelligent, just undemocratic); venture capitalists and other insiders—not public-market investors—will get the hundred-bagger returns; and the free meals, doctors, washing machines, generous helpings of stock options, and other employee perks sound positively nineties-esque. And the soon-to-be dynastic wealth of Google’s charming, babyfaced founders, of course, makes Frank Quattrone look like a pauper.

Stock-Market Clash