License to Steal is the latest in a genre that goes back to at least the robber-baron days of the 19th century and probably to the earliest days of capitalism in renaissance Italy. One of my favorites is the very entertaining Where Are the Customers' Yachts? (1940) by Fred Schwed Jr. In that little book, studded with New Yorker cartoons, an innocent asks a broker the title question and is told, naive fool that he is, that the customers don't have any yachts. Only brokers and officers of the brokerage firm have yachts. According to the authors, today's breed of white collar crook doesn't spend his ill-gotten lucre on anything so romantic as a yacht, preferring German motor cars, cocaine and Cuban cigars, floozies, French champagne and blackjack. The degenerate get more degenerate it would appear.
I had a broker myself, back in the days of my naiveté, and I recall she told me one day that she was hoping the market would plunge a hundred points (that was in the days when a hundred-point swing meant something). I was momentarily stunned since I was a client with some serious money in those stocks that she was hoping would plunge. But she had forgotten herself for the moment and was talking to me as she would to one of her fellow brokers. THEY wanted a plunge so they could stir up some action and make some money on commissions. And therein lies what the authors of License to Steal call on page 265 the "basic conflict of interest" in "the securities business," namely that what is good for the broker is to move "clients in and out of positions to generate commissions" (and to take advantage of the spread), while what is good for clients is just the opposite, to pay a minimum for commissions and to get trimmed by the spread as seldom as possible. This conflict is still with us although, by trading over the Net without a broker, the commissions are much cheaper and the danger of getting trimmed by in-house spreads is lessen considerably. Nonetheless, the industry as a whole still has a vested interest in churning the accounts of investors. We see this in the frequent upgrades and downgrades issued by brokerage firms, recommendations that encourage a lot of buying and selling. The only way this conflict is going to be eliminated is for brokers to gain only when their clients gain. I wouldn't hold my breath for that reform however, since it would have the effect of sending the vast majority of brokers back to telemarketing or to selling aluminum sliding.
If you like License to Steal, and I think you will, since it is very hard to put down with the lurid picture of piggy greed and human stupidity it paints, you will also like F.I.A.S.C.O.: Blood in the Water on Wall Street (1997) by Frank Partnoy. Partnoy's book is about derivatives sales people who are as morally degenerate as the characters in License to Steal. The only substantive difference in the books is that Partnoy's book is not anonymous and neither are the firms he worked for.