Various members moved in and out of the group, including a couple of female singers, as Reed and Cale sought to define the music they wanted to create. They initially named the group the Warlocks, though the possibility of the Falling Spikes – an allusion to the slang use of “spike” for a syringe – seems to have been at least jokingly considered. Tony Conrad moved out of Cale’s Ludlow Street apartment and returned to filmmaking, and Walter De Maria decided to concentrate on his own artistic projects. Cale recruited Angus MacLise, another member of La Monte Young’s Theatre of Eternal Music, to be the group’s percussionist. Reed, meanwhile, encountered his old acquaintance from Syracuse, guitarist Sterling Morrison, on the subway one day, and he and Cale invited Morrison to play with them. He agreed and soon became a member of the group. The band decided to call itself the Velvet Underground after seeing a copy of a paperback book of that name that Tony Conrad had found in the street. (As with all origin stories, this one is somewhat in dispute: Angus MacLise’s wife later claimed that he had purchased the book.) Written by journalist Michael Leigh and published in 1963, The Velvet Underground explores the subterranean worlds of fetishism, extramarital sex and S&M, subjects that were far beyond the pale of mainstream publishing at that time. The title appealed to the band because the term “underground” was already being used to describe the experimental film scene taking shape in downtown New York. Applying that same subversive impulse to music could easily stand as a statement of intent for Reed and Cale’s artistic goals. That Reed was fascinated, both personally and as a songwriter, with what would at the time have been termed sexual deviance only made the reference all the more fitting.
Source: Lou Reed Biography Excerpt: Birth of the Velvet Underground – Rolling Stone