For future reference

September 15th, 2018

We’ll know to skip over anything written by this fellow Tomasky.

A Bert Kaempfert moment, or moments

September 15th, 2018

Surely you’ve had moments when a song you think is a TV theme is playing in your head but you can’t remember the show. (Shirley you jest.) And when you google what you think might be the answer, the answer comes up wrong. And google gets it wrong time after time, with the 50 greatest game show songs etc. But then somehow you find out the right answer, and all is good – hey Swingin’ Safari was only the Match Game theme 1962-1967. So Bert Kaempfert wrote the song, but he also wrote this. Yikes!

The shame of 9/15/2008

September 15th, 2018

Our apologies. These pieces were penned in the heat of a terrible moment, about which we’ll say now, that it was government idiocy on the level that created the Great Depression, to let Lehman Brothers fail without a strong and stable purchaser.

First, Lehman I: So much for inflation. The underlying trend in many major asset categories has been deflationary for a while, fundamentally on account of ever-restricting credit standards in the marketplace. This has been masked by the speculative bubble in commodities, which would appear to be over. If it isn’t over yet, the (necessary but sad) Chapter 11 filing of Lehman Brothers, the shotgun wedding of Merrill and BofA, and the meltdown of AIG, are all moving us further and further down that path. Oil is now off $50 from its high, and in our view may well have the better part of another $50 yet to fall. WSJ:

Light, sweet crude for October delivery was recently down $5.40, or 5.3%, at $95.78 a barrel on the New York Mercantile Exchange. October Brent crude on the ICE Futures exchange, which expires Monday, was down $5.24 to $92.34 a barrel. Nymex crude earlier fell to $94.13 a barrel, the lowest price since Feb. 14

Meanwhile, China is trying to address future anemic growth through easing lending restrictions, which as we have said many times, probably won’t be enough to keep growth where it needs to be in that country.

Then an update: Oops, the day got a little worse. WSJ:

The Dow Jones Industrial Average, which languished with a loss between 200 and 300 points for most of the day, saw its losses accelerate in the last hour of trading. It ended down by 504.48 points, off 4.4%, at 10917.51. All 30 of its components fell, led by a 60.8% plunge in American International Group. The Federal Reserve on Monday asked Goldman Sachs Group and J.P. Morgan Chase to help make $70-$75 billion in loans available to the company, according to people familiar with the situation…

Bank of America was also a big decliner among Dow stocks, off 21.3%…Goldman was off 12.1%, while Morgan Stanley fell 13.5%…Washington Mutual tumbled 26.7% as investors feared it wouldn’t be able to find a buyer…”We’ve re-established ‘moral hazard,'” a person involved in the Lehman talks told the Journal…”Is that a good thing or a bad thing? We’re about to find out.”

One hopes that, in allowing the failure of Lehman Brothers and the stampede that followed, the current crop of regulators is steering a course to avoid some of the really devastating mistakes of the past.

And a month later, considering the 9/15 folly:

And after The bankers seem to have made the same mistake twice, and it nearly brought the system down again. The Fed Chairman who is a student of the Depression and the Treasury chief who was CEO of Wall Street’s perhaps most storied name, appear to have repeated one of the critical mistakes in judgment that brought about the Great Depression — and they have been scrambling to recover from this mistake for a month. In 1930 the Fed let the Bank of United States fail, the dominoes fell, and the Great Depression was born. On September 15, 2008 the Fed let Lehman Brothers fail, and once again the US is courting financial catastrophe.

One month ago, the Fed and the Treasury let Lehman Brothers go bankrupt, and all hell broke loose, not just because of mortgages, but because of Lehman’s systemically toxic CDS’s — unregulated insurance policies without reserves with other banks — that could bring down the entire industry. This is also the view of the French finance minister. Telegraph:

Mrs Lagarde — attributed with playing a key role in brokering a bailout deal among G7 finance ministers in Washington last weekend — dubbed Mr Paulson’s decision to let the bank go under “horrendous” as it triggered panic in markets and banks to the brink of a 1929-style financial meltdown.

The entire banking system seized up; the banks were set up like dominoes to sequentially fail. Short sellers had a no risk strategy to bet on bank failures and the Treasury had created a Doomsday Machine that would take them down, one after another. Credit and stock markets crashed, and good news had become irrelevant.

In effect, the US government had created one of the conditions that turned the recession of 1929 into the Great Depression. In that earlier time, the New York Clearing House banks allowed the small bank with the big name, Bank of the United States, to fail. After that failure, which would have been so easy to avoid, another 8000 banks failed. Of course, the government at that time had to wait until 1933 for the creation of the FDIC and other tools to stem the runs on the banks.

For a month the government has been improvising various solutions to the Lehman mistake, and often it has looked like making sausages. It hasn’t been pretty, and no one knows whether it will be ultimately effective. But the actions of the Euro-zone countries, after their initial stumble, are encouraging. Likewise, the reaction to the revised Paulson plan, which has morphed from buying $700 billion in mortgages to providing a much needed $250 billion in new bank capital, also appears positive. It is possible that we have seen a version of 1929-1933 play out in a very short time (as events are often accelerated these days). But there was still a long way to go for the US economy to recover after 1933.

— Andy Kessler has a good summary in the WSJ of what US and European authorities are trying to do with their remedial measures.

Darth is coming, beware!!! – or maybe 2 Darths

September 14th, 2018

The charming NYT:

F.T.C. Hearings Add to Efforts That Threaten Tech Industry – The F.T.C. hearings, the first of 15 to 20 over the next several months, are one of several efforts underway on the federal and state level that threaten to limit the expansion and power of tech companies. Later this month, Congress will bring executives from top tech companies to testify on proposals for privacy laws. The Justice Department has warned it may start investigations into whether Google and other social media sites are biased against conservative voices.

The field of antitrust law has focused for 30 years on whether prices increase when there is limited competition. Some academics and consumer groups have called for regulators to rethink that gauge. Amazon and Google, they say, defy that metric of antitrust law because the companies are gaining power even as they offer cheap or free goods.

One proponent of this change of thinking, Lina Khan, is an assistant to a Democratic commissioner at the F.T.C. Her focus on Amazon has been buoyed by Senator Bernie Sanders, the Vermont independent, who has criticized the company and its chief executive, Jeff Bezos, for contributing to income inequality.

“The issue about Amazon is not just that the wealthiest person on earth, Jeff Bezos, is paying workers unlivable wages. It’s about the ‘new economy’ and the degradation of the human spirit — breaking down people, spitting them out and simply replacing them with new bodies,” Mr. Sanders said last week in a Twitter post.

Amazon has disputed Mr. Sanders’s accusations, saying the company offers stable pay and benefits for its employees. It has also disputed concerns the company has violated antitrust laws, saying it does not have a dominant market share of the retail market. (Yeah, right!)

Janet L. McDavid, a panelist at the F.T.C. hearing and a lawyer at Hogan Lovells, said simply going after companies because they were big was dangerous. The “amorphous” concepts of big and fair in antitrust law could lend itself to political decisions, Ms. McDavid said. “Which we certainly should eschew, especially now in the current political environment”

Nice video you’ve got there Google. An FTC inquiry is fine, but we’re waiting for the SEC to tackle companies with a trillion dollars of market cap making obviously false press releases and public statements. That should be fun.

After the Roaring Twenties?

September 13th, 2018


Chinese GDP rose by a staggering 1,100 per cent between 1992 and 2010. The global share of goods exports grew from 2 per cent to over 17 per cent. Income per head rose 970 per cent, 10 times faster than in the United States. A full half a billion people were lifted from rural poverty to middle-class comfort. No country in history has accomplished so much in so short a time for so many people.

When I stood on Jingshan in 2010, it was widely assumed that this meteoric rate of growth would continue – we were entering China’s decade – the decade when China’s economy would become bigger than the US’.

One of the lessons of investment, however, is that just when things are looking their best, the best may be over. The Shanghai Composite Index, the stock market and bellwether of an economy reflecting 8½ years of economic activity, is actually down 17 per cent since January 1, 2010. The yuan is also weaker against the US dollar. It reminded me that a full four years ago, I mused in these columns that the 2010s might be China’s lost decade, so as an update, I surfed the International Monetary Fund and World Bank databases.

The data shows Chinese annual economic growth has fallen from the over 10 per cent per annum to around 6 per cent this decade.

Interesting. When we saw Shanghai 6000 eleven years ago, we compared things to the Roaring 20’s in the US. Maybe we were more correct than we thought.

Good piece on China’s deleveraging and impact on growth

September 12th, 2018

Comments on this later.

Mistah Kurtz – he dead

September 12th, 2018

Arghhh!!!!! Bonus fun: how many conservatives are there at Yale? Hmmmm.

Brief question

September 11th, 2018

Is it a long established thing that performers be on the Left? Just wondering.

Questions for millenials

September 10th, 2018

(1) to the nearest 1 percent, what is the percentage of CO2 in the air? (2) do you want the NBA to reorganize so it is as diverse as your college says every activity and field of study should be? (3) would you be happy to change the 51 he / she et ceteras to XX, XY and a few sometimes very sad others, but hey, it’s science?

They’ll be stumped at question one since it doesn’t fit well with the current hysteria.

(Roger Kimball has similar thoughts, but his are very fancy and footnoted.)

Odds and ends

September 9th, 2018

(1) Here’s a fellow making $8MM a year and another making 0.005 of that. OK then. (2) We find the logic of this McCarthy piece sound, but the tone is odd. (3) This conversation is boring, but it is remarkable who the participants are. (4) This is plain weird but at least you’ll be able to tell your grandchildren that you witnessed both the Salem Witch Trials and Tulipmania.

Music and stuff

September 8th, 2018

A Simple Desultory Philippic (Or How I Was Robert McNamara’d into Submission):

I been Norman Mailered, Maxwell Taylored
I been John O’Hara’d, McNamara’d
I been Rolling Stoned and Beatled ’til I’m blind
I been Ayn Randed, nearly branded
Communist, cause I’m left-handed
That’s the hand I use…well, never mind

I been Phil Spectored, resurrected
I been Lou Adlered, Barry Sadlered
Well, I paid all the dues I want to pay
And I learned the truth from Lenny Bruce
And all of my wealth won’t buy me health
So I smoke a pint of tea a day

I knew a man, his brain so small
He couldn’t think of nothing at all
Not the same as you and me
He doesn’t dig poetry
He’s so unhip when you say Dylan, he thinks you’re talking about Dylan Thomas
Whoever he was
The man ain’t got no culture
But it’s alright, Ma
Everybody must get stoned

I been Mick Jaggered, been silver daggered
Andy Warhol, won’t you please come home?
I been mothered, fathered, aunt and uncled
Been Roy Haleed and Art Garfunkeled
I just discovered somebody’s tapped my phone

(Folk rock…)
(I’ve lost my harmonica, Albert…)

No comments here today on the scary nuttiness. From K to HS, BA, and PhD (you’re fired!), 24/7 on the internet, and now in Congress too, the drumbeat is all the same. Hard to know if we can get through this.

Chelsea Morning is a lovely song, isn’t it? The traffic wrote the words, not Steve Winwood. Say, how do you sell a car? Hey, that’s easy; just use a song that says “I rode a tank, Held a general’s rank, When the blitzkrieg raged And the bodies stank.” Nice!

A long time ago we liked kids’ TV a little. Rex Trailer, Big Brother Bob, Captain Kangaroo and so forth, but with its great cast and kooky writing, this show was by far the funniest.

Today’s nuttiness

September 7th, 2018

Some guy speaks of today’s Darth Vader:

Even though your generation is the most diverse in history with a greater acceptance and celebration of our differences than ever before, those are the kinds of conditions that are ripe for exploitation by politicians who have no compunction and no shame about tapping into America’s dark history of racial and ethnic and religious division. Appealing to tribe, appealing to fear, pitting one group against another, telling people that order and security will be restored if it weren’t for those who don’t look like us or don’t sound like us or don’t pray like we do, that’s an old playbook.

It’s as old as time. And in a healthy democracy, it doesn’t work. Our antibodies kick in, and people of goodwill from across the political spectrum call out the bigots and the fear mongers and work to compromise and get things done and promote the better angels of our nature. But when there’s a vacuum in our democracy, when we don’t vote, when we take our basic rights and freedoms for granted, when we turn away and stop paying attention and stop engaging and stop believing and look for the newest diversion, the electronic versions of bread and circuses, then other voices fill the void.

A politics of fear and resentment and retrenchment takes hold and demagogues promise simple fixes to complex problems. No promise to fight for the little guy, even as they cater to the wealthiest and most powerful. No promise to clean up corruption and then plunder away. They start undermining norms that ensure accountability and try to change the rules to entrench their power further. They appeal to racial nationalism that’s barely veiled, if veiled at all. Sound familiar?

Guy lives in a different universe than the one we do. Oh, BTW, never make an OK sign with your fingers or you too will become Lord or Lady Vader.

These conspiracy nuts have something terribly wrong with them.

Michael Rennie was ill the day the earth stood still

September 6th, 2018

We have nothing of substance to add about the self-aggrandizing nuttiness in Congress or at the NYT these days, except that for some reason these things reminded us of Rocky Horror (which started as a play as we were surprised to learn). All 3 are over the top, but only 1 of the 3 is fun to watch.

“Diversity” or excellence – pick one

September 5th, 2018

HMD, more or less:

America is in crisis, from the university to the workplace. Toxic ideas first spread by higher education have undermined humanistic values, fueled intolerance, and widened divisions in our larger culture. Chaucer, Shakespeare and Milton? Oppressive. American history? Tyranny. Professors correcting grammar and spelling, or employers hiring by merit? Racist and sexist. Students emerge into the working world believing that human beings are defined by their skin color, gender, and sexual preference, and that oppression based on these characteristics is the American experience. Speech that challenges these campus orthodoxies is silenced with brute force. Diversity commissars denounce meritocratic standards as discriminatory, enforce hiring quotas, and teach students and adults alike to think of themselves as perpetual victims. From #MeToo mania that blurs flirtations with criminal acts, to implicit bias and diversity compliance training that sees racism in every interaction, we are creating a nation of narrowed minds, primed for grievance, and that we are putting our competitive edge at risk.

At UCLA, “the diversity vice chancellor’s total pay, including benefits, has averaged $414,000.” Nice work if you can get it. We touched on this a while back. Hey, let’s subject the NBA and the 207 Nobel laureates in physics to this nasty foolishness.

IHOb 2 or something

September 4th, 2018

IHOp became IHOb for a month, during which it got a lot of free advertising. Now we have IHOb 2, or something. (The majority (60%) of the company’s footwear sales are outside North America, so a lot of people won’t care about this.) It will be interesting to see how much free advertising the company gets.

The stock was off 3% today. Yahoo was upbeat, however, as were many others.

The company has a hip BOD and manufactures maybe 80% of its products outside the US. So it’s all cool, man. What you getting upset about?

Farmers and soldiers

September 3rd, 2018

Within the lifetime and personal memories of many Americans still living, most everyone knew farmers and soldiers. As late as America’s entry into World War I, over 42% of Americans still lived on farms. It’s hard not to know a farmer or have spent time on a farm when 4 out of 10 of your countrymen lived their lives in agriculture.

Similarly, everyone knew soldiers not so long ago. WWI drafted 2.8 million Americans, when America only had 50 million men in total. WWII took 10 million draftees, and there were 3.4 million between Korea and Vietnam. One way of looking at Vietnam, for example, is that the draftees were as many as all boys in the United States who turned 18 in 1970 — a pretty large group of Baby Boomers. And none of these figures include the men who enlisted — surprisingly, perhaps, the total number of Vietnam veterans is over 2,500,000. So for a long time in America it has been true that most Americans knew something of farming and the military in a direct personal way.

No longer. As a statistical matter today, there are almost no new soldiers or farmers in America. Annual military recruits amount to 175,000 or so a year in a country of 300,000,000. And it’s even worse in agriculture. There are lilterally almost no new farmers in America today. At the time of WWII, farming still occupied 18% of the labor force — it’s less than 2% today. Every single year America loses more farmers than it creates. Many (perhaps most?) young Americans probably have not one single friend who becomes a farmer or soldier today.

Mark Steyn asks from time to time why there are no war songs today, as opposed to WWII. Part of the reason is leftist Hollywood, of course, but another aspect of the phenomenon is this: all Americans were involved in WWII (see the PBS Soundies program, for example); very few are involved in America’s fight today. In WWII, war songs were about us; today war songs would be about them.

We sometimes hear from the worthies on talk radio that this is the same America that won WWII, and just you wait, fella, til that power is unleashed. Well, this is pretty clearly not the America of WWII. The millions of farmers and soldiers of yesteryear are the Halo-players and web designers and J-Lo wannabes of today. And there is not much memory of that older America to boot. There are justifiable reasons to be very concerned about these collective losses of experience, memory and toughness in our very dangerous world.

This is not a piece about decline and pessimism, however. Research (see eg, Harvard Professor Dan Gilbert’s interesting lecture and book) shows time and again that the resiliency and adaptability of men and women to crisis, hardship and cruel misfortune is far above what they themselves anticipate. For the most part, the most recent generations of Americans have not been tested in the way some earlier generations have. When such tests come, it remains to be see whether these generations will perform in the manner of farmers and soldiers past, and what manner of patriotic songs will be sung.

It is, however, a serious error to judge the fruits of affluence as irreversible symptoms of decline. We cannot know the outcome at this time.

Coming down from the $147 oil crisis of 2008

September 3rd, 2018

Reuters reports that the assertions that oil prices were headed to infinity were a bit premature:

U.S. crude settled down $5.75 at $109.71 a barrel after trading as low as $105.46. London Brent crude settled down $1.07 at $108.34 a barrel. U.S. crude settled below its 200-day moving average price for the first time since May 2007, which is considered by many traders evidence that prices may fall further. Oil prices have tumbled nearly $40 a barrel since the July 11 record high of $147.27 as bullish sentiment has evaporated.

Our view is that oil prices are headed much lower. History suggests that is what will happen, and a number of analysts share that view. Also, a falling price environment should cause some OPEC members to cheat and produce above their agreed targets, which is apparently already happening. Finally, Saudi Arabia, in its role as the largest and swing producer in OPEC, was dissed big time just two months ago, and needs to reestablish the roots of its power. For these reasons and others, we wouldn’t be surprised to see oil prices decline even more than they already have since the peak.


A little more on this subject from the volatile Jim Cramer, who was ardently bullish for a while (the blue area represents oil prices and the red line is the natural gas price):

Two more hurricanes, a price that’s economic and down 40% in 8 weeks, a fuel that homeowners can switch to — is natural gas capable of collapsing even more than it has?…you must believe that natural gas can trade at the most outrageous discount in history, as it is if you use the old 6-to-1 ratio — it’s otherwise projecting $42 oil from the current $108! Even if you use what the bears on this site have been saying, a new 10-to-1 ratio because of the inability to switch, you have oil at $70. Can oil go to $70? Yes, if we can find more. Yes, if we weren’t running out. Yes, if driving doesn’t come back at $3 a gallon, where gasoline goes if oil cracks $100. Yes, if China collapses.

Even that last point is possible.

2005 Golden oldie — iPod ruining America

September 3rd, 2018

We have written a number of pieces about the remarkable changes of the last 130 years; they often include a variation of this:

Here is the signal fact of our progress in the last century. If you were born in 1900, your life expectancy was in the forties, and GNP per capita was about $4000. If you are born today, your life expectancy in about eighty, and statistically, as an average American, you are ten times richer. In reality you are a hundred or a thousand times richer, if you factor in your ability to be in Paris tomorrow for $500, your ability to watch events from fifty years ago as they actually happened, etc. – not to mention that your toddler’s severe pneumonia can be reliably cured in 48 hours or so. Only a little of this has to do with government.

Mostly it is because far more than 50% of everything ever invented in the history of humanity was invented in the last 130 years, and perhaps 50% of that was invented by Americans. Milton Hershey invented the candy bar, Carrier invented the air conditioner for a tire plant, Sears invented catalogue distribution, Henry Ford invented cheap cars, some guys from Texas Instruments commercialized the transistor. It is almost impossible to overstate the importance of the invention and wide use of brand names, which communicate the quality and dependability of every product we buy. This alone deserves the Nobel Prize. And it was a large and growing market, the availability of risk capital, the development of standardized accounting principles, and protection of intellectual and personal property by the courts that made this possible.

We are coming to the end of an era, the time when there will be no one in America who remembers what life was like without telephones, running water, indoor plumbing, cars, airplanes, central heating, or electric lights; for our purposes here, we’ll include the children and grandchildren of these men and women as participating in a chain of continuity to those old days. One of our favorite quotes from Henry Adams is apt: “The American boy of 1854 stood closer to the year 1 than to the year 1900.” Soon, almost no one in America will have a visceral understanding of what 1854 was like, and what the heck Adams was talking about.

It is even worse than that. The transistor was invented in 1947 and patented shortly after, and since that time devices of all sorts have been getting smaller, smarter and less mechanical. There is another loss happening because of this, and Americans — including us — have no idea what it means for the future, though we think it is, on balance, bad:

A typical boy of 1854 knew what farming was like and may well have worked on a farm, knew horses and other animals, and learned how to maintain and fix things, from houses to wagons to furniture. A typical young man of 1947 had been in the army, knew people who lived on farms, could tune and maintain his own car, and could change the fan belt on the refrigerator and refill it with Freon. Both the boy and the young man had some feel for the technologies that were developing and changing around them, since the technologies were often sized on a human scale and involved mechanical processes that they had some acquaintance with.

To an important extent, this is no longer true. You can’t fix an iPod the way you can fix a record player; indeed you can’t even open up an iPod to understand it, as you could unscrew the turntable cover to figure out how 33 1/3 rpm became 45 rpm. Nor can you fool around with a Toyota Prius the same way you could try to replace a 283 with a 327 in a ’57 Chevy.

We are not trying to be gooey and sentimental. We are not romanticizing The World We have Lost. Far from it. Today’s technology provides far greater health and wealth to a vastly larger world population than existed in those other times. We love refineries, steel mills, job shops, machine tools and oil rigs, but we are not suggesting, like Mao, a steel mill in your back yard or, like some current political nativists, some form of return to a manufacturing economy. However, we are saying that it is necessary to understand such things.

We hypothesize that, to some extent, the microchip culture we have now, where miraculous tiny things just somehow work, without moving parts, has produced a form of magical thinking in our country. (We also blame the Hollywood Utopians for this too — their creations often seek, not to mirror or enhance reality, but to create rather harmful alternative realities, but that is another matter.) Americans complain about gas prices, but they don’t like refineries, and they oppose oil drilling in godforsaken wastelands; yet somehow the gas is supposed to be readily available at low prices: this is but one example of a sort of magical thinking that seems to us the exact opposite of the way Americans thought in 1854 or 1947.

We think it is urgent for our future that Americans understand and teach our young people about the enormous developments that have happened since the nineteenth century. So far, such efforts seem to us to be largely centered on self-congratulatory sociological claptrap, where the current generation, with all its “diversity,” is superior to all those who have come before. Such thinking is worse than nonsense; if unchecked, it is a steppingstone to the downfall of the country.

In some small way, we think that standing on its head the thinking of Charles Eliot is what is required today. Harvard President Eliot was a great educator and thinker who changed the classical curriculum to make it more suitable for fast-developing America, through increased specialization. (Eliot began teaching at Harvard in that year of 1854, by the way.) We quote him via an unusually well-written entry in Wikipedia:

“As a people, we do not apply to mental activities the principle of division of labor; and we have but a halting faith in special training for high professional employments. The vulgar conceit that a Yankee can turn his hand to anything we insensibly carry into high places, where it is preposterous and criminal. We are accustomed to seeing men leap from farm or shop to court-room or pulpit, and we half believe that common men can safely use the seven-league boots of genius. What amount of knowledge and experience do we habitually demand of our lawgivers? What special training do we ordinarily think necessary for our diplomatists? — although in great emergencies the nation has known where to turn. Only after years of the bitterest experience did we come to believe the professional training of a soldier to be of value in war. This lack of faith in the prophecy of a natural bent, and in the value of a discipline concentrated upon a single object, amounts to a national danger.”

We agree with Eliot of course that the modern world needs specialization, but it needs anew the inculcation of a general understanding of and feel for the development of our technologies and businesses and how we came so far as a people so fast. There is no argument for Americans’ being as cut off from the world of 1854 or 1947 as they are today; only harm can come from such ignorance.

Golden oldie from 2005.

The folly at the onset of the Great Depression

September 3rd, 2018

We had the good fortune to meet a man who was present as a child at one of the precipitating events of the Great Depression, the failure of New York’s Bank of United States in December 1930. His grandfather, who lost his savings in that bank, took him to witness the scene as depositors thronged to bank doors that were locked during normal business hours. The panic from bank failures in New York and elsewhere spread around the country — there was no deposit insurance — driving banks to maximize liquidity, sell assets, foreclose loans, and create the Mother of All Credit Crunches, which became known as the Great Depression. Here’s how the NYT described the scene in its December 12, 1930 city edition:


Perhaps you have been taught that the stock market crash of 1929 caused the Great Depression. That is not so. The crash both reflected and amplified the recession that the US economy was entering in 1929; however, it was the problems of the banking system and of monetary policy that cascaded recession into depression. We will quote from Friedman and Schwartz’s Monetary History of the United States (from pp. 309-313):

The stock market crash…left no mark on currency held by the public. Its direct financial effect was confined to the stock market and did not arouse any distrust of banks by their depositors.

The stock market crash coincided with a stepping up of the rate of economic decline. During the two months from the cyclical peak in August 1929 to the crash, production, wholesale prices, and personal income fell at annual rates of 20%, 7.5%, and 5%, respectively. In the next twelve months, all three series fell at appreciably higher rates…Even if the contraction had come to an end in late 1930 or early 1931, as it might have done in the absence of the monetary collapse that was to ensue, it would have ranked as one of the more severe contractions on record….

In October 1930, the monetary character of the contraction changed dramatically…A crop of bank failures, particularly in Indiana, Illinois, Iowa, Arkansas, and North Carolina, led to widespread attempts to convert demand and time deposits into currency…A contagion of fear spread among depositors…such contagion knows no geographical limits. The failure of 256 banks with $180 million in deposits in November 1930 was followed by the failure of 352 with over $370 million of deposits in December…the most dramatic being the failure on December 11 of the Bank of the United States with over $200 million of deposits.

That failure was of especial importance. The Bank of the United States was the largest commercial bank, as measured by volume of deposits, ever to have failed up to that time in US history. Moreover, though an ordinary commercial bank, its name had led many at home and abroad to regard it as somehow an official bank, hence its failure constituted more of a blow to confidence than would have been administered by the fall of a bank with a less distinctive name.

In addition it was a member of the Federal Reserve System. The withdrawal of support by the Clearing House banks from the concerted measures sponsored by the Federal Reserve Bank of New York to save the bank — measures of a kind the banking community had often taken in similar circumstances in the past — was a serious blow to the System’s prestige…

Friedman implies that the reason that the Clearing House banks failed to bail out the Bank of United States, despite often intervening in other, similar cases, is that the BoUS’s customer base and board were Jewish. This contention seems to be supported by statements from the NY State Banking Commissioner of that time, Joseph A. Broderick (p. 310). Let’s take a look at how the New York Times reported the attendees of the meeting the day before the Clearing House pulled the plug on the Bank of United States:


We have no way of knowing if Milton Friedman’s contention is true or not, though it appears likely to us that, unlike Herbert H. Lehman, the “small, able” Mr. Isidor J. Kresel was probably not a member of Our Crowd. TIME Magazine summed up the banking community’s view of the Bank of United States in its December 22, 1930 issue on that fateful meeting:

Another late arrival was lanky Owen D. Young who came about 11 p.m. in full dress, accompanied by Thomas William Lamont of J. P. Morgan & Co. Looking taller than usual in his full dress, Mr. Young paused to peer down at and converse with small, able Isidor Kresel, counsel for Bank of United States…Conservative Manhattan bankers last week were angry at Bernard K. Marcus, dark-haired, heavily-built president of Bank of United States. His aim was perhaps much too high. Only last year he stated: “Often we’ve put two or three days work into one. We have gone ahead two or three times as fast as we would have had we been working only one day at a time.” To bankers, a day’s work is a day’s work, to be done well, thoroughly.

The tall and lanky in full dress versus the small, able, dark-haired, overreaching, and heavily-built. We get the picture. Thanks, TIME.

This piece has been quite educational to research. We see once again that great events can turn on small episodes of human weakness, prejudice and folly. And who knew at the time that a crowd gathered at a bank on a cold December day would become anything other than the “local” event that the head of the NY Clearing House opined that it would be?

We should not believe that we can’t make mistakes of similar magnitude or wrongheadedness again. The stagflation of the 1970’s was caused by foolish economics policies of three presidents in a row — Nixon, Ford, and Carter — that weren’t reversed for a decade until Ronald Reagan and Paul Volcker had the wisdom and courage to take the harsh steps required to kill inflation. Today, one new challenge is the anti-China, pro-protectionism movement increasingly vocal in the US today. The greatest folly can seem trivial or reasonable at the time, which is precisely why it is so dangerous.

The above is from 11 years ago but seems relevant today.


September 3rd, 2018

Playing tiddlywinks seemed like a bit of a waste of time until we saw a much worse way to have spent that time. OTOH, this looks like an excellent way to spend a few hours.