markets just keep emerging

31 March 2009

From that much-recommended Simon Johnson article on the financial crisis:

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.

It just so happens that I’ve been digging around a bit in the 1900s (the “aughts”, I guess). Here’s how Michael McGerr describes the events of 1907 in A Fierce Discontent: The Rise and Fall of the Progressive Movement in America, 1870-1920, pages 178-180. I’ve decided to quote extensively more than paraphrase since McGerr lays it out quite nicely and the details are important:

In October, a worldwide shortage of credit mercilessly exposed the limitations of the nation’s banking and currency systems. A collapse of copper prices raised fears about banks and trust companies heavily involved in the mining industry. On October 22, frightened depositors made a run on the Knickerbocker Trust Company, which had extensive involvement with copper: the company closed the next day. The terror spread… As the banks and trust companies of New York struggled to meet their obligations, the whole banking system of the country seemed suddenly in peril. Morgan, Stillman, and the rest of the great money men labored to hold things together. John D. Rockefeller publicly pledged half his possessions to the cause. With millions of Rockefeller’s dollars on deposit, the National City Bank played a key role in the crisis. “They always come to Uncle John when there is trouble,” Rockefeller bragged. Even so, the federal government had to step in. Roosevelt’s secretary of the treasury, George Cortelyou, provided the banks with $37 million and then $31 million. Still the run continued; the banks stopped payments to depositors….

As the Panic entered a second week and the Trust Company of America became the focus of worry, Roosevelt was drawn into a dubious deal. The money to save the company would have to come from the financial markets, but they were supposedly jeopardized by the weakness of Moore and Schley, a firm of underwriters. The fate of Moore and Schley, in turn, depended on the sale of its shares in the Tennessee Coal and Iron Company. With money from those shares, Moore and Schley would survive, the stock market would stay high, and firms could then afford to put up the money to save the Trust Company of America. But who would buy the shares in Tennessee Coal and Iron? United States Steel was willing–if the government would agree not to take the acquisition to court under the Sherman Act. The leaders of the steel corporation, Elbridge Gary and Henry Clay Frick, met with the President on November 4 to explain the firm’s noble proposal. They did not dwell on the fact that this bargain-basement acquisition would give United States Steel a powerful hold on the Southern market. Roosevelt indicated he had no objection to the deal, which promptly went forward.

Through November, the government sold bonds to banks on easy terms; thus fortified, the banks rode out the Panic. Confidence returned, the credit shortage diminished, workers kept their jobs–the country seemed fine. Nevertheless, the Panic of 1907 had changed things.

McGerr goes on to point out that while the financiers had found themselves in a weak position, forced to turn to the federal government for help, the resolution of the crisis demonstrated their continuing strength:

The government had had no choice but to help the “financial captains.” Roosevelt had accepted the Tennessee Coal and Iron deal. In November, Elbridge Gary began to bring together the leaders of the steel industry to discuss matters of common concern; Washington tolerated these “Gary dinners,” an open display of anticompetitive collusion. Further, the great industrial firms showed real strength in the uncertain economic climate. Instead of renewing the price-cutting wars of the 1890s, U.S. Steel and other companies maintained their prices after the Panic.

Roosevelt, McGerr writes, responded to the crisis by calling for more regulation, including allowing the federal government to examine corporations’ books and giving the Interstate Commerce Commission the power “to regulate issues of railroad securities, to determine the physical value of railway lines, and even to set railway rates.” None of that happened during his presidency:

Instead, he found himself trapped in an argument about responsibility for the Panic. Opponents claimed that the administration’s program in general and the judgment against Standard Oil in particular had precipitated the crisis. “The runaway policy of the present Administration can have but one result,” John D. Rockefeller told a reporter. “It means disaster to the country, financial depression, and chaos.” Even Americans receptive to antitrust and regulation wondered whether too much government interference inhibited economic growth.


the structures of archival research

26 March 2009

News of John Hope Franklin’s passing yesterday had me re-reading his 1988 Charles Homer Haskins Lecture (pdf). The Haskins Lectures are supposed to be autobiographical; Franklin’s makes me want to read his memoir. Particularly striking are his memories of doing research under the conditions of segregation:

It was necessary, as a black historian, to have a personal agenda, as well as one dealing with more general matters, that involved a type of activism. I discovered this in the spring of 1939 when I arrived in Raleigh, North Carolina, to do research in the state archives, only to be informed by the director that in planning the building the architects did not anticipate that any Afro-Americans would be doing research there. Perhaps it was the astonishment that the director, a Yale Ph.D. in history, saw in my face that prompted him to make a proposition. If I would wait a week he would make some arrangements. When I remained silent, registering a profound disbelief, he cut the time in half. I waited from Monday to Thursday, and upon my return to the archives I was escorted to a small room outfitted with a table and chair which was to be my private office for the next four years. (I hasten to explain that it did not take four years to complete my dissertation. I completed it the following year, but continued to do research there as long as I was teaching at St. Augustine’s College.) The director also presented me with keys to the manuscript collection to avoid requiring the white assistants to deliver manuscripts to me. That arrangement lasted only two weeks, when the white researchers, protesting discrimination, demanded keys to the manuscript collection for themselves. Rather than comply with their demands, the director relieved me of my keys and ordered the assistants to serve me.

Nothing illustrated the vagaries of policies and practices of racial segregation better than libraries and archives. In Raleigh alone, there were three different policies: the state library had two tables in the stacks set aside for the regular use of Negro readers; the state supreme court library had no segregation; while, as we have seen, the archives faced the matter as it arose. In Alabama and Tennessee, the state archives did not segregate readers, while Louisiana had a strict policy of excluding would-be Negro readers altogether. In the summer of 1945 I was permitted by the Louisiana director of archives to use the manuscript collection since the library was closed in observance of the victory of the United States over governmental tyranny and racial bigotry in Germany and Japan. As I have said elsewhere, pursuing Southern history was for me a strange career.


the emerging merger movement

23 March 2009

Yglesias writes:

My biggest concern about the PPIP approach to the banking system is that even if it works, what it does essentially is return us to the pre-crisis status quo—banks that are so large that they’re too politically powerful to regulate effective and too systemically important to be allowed to fail.

Actually, we’d be entering a system even more concentrated than the pre-crisis status quo. Bank of America would have Merrill Lynch, Wells Fargo would have Wachovia, and JPMorganChase would have Bear Stearns and Washington Mutual (potentially becoming JPMorganChaseBearStearnsWaMu, for short). And that might not be all. Last fall Joe Nocera listened in on a JPMorganChase conference call in which one of the executives addressed the $25 billion in federal funds forced upon given them by the government, saying

“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

Things have probably reached the point where any more large acquisitions have become politically unfeasible, but it’s something to keep an eye on. Banks, like houses, might not come this cheaply again for a long time – if you can manage it (perhaps with the government aid).


one two three four five six seven eight nine ten eleven twelve thirteen fourteen fifteen sixteen seventeen eighteen nineteen twenty twenty-o

20 March 2009

I started following blogs to read and comment. Then I started blogging. The same thing might happen with twitter, though I don’t know how often I plan to update. It certainly will make the small number of feeds I started following in the last few weeks a bit easier to read.

It’s funny, I signed up for Facebook a couple of months ago but don’t think I’ll ever do much with it (last sign-in: a couple of months ago) except accept the occasional friend request. But twitter is less demanding and has more of a public character; I’ll probably end up using it more than I expect.


sporting news

17 March 2009

Over in the comments to Tim Burke’s recent post about newspapers and civil society, I was reminded of something I’ve something I wonder about every time I read about the decline of newspapers and the problem of getting people to pay for news online: ESPN.com. Way back at the start of the web, just about everything at ESPN was free. I distinctly remember my Dad predicting that this wouldn’t last and that eventually most free information sources – newspapers included – would start turning to fee-based models. That did happen in some places, but it didn’t really work and very few of the fee newspaper models are still around (though many do charge for stories only a week or two old).

ESPN, on the other hand, seems to have put more and more behind a paywall. I’ve never subscribed, so I don’t quite know how much is there, and I don’t check the site often these days – Yahoo’s free sports news, which is my main use for Yahoo, is usually enough for me – but my impression is that not only has ESPN increased the proportion of content for pay, it’s also increased the total amount of content for pay. I don’t remember there having been quite so many columnists/analysts in the past. That doesn’t necessarily mean the model has been a big success, but it does lead me to believe that they think it’s been serving them well.

So how does ESPN do it? Are they like the Wall Street Journal, an exception in a world of free information? Is the site subsidized by the broadcast and magazine divisions? Or does sports journalism as a whole follow a primarily pay model? I suppose I could click on some other sports sites; with the NCAA tournament starting up, I’ll be looking for more news (actually, only if Cal wins).


home economy

10 March 2009

There was an empty space on the supermarket shelf in the prepackaged foods section. Kraft macaroni and cheese, classic version, was selling at 10 for $10 or $1 per box. The rest of the individually selling Kraft styles – the movie tie-ins, the three cheeses, the white cheddar, the spirals – were selling at regular price; their rows of boxes went right to the edge. I bought the last box of classic and then a box of regularly priced spirals.

Oddly, you could buy the Kraft classic in groups of 5 for less than $1 per box, but that section on the shelf was nearly full. Maybe the offer came only after the individual boxes nearly sold out, or maybe no one bothered to do the math. If I weren’t moving in a few weeks I’d have bought the box set, but I don’t want to carry the unused boxes when I move.

(Previously.)