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The Billionaires Playground - 1890 - The Last Time the National Wealth was this Unbalanced

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Saturday, June 07, 2008

A SHORT HISTORY OF FRAUD IN AMERICA

I have come to the conclusion that no one should be handed a masters or Phd in economics from any American University without an intimate understanding of the history of fraud in America. We have buried this knowledge, as if afraid of teaching our best and brightest how to cheat, despite there being clear evidence that no such primer is needed. The energetic, ambitious and greedy have always and always will find a way to cheat the public. And the mantra of deregulation is just more proof that a good education in cheating might at least warn the suckers. For example, did you know that one of the men who did the most to advance the greatest fraud upon the American people in the 19th Century was “Honest” Abe Lincoln?Lincoln’s break through case as a lawyer involved the May 6, 1856 destruction of the “Government Bridge”, the first bridge over the Mississippi River, between Rock Island, Illinois and Davenport, Iowa. Just two weeks after the bridge was opened to trains a steamboat, the “Effie Afton”, ran into one of the bridge piers which caused a fire that destroyed the boat and one span of the bridge. The owners of the Effie sued The Mississippi and Missouri Railroad, which owned the bridge, claiming that bridges were a navigational hazard to commerce.
The mercurial Charles Durant, one of the railroad’s officers, hired Lincoln to defend the bridge. In lieu of payment, Lincoln accepted $3,000 in railroad stock (the equivalent of about $66,000 in 2008). After winning the case (he got a hung jury) Lincoln traveled all the way to Kansas to inspect the intended route of the future transcontinental railroad, which would be built by corporations that Durant ran and manipulated. And then, one of the first bills signed into law by President Lincoln was “The Pacific Railroad Act of 1862” which officially authorized the Central Pacific railroad to build east from California and the Union Pacific (whose vice president was Charles Durant) to build west from Council Bluffs, Iowa, meaning that Lincoln now held some very valuable stock.To pay for the construction the railroad company was re-embursed for the cost of building the rail line. But they made their profit from the grants of land on either side of the rails, which they could then sell. The completed rail line made the land valuable. But the fact that Lincoln traveled all the way to Kansas to see the property with his own eyes showed that he knew enough not to trust the word of Charles Durant. And yet he had just turned this rapacious man loose upon the American taxpayers. Well, Lincoln had an excuse; he was a little distracted by the outbreak of the Civil War.Doctor Charles Durant (Medicine was his formal training), immediately showed his true genius by first buying out Union Pacific stockholder Herbert Hoxie for $10,000. This gave Durant control of the railroad, even though the “Railroad Act” had limited individual stock ownership to avoid just the kind of manipulation Durant had in mind. Then Durant bought stock in competing railroads (on margin, of course), and spread rumors that they would soon be joined to the Union Pacific line, thus giving them a piece of the projected profits from the transcontinental trade. When those stocks then went up, Durant sold them out. Eventually the suckers realized there would be no joining, and the stocks fell to below their original value. With the Civil War raging Durant cleared about $5 million from those scams (the equivalent of about $100 million in 2008). Durant was hot tempered, erratic and prone to manic depression. But his manuvers over the U.P. were just the prologue. Doctor Durant now came up with a great idea he had learned from the French. In early 1864 the good Doctor Durant sent his director of publicity, George Francis Train, on a search for just the right corporate vehicle. Train found it in the Pennsylvania Fiscal Agency, one of the innumerable stock schemes chartered by the states to fund "The American people’s railroad to the Western Sea.” None of these shell companies ever went anywhere, but this one still had an effective charter and it was cheap. Train bought the company and renamed it Credit Mobilier. Then he sold shares in the new company for nominal amounts (often on credit) to the principle stockholders of the Union Pacific Railroad - the majority going, of course, to Doctor Durant.
As the final act the Union Pacific signed an exclusive “no bid” contract with Credit Moblier (themselves) to supply the railroad with all labor, grading, rails, ties, spikes, bridges, abutments, rolling stock and engines needed to actually build and run the railroad. The original engineer of the Union Pacific had calculated that the first 100 miles of track would cost $30,000 per mile to build. But Credit Moblier billed the railroad $60,000 per mile, which was taken from the pocket of the federal government, making, by the end of construction in 1869, a profit for the stockholders of Credit Mobilier of $50 million (equal to $770 million in 2008 dollars). Better yet for the principle investors, the Union Pacific Railroad was something new on the American scene, a “limited liability corporation”. Under the old rules stockholders were liable for any debts the company ran up. A bankrupt company meant bankrupt executives. But investors in the Union Pacific Railroad Limited, including Doctor Durant, Mr. Train and several members of Congress who had been given Credit Mobilier stock because they controled any investigations into fraud in the railroad dealings, were liable only for the amount they had invested in the U.P. And in many cases that was nothing.
So by 1875 the Union Pacific Railroad, "the people’s railroad to the western Sea", was bankrupt. It had been looted by Credit Mobilier. The U.P. stock wasn’t worth the paper it was printed on. And, of course, by then, the principle investors in Credit Mobilier were off looking for other railroads to loot.
Only after literally thousands of more scams just like this one would congress close the loophole in this particular invitation to fraud, making shell companies like Credit Mobilier illegal, allowing for the seizure of all profits made from them, and assessing fines for even setting them up.It’s enough to make you realize that if Lincoln had not been murdered, his memory might have been more closely tied to Doctor Durant. But it is not as if any of the truly powerful in this nation have ever been caught red handed; otherwise the bank executives called before Congress would never have the guts to blame speculators or working class citizens for taking on home loans they could not afford. In the area of economic crime, experience and history makes me suspicious of the people with degrees in finance who drew up the contract. I blame them long before I blame the schmuck who signed the contract. And if you don’t agree, you just don’t know your American history like you should.
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Thursday, June 05, 2008

PULLING A RABBIT OUT OF A HAT

I believe it is the most famous magic story of all time. It’s the source of a dozen movie plots and it far surpasses the tale of "The Great Coullew", a magician in Lorraine, France, in 1613, who was beaten to death by his ticked off assistant. Or even the 1922 story that came out of historic Deadwood, South Dakota, when the magician “The Black Wizard Of The West” was murdered by his wife, who switched the blank round in his “Bullet Catch” gag with a real bullet. This one, the story of "The Original Chinese Conjurer" is a real hum-dinger, and its true.
Ching Ling Foo, “The Original Chinese Conjurer” was the most famous magician to ever come out of China, according to his advertising. In 1898, when he brought his show to America, he offered $1,000 to any magician who could duplicate his act. Much to his surprise, shortly thereafter, another magician, under the name Ching Ling Soo, began doing just that: and also billing himself as the “Original Chinese Conjurer”. Suddenly there were two originals.
In January of 1905 Soo began headlining at the Hippodrome Theatre in London. One month later, at the Empire Theatre, just across the street, Foo opened his identical show, advertised with identical posters and the matching tag line, “The Original Chinese Conjurer”. The two began campaigns of trash talk, accusing each other of fraud and name calling that kept the theatre critics working their pencils to the nub, until Foo offered Soo $2,000 for a 'trick off' in front of the press. On the appointed day Foo was there but, alas, Soo was not. The London Weekly Dispatch asked, “Did Foo fool Soo? And can Soo sue Foo?” Alas, those questions were never answered. Then, in March of 1918, Soo was performing on the stage of the Wood Green Empire club in London, doing his most famous trick, a variation on “The Bullet Catch”, he called “Condemned to Death by the Boxers”. In this trick audience members loaded rifles, which were then fired at Soo’s chest. Soo caught the bullet in his hand to thunderous applause. Or at least he did until March 23, when after the guns fired Soo collapsed. As horrified cast members rushed to his side, Soo was clearly heard announcing, “Oh, my God. Something has happened. Lower the curtain”, in perfect English. He died the next day. At the inquest into his death Soo’s widow, Miss Olive Path (who also appeared as his male Chinese assistant and a Chinese princes), explained that the rifle was a prop. It was a real gun and capable of firing a real bullet, but with a hidden chamber. Cocking the rifle forced the bullet loaded by an audience member to drop out of the way, clearing space for another bullet made out of paraffin. It would dissolve with the force of the exploding gunpowder, allowing Soo to produce a bullet he had supposedly caught. It was and still is an amazing gag, when it works.
But over time Soo had allowed a buildup of gunpowder residue to foul the gun's chamber. On that terrible night the real bullet remained jammed in the chamber and blocked the safe paraffin round from entering. And so when the bullet was fired, it was really fired. And Soo was killed.
The inquest had also determined that Soo, the other “Original Chinese Conjurer” , was not actually Chinese. His real name was William Robinson. He was from Brooklyn and he had worked as a magician under the name “The Amazing Robinson”, with Olive as his assistant, until he had hit upon the idea of grafting onto the success of Ching Ling Foo, the actual original "Original Chinese Conjurer" -
- who by the way actually was Chinese but was actually named Chee Ling Qua. (Confused yet?) The lesson here is that you should never trust a magician, especially if you are another magician.

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Tuesday, June 03, 2008

THE SUV IS DOA

I pause to mourn the death of a true Fat Bastard; R.I.P. the S.U.V. You’ve been on life support for the last decade, living in a Bush denial bubble where there were no insurgents in Iraq, rich people were not selling out their nation for a tax cut, and we could drill ourselves out of the oil-hole we’ve drilled ourselves into. And as the bloated body of the Sport Utility Vehicle goes down for the third time allow me to point out that it was rarely sporty, never utilitarian and barely mobile enough to qualify as a vehicle unless soaked in gasoline. So, farewell you Fat Farce: you will be missed the way most binges are missed, with a hangover and no clear memory of all the fun we thought we were having.
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The Chairman of GM, the number one US car maker, announced this morning that thanks to their addiction to SUV’s they lost $3.3 billion in just the first quarter of this year. So they are closing four plants that make SUV’s and light trucks, in Moraine, Ohio, Janesville, Wisconsin, Oshawa, Canada and Toluca, Mexico, and they are “looking at ways” to dump the entire line of Hummers, basically a line of tanks with backup lights. According to Carlos Gomes, the senior economists at Bank of Nova Scotia, “…current gasoline costs are soaking up a record 4.5% of US disposable income – causing SUV sales to drop 28%.” And according to CNW Marketing Research a used SUV took 66 days to sell in April, even when discounted 20% below Blue Book value. In May, according to the Power Information Network, 40% of people who traded in their SUV owed more than the vehicle was worth! Right now a 3 year old SUV is worth $3,000 less than a similar 3 year old SUV was worth a year ago. How the hell did this happen? The answer is simple; stupidity.
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We’ve been on CAFE rich diet (Café being the Corporate (Fleet) Average Fuel Economy Standard for auto manufacturers, which has been stuck at 27mpg for the last 17 years), and our economic arteries have been plugged with political plaque. We were lucky we are just having a heart attack. We could have produced a Chest-Buster out of “Alien”, and we still might, if we keep dragging our feet. Late last year the barely Democratic Congress (and the courts) finally forced Georgie-Porky Bush to accept improved CAFÉ standards to 35 mpg, but not till the year 2020. Besides, the really massive gas guzzlers are exempt from CAFÉ requirements (and you get a big juicy tax write-off for buying one) if your SUV has 4-wheel drive or weighs more than 3 tons, or can carry 10 people, or if the passenger area can be converted into a flat bed cargo area with some simple tools, like a hacksaw and a sledge hammer and an acetylene torch. And even then the rest of the industrialized world has CAFEs standards twice as high as the U.S. This Bush-denial binge wasn’t just about getting really drunk, we got really drunk in a whore house, at whore house prices and the GOP was our madam du jour.
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Consider that the National Transportation Department is required by law to judge CAFÉ standards by four criteria, the last and least important of which is the “…Need of the nation to conserve energy,.” in retrospect it would appear that this fuel guzzling agenda constituted a “Clear and Present Danger” to our national security. But the eco-terrorists who were busy burning down Mc-Mansions in Vale never crouched their arguments in those terms, leaving patriotism to the right-wing-nuts. And then consider that the 2007 Ford Explorer gets only 14 mpg in the city and 20 mpg on the Interstate, but that has to be lowered somewhat because the old MPG’s were gauged without running the air conditioner, which drops the mileage to 13 and 18 mpg, which, at the moment, costs you another eight to sixteen dollars for every mile you drive. And then consider that you don’t drive on a smooth treadmill, as the vehicles being tested do, but on real roads that the “No New Taxes Economy” have left pot-holed and crack filled since the Bush One Era. We reached our best fuel conservation in 1987 (at 26 mpg), when the Democrats were still running Congress, and under them our national energy policy was then re-defined by the United Auto Workers and the Detroit Big Three; GM, Ford and Chrysler.
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But thanks to the Big Three paying off Congressmen rather than engineers and innovators they peaked with sales of 17.4 million vehicles in 2000, the year the Bush-Denial train left the station, and now, seven years later, this year they will sell less than 15 million cars, trucks and SUV’s. At this year’ Detroit Auto Show Dodge rounded up 120 longhorns to promote their new pick-up, and so many frightened cattle started mounting other frightened cattle that one sage dubbed it the “Brokeback Pickup”. It’s not the image Detroit has been wanting to sell, but it’s the image they are stuck with.
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Since 2000 Detroit has dropped more than a quarter of a million employees, and $67 billion in losses too. The other thing rising in the American auto industry is its weight, up from 3,200 lbs average vehicle weight in 1987 to 4,066 lbs average this year. So Detroit is caught with an old fat flabby fleet while the Asians and Europeans are feeding off her corpse. We should find what business school graduated these geniuses of American industry, close and burn it down. And spread salt on the ashes.
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Instead it is the workers who will pay the full price for management stupidity, while management types walk away with golden parachutes, after having given the hourly workers a golden shower. It ain’t like these geniuses were not warned that doomsday was coming, or the shape it would appear in. And maybe the scariest item of this long depressing list of scary things is that the Commodity Futures Trading Commission reports that large speculators are dumping their oil futures by 48%. Because this is not a 60% reversal, it hints that the cost of oil may have peaked, but that it ain’t going very far down anytime soon.
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We have entered the age of expensive oil. And we are there to stay. I can’t say for certain what that new world is going to look like, but one thing I know for certain, it ain’t going to have any SUV’s in it. And there is enough blame for that fiasco to lay a little on every one of us.

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Sunday, June 01, 2008

LIVE BAIT: PART THREE

I suppose that the first great scientific insight into Lumbricus terrestris was written by Charles Darwain; “The Formation of Vegetable Mould Through The Action of Worms, With Observations On Their Habits’, which was published in October of 1881. According to the old man (he would die just 6 months later at the age of 73 and this was his last published work), there were 26, 886 earthworms per acre in England, and every year those little wigglies passed ten tons of soil through their guts, turning, aerating and fertilizing a new inch of topsoil every five years. “The plough is one of the most ancient and valuable of man’s inventions; but long before he existed the land was regularly ploughed, and still continues to be thus ploughed by earthworms. It may be doubted whether there are many other animals which have played so important a part in the history of the world, as these lowly organized creatures.”
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Darwin was so clearly charmed by Lumbricus terrestris that he decided to return the favor. “Worms do not possess any sense of hearing”, he noted. “They took no notice of the shrill notes from a metal whistle, which was repeatedly sounded near them; nor did they of the deepest and loudest tones of a bassoon. They were indifferent to shouts, if care was taken that the breath did not strike them. When placed on a table close to the keys of a piano, which was played as loudly as possible, they remained perfectly quiet….When pots containing two worms which had remained quite indifferent to the sound of the piano were placed on this instrument, and the note C in the bass clef was struck, both instantly retreated into their burrows…and when G above the line in the treble clef was struck they again retreated.”. How could you not admire and trust a man who was so utterly and gently fascinated with such a beguiling creature that he was drawn to play the piano for them? “The whole body of the worm is sensitive to contact….Judging by their eagerness for certain kinds of food, they must enjoy the pleasure of eating. Their sexual passion is strong enough to overcome for a time their dread of light. They perhaps have a trace of social feeling, for they are not disturbed by crawling over each other’s bodies, and they sometimes lie in contact…” Of course Darwin also cut them open to see what made them tick, but that was the scientist within him. And it is important to note that before Darwin wrote his book, Lumbricus terrestris was considered a garden pest, and killed on sight. His insights have thus saved millions of worms over the last 150 years; for one thing, few people eat worm pie anymore.
*
On average Lumbricus terrestrsis lives four to eight years in the wild, assuming there is no intervention from a ravenous Robin. For Earthworms seem to have the double key to success; they are detritvorous, and hermaphroditic. Once they reach sexual maternity, at about one year of age, Lumbricus terrestrsis wiggles into a brief encounter, always on the surface, lining up side by side, head to tail with their “mate”. They then cover their joint selves with a mucus wrapping and exchange eggs and sperm. They then separate, never to “see” each other again…probably, but who the hell really knows – least of all, the worms? Eventually they produce a mucous sheath from their Clitellum (the bump about 1/3 of the way between head and tail). This slides forward over the ovum, where it captures an egg, and then over the packet of sperm, stored from the worm’s last brief encounter on a dewy summer night. Then the Lumbricus terrestris works the entire sticky clump over its head-end and abandons it as a lemon shaped amber colored egg or cocoon in the soil. The average worm produces up to 80 cocoons in a year, which, depending on soil moisture and temperature, hatch in as little as 3 weeks, or not until spring. And it is by this convoluted mechanism that Lumbricus terrestrsis, described by Aristotle as the “gut of the soil”, has conquered the earth.
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Our dependence upon worms is illustrated by Ms. Celia Warren who wrote the following lyrical amusement; “Noah let his sons go fishing, Only on the strictest terms: Sit still, keep quiet and concentrate, We’ve only got two worms”. On such a precarious foundation is the American $100 million live bait industry balanced, on the back of a creature without a spine which sells for a few pennies each even in George Bush’s devalued America. But for the past couple of years, in High Ridge, Missouri, the Jefferson County Public Library holds an annual Worm Race, won last year by a wiggler named River. And since 2000 the “Worm Gruntuin’” festival has been a tourist attraction in Sopchoppy, Florida, including a ball and the crowning of a “Worm Gruntin’ Queen”, who, presumably, along with her other duties, is charged with droppin’ her final “g’s”. “Grunters” drive a wooden stake into the ground and “whack” it rhythmically, to coax the worms to abandon their burrows, and is probably just as effective but not nearly as attractive a sport as “Charming”.
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There is a variation on “Charming” practiced in the English community of Devon which encourages the use of the stimulants outlawed in Wallaston; water, tea, beer and ale. Claims an Wallaston organizer, “The worms just get drunk and drown.” But now the Devon wormers have proposed “The Olympic Worm Charming Championship” to be held in 2012 on Edlesborough Green in Devon. It would coincide with the British Olympics, and is sufficiently far off in time to allow for a negotiated truce between those who worm for the joy of sport (and to benefit a primary school) and those who obviously crave attention (and hold their event out of the commercial establishments of a pub and restaurant). More to the point, in 13 years of competition the Devin Charmers, for all their liberalization of the rules, have never come close to Tom Shufflebotham’s magic number. And the Devon group has even been attacked by the International Worm Liberation Front who handcuffed the chief organizer for a time. But I suspect these “rebels” are more interested in charming themselves then in charming the worms.
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I suspect that before the arrival of the Worm Charming Championship in 1980 the most important event to have occurred in the neighborhood of the Wallaston Primary School was the Great Fire of Nantwich in 1583, or perhaps the Battle of Nantwich during the English Civil War. But compared to these minor disruptions, the annual fundraiser for the 1,377 young students beside the A509 is best described as earth shaking, certainly for the worms. This year the worms will “turn out” on June 28th. Gates will open at one, (admission is one pound) and you can claim a charming plot by paying three pounds. But your assignment of a specific plot is made by a random drawing. Charming begins promptly at two, and the official count begins at 2:30. The Trophy, :”…in the shape of a golden rampant worm”, will be awarded at four. And then everybody can start training for next year.
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