JULY 2020

JULY   2020
Everything Old Is New Again!


Saturday, March 28, 2009


I suppose by now you have read the letter. I am referring to the note of resignation from Jake DeSantis (below), the Executive Vice President and self appointed VP for whining from American International Group, Financial Products unit. If you haven’t read it recently, allow me to remind you:“Dear Mr. Liddy…I am proud of everything I have done…have been betrayed…unfairly persecuted…11 years of dedicated, honorable service… I have personally suffered…. feel betrayed… untrue and unfair accusations… None of us should be cheated of our payments any more than a plumber…I received a payment from A.I.G. amounting to $742,006.40, after taxes… Sincerely, Jake DeSantis".
First, please excuse me but I have to blow off a little steam by mentioning that it seems to me that all these professors of procyclicality, credit default swappers, derivative magicians and Credit Default Option voodoo witch doctors, all insist it was somebody else who farted in the elevator. And yet it stinks.
Someone should explain to Mr. DeSantis that each year there are plenty of plumbers cheated out of their earnings when the financial wizards run out of money and declare bankruptcy or just torch the condos under construction for the insurance. And without a union every Joe the Plumber (to pick a name at random) has no choice but to hire a lawyer and get in line to eventually collect a few pennies on every dollar he or she is due. It is called capitalism, and one of its central tenets is that it is unfair. But for some reason most of the financial wizards think that tenet only applies to other people.Now that I have that out of the way – on to the history: AIG was founded with just 300 yen in 1919 in Shanghai, by Cornelius V. Starr (above). And, good news for all conspiracy freaks, C.V. Starr is the uncle of Ken Starr, Whitewater prosecutor and publisher of legal brief pornography. C.V. was selling insurance to the Chinese. According to Fortune Magazine in 1935, although he “never bothered to become proficient in Chinese…” C.V.’s “knowledge of China is encyclopedic, and he is famed in the foreign community for his uncanny ability to work with and through the natives.” That also probably helped his work (if any) for the American Office of Strategic Services (O.S.S.), forerunner of the C.I.A., for which C.V. openly worked during World War One and – I suspect- beyond. When the communists ran A.I.G. out of China in 1949 Cornelius moved his operations to New York and the tax haven of Bermuda. So, if you are so inclined, you can connect the current financial disaster to the C.I.A. plots to murder Castro and overthrow the government of Chile.Now we jump ahead to September 25, 1987, when a minor item appeared in a column by New York Times business writer Michael Quint; “…the Imperial Savings Association is offering the first issue of notes…through Drexel Burnham Lambert…The notes are collateralized by a pool of junk bonds whose market value is estimated at 175 to 180 percent of the new three-year notes….The financing provides fresh cash for Imperial while allowing it to benefit from the difference between the high interest rates paid by the junk bonds and the much lower interest rate on the new notes.”
In other words they were borrowing money, collateralized with money they were owed by third parties. Those notes were without a name yet, but they would one day be christened Collateralized Debt Obligations. The parents did not survive the birth by much. Drexel Burnham and Lambert filed for Chapter 11 bankruptcy on February 13, 1990 and vanished from Wall Street soon after. And Imperial Savings was taken over by the Resolution Trust Association (and the taxpayer) on June 22nd of the same year.
But their terrible child, the CDO, described by investor Warren Buffet as an “investment of mass destruction”, grew into adulthood without any parental oversight thanks to the era of deregulation.
The market savvy junkies call the CDO a synthetic security (implying there is such a thing as a natural security), and along with “credit swaps” (“I'm going to trade you my dead cow for your dead horse”) came to rule the financial markets. They were not well known in the market until 1998 when the banking firm of JP Morgan asked AIG to insure their credit default swaps against a market collapse. AIG-FP, populated as it was with MIT physics and math grads (the only people who understand derivatives), turned to a professor of business at Yale, who figured out that there was a 98.85% chance that AIG would never have to payoff on the insurance. Ooops. And that is how AIG became the chief enabler for the CDO juggernaut, on the mathematical assurance that the good times were going to go on forever.
But, as any historian could have told Mr. DeSantis to a mathematical certainty (and that Yale professor as well) that the good times never have and never will go on forever. That is another basic tenet of capitalism. These guys really should learn this stuff.
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Tuesday, March 24, 2009


I begin with the event, as described by John Cabot. “The line wheeled instantly into a dense and solid column, crowding the street with its impenetrable mass. Emerging from the shelter upon the full run, while rending the air with their enthusiastic shouts, they rushed upon the bridge. They were met by a murderous discharge…the whole head of the column was immediately cut down like grass before the scythe, and the progress of those in the rear was encumbered by piles of the dead. Still the column pressed on,…until it had forced its way to the middle of the bridge. Here it hesitated, wavered, and was on the point of retreating…when Napoleon, seizing a standard…placed himself at the head of the troops, and shouted, “Follow your general!” The bleeding mangled column, animated by this example, rushed with their bayonets upon the Austrian gunners….The French army now poured across the narrow passage like a torrent…”The great Prussian general and student of Napoleon’s methods, Karl Von Clauswitz, announced at the time, “There was no feat of arms which excited such amazement in Europe.” The audacity and courage of the attack quickly made Napoleon famous in Germany and England as well as France. A century later the English poet Thomas Hardy would write;“On that far-famed spot by Lodi, Where Napoleon clove his way
To his fame, when like a god he, Bent the nations to his sway…
Even as when the trackway thundered, With the charge of grenadiers, And the blood of forty hundred, Splashed its parapets and piers…”
Napoleon always contended that the Bridge at Lodi marked a transition in his life. “From that moment I foresaw what I might be. Already I felt the earth flee from beneath me, as if I were being carried into the sky.” The very night of the battle Napoleon told one of his generals, “They haven’t seen anything yet. In our time no one has the slightest conception of what is great. It is up to me to give them an example." And an historian would later write, “The battle at Lodi convinced Napoleon Bonaparte that he was a man of destiny.” That conviction propelled him, in just six years, to declare himself Emperor of France. But…Forget the painting. In 1796 the 27 year old Napoleon crossed the Alps on a mule. The revolutionary government in Paris had given him command of the stalemated war in Italy because, as an official warned, "Advance this man or he will advance himself without you." Within an hour of taking command of 37,000 starving men in the Alpine foothills, Napoleon issued his first order. “I seek to lead you into the most fertile plains in the world…There you will find honor, glory, and riches.” And they did. Within a month and with a minimum of fighting Napoleon had outmaneuvered the 50,000 man Austrian army and cleared Italy south of the River Po.That broad river now protected the Austrian Army under General Beaulieu and it did not seem possible that the outnumbered French could force their way across without suffering debilitating losses. But without pausing to consider the odds Napoleon feinted toward the bridge at Valenza. Then, “When certain that Beaulieu had his eye on that point, Bonaparte marched rapidly down the river, and crossed at Placentia…. Beaulieu took alarm, and withdrew the body of his army, …Bonaparte was jubilant. " ...Another victory, and we shall be masters of Italy." (“A Life of Napoleon” by Ida Minerva Tarbell). That next victory was to be the Bridge at Lodi, on May 10th, 1796. However…The Austrians lost 355 men killed defending the bridge while estimates of the French dead run as high as 2,000. Also, the Lodi bridge (over the River Adda, above) was at most 200 feet long, not 600 as Napoleon claimed in his dispatches. And even David Chandler, in his massive “The Campaigns of Napoleon” was forced to admit, “In sober fact, of course, the result was another disappointment…for once again Beaulieu had evaded his clutches and made good his escape.” In other words General Beaulieu was not present at Lodi, but only a 10,000 man Austrian rear guard, which would have abandoned the bridge without a fight if only given the chance. The Battle of the Bridge at Lodi was totally unnecessary - except for its role in the creation of the Napoleonic legend.
Philip Dwyer calls the legend of Napoleon leading the charge across the bridge, “…remarkable, since Bonaparte was not personally involved in the crossing and in the memories of the day he is not even mentioned….And yet, within a month, this ‘feat’…was to become the cornerstone of the Napoleonic legend.” And as far as proving to Napoleon his own greatness, Steven Englund, yet another Napoleon biographer, has observed that Napoleon’s “… belief in his own superiority was strong and clear and it predated Lodi” (Napoleon, p 108). So the traditional story of the Bridge at Lodi, Napoleon’s version, was largely what would today be called “spin”. And a decade after becoming Emperor, after the death of three to six million souls in his name and opposing him, the map of Europe would look a great deal like it did before his rise. Great social forces were unleashed by the revolution but a decade and a half after his rise Napoleon’s empire would consist of one large house on a rock in the middle of the South Atlantic.In the wake of the invasion of Iraq, and before the full implications of its bungling had become obvious, a member of a later generation of spin makers told reporter Ron Suskind, in October of 2004, “We’re an empire now and when we act, we create our own reality. And while you’re studying that reality…we’ll act again, creating other new realities, which you can study too…We’re history’s actors…and you, all of you, will be left to just study what we do.”“Not a creature cares in Lodi, How Napoleon swept each arch,
Or where up and downward trod he, Or for his memorial March!
And if here, from strand to steeple, Be no stone to fame the fight,
Must I say the Lodi people, Are but viewing the crime aright?”
“The Bridge at Lodi” by Thomas Hardy, Spring 1887

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