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The Rise of the Billionaires Leaves the Middle Class Stranded

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Friday, May 06, 2011

THE PROFESSIONAL

I hate the image of Lincoln that most Americans hold, the five dollar profile of “The Great Emancipator”. You see, Abraham Lincoln saved the Union and ended slavery not because he was a saint but because he was the greatest politician who has ever occupied the White House. And to those who despise “professional politicians”, my response is they have probably never seen a real professional in action. Such Pols don’t come along often, but when they do, they make the puny impersonations that must usually suffice seem like clowns.
And Lincoln’s professionalism was best displayed in his handling of the biggest clown in his cabinet, a man you have probably never heard of but whose best work you see every day of your life, Salmon Portland Chase. If Chase had been half as smart as he was ambitious, he would have been President instead of Lincoln. That to his dying day he continued to think he deserved to be so, shows what a clown he was.
Doris Kerns Goodwin has called Lincoln’s cabinet “A Team of Rivals”, but I think of it as obtuse triangle. At the apex was Lincoln. He was the pretty girl at the party. Her suitors didn’t really want to know her, but they all wanted to have her. On the inside track was the brilliant, obsequious William Seward - the Secretary of State who thought of himself as Lincoln’s puppet master. And the right angle was Salmon Chase, Secretary of the Treasury, born to money and brilliant but with a stick up his elementary canal. And on Tuesday, December 16, 1862 the competition between these two paramours for the virtue of Old Abe came head to head in the head of Senator Charles Sumner, the Chairman of the Senate Foreign Relations Committee and leading Senatorial Cassandra.
Sumner had come into procession of a letter written by Seward to the American Ambassador to France. In the letter Seward complained that “…the extreme advocates for African slavery and its most vehement opponents are acting in concert together to precipitate a servile war, the former by making the most desperate attempts to overthrow the federal Union; the latter by demanding an edict of universal emancipation...(as) the only legitimate way of saving the Union.” To Sumner this passage was proof that behind the scenes Seward was not fully comitted to destroying either the confederacy or slavery. And it confirmed what he already heard from Chase.
Stephen Oates writes in “With Malice Toward None”, “What bothered Chase the most was the intimacy between Lincoln and Seward…In talks with his liberal Congressional friends, Chase intimated that Seward was a malignant influence on the President...that it was (Seward) who was responsible for the administration’s bungling. So it was that Seward became a scapegoat for Republican discontent.” (pp 355-356)
Sumner convened what I call "The Magnificent Seven", the Republican Senate caucus. Once the Seward letter was read out loud, Senator Ira Harris from New York recorded the reaction. “Silence ensued for several moments, (until Senator Morton Wilkinson of Minnesota) said that in his opinion the country was ruined and the cause was lost…” Senator William Fessenden from Maine added his two cents worth. He had been told by a member of the cabinet (guess who) there was “…a secret backstairs influence which often controlled the apparent conclusions of the cabinet itself. Measures must be taken”, Fessenden himself concluded, “to make the cabinet a unity, and to remove from it anyone who does not coincide heartily with our views in relation to the war.”
It is sad to say there was not a first rate mind in that room. There might have been, but arrogance drops a smart person’s I.Q. by forty points or more. It can drop the average mind to zero. Not one of the seven seems to have suspected they were being manipulated by Chase. It is startling to think that men who used an outhouse every day could be that arrogant.
They skewered up their courage for two days before saddeling up and calling on the President at 7 P.M. on Thursday, December 19, 1862. For three hours they harangued poor Mr. Lincoln on the dangers of Seward. Lincoln remained agreeable but noncommittal, and proposed that they meet again the next night. And the amazing thing was that throughout the meeting Lincoln already had William Seward’s resignation in his coat pocket.
Of course Mr. Seward had not offered his resignation out of nobility. He was a politician. After hearing in advance of the intentions of the Seven, Seward had a flunky deliver his resignation in private,  as a demand that Lincoln should pick the genial New Yorker Seward over the priggish Chase from Ohio. But, of course, the loss of support from New York would poke a fatal hole in Lincoln’s ship of state. So Seward was not expecting Lincoln to trade the prig for the poke
Lincoln’s problem was he needed the prig. Chase’s handling of the Treasury was brilliant. He was financing the entire war. It was Chase who had begun issuing official U.S. government backed paper currency, greenbacks. That had not been done since the revolution. It was Chase who had put the words “In God We Trust” on every bill, and its still there today, proof of his priggishness. Of course, Chase had also put his own face on every $1 bill, as a form of political advertising, but Lincoln was willing to tolerate that because Chase was doing a good job, and because without Ohio, the Union would also lose the war.
And what Lincoln knew - and the Magnificent Seven did not know - was that the whispers about Seward’s “backstairs influence” were false. By December of 1862 it was dawning on even Seward that Lincoln was thinking for himself. When Lincoln had first heard about the Magnificent Seven’s deliberations (from Senator Preston King, the flunky who had delivered Seward’s resignation), the President had exploded in anger, a rare event for this man. “Why will men believe a lie, an absurd lie, that could not impose upon a child, and cling to it, and repeat it, and cling to it in defiance of all evidence to the contrary?!” Lincoln was beset by arrogance from all sides. It seemed that everybody in Washington thought they were smarter than Lincoln. But the skinny lawyer from Illinois was about to prove them all wrong.
At ten the next morning Lincoln told his cabinet about the previous night’s meeting. He made no accusations, but Chase immediately blubbered that this was the first he had heard about any of this matter. The President, who had mentioned no names and made no allegations, asked them all, except Seward, to return that night to meet with the Seven. Seward felt the ground giving way under his feet. He had never expected Lincoln might pick the prig. And it suddenly occured to Chase that Lincoln just might.
That night the Seven were now the audience to a bravo performance. Gideon Welles, the Secretary of the Navy (then a cabinet office) recorded the festivities. The President “…spoke of the unity of his Cabinet, and how although they could not be expected to think and speak alike on all subjects, all had acquiesced in measures when once decided. ...Secretary Chase indorsed the President's statement fully and entirely…” There were hours more of talking but right there was the end of Chase's mutiny. As the Magnificent Seven were leaving the White House a stunned Senator Browning of Illinois asked one the leaders of the mutiny how Chase could tell them that the cabinet was harmonious, after all his previous talk about back stairs influence. The reply was simple and bitter; “He lied.” Chase was done as a malignant political influence in the cabinet. No Republican was going to believe anything he ever said again.
The next morning Lincoln called both Seward and Chase to the White House. Welles was again present, I suspect as a witness for Lincoln. “Chase said he had been painfully affected by the meeting last evening", recorded Welles, "which was a total surprise to him, and…(he)informed the President he had prepared his resignation…“Where is it?” said the President quickly, his eye lighting up in a moment.
“I brought it with me,” said Chase, taking the paper from his pocket…”Let me have it,” said the President, reaching his long arm and fingers towards Chase, who held on, seemingly reluctant…but the President was eager and…took and hastily opened the letter. “This," said he, looking towards me with a triumphal laugh, “cuts the Gordian knot.” An air of satisfaction spread over his countenance such as I have not seen for some time. “You may go to your Departments,” said the President;…(This) “is all I want…I will detain neither of you longer.”
Both Seward and Chase spent a nervous night, not certain as to who Lincoln would fire. And it was not until a few days later that Lincoln sent a message to both Chase and Seward, saying that the nation could not afford to lose either of their talents. And it did not. But both men had just been reminded who was in charge of this game. Seward never tried to pull Lincoln's strings again.  Chase continued to work miracles of finance, but he petulantly continued to resign annually - until after Lincoln's re-election in November 1864, when Lincoln could finally afford to take Chase up on his offer. Still, never a man to waste talent, Lincoln appointed the clown to the Supreme Court, where Chase’s firm stance for racial equality would have the best influence on America’s future.
And that is what it looks like when a professional is on the job.
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Wednesday, May 04, 2011

THE MAN WHO BROKE THE BANK IN MONTE CARLO

As I walk along the Bois Boolong, With an independent air
You can hear the girls declare, "He must be a Millionaire."
You can hear them sigh and wish to die, You can see them wink the other eye
At the man who broke the bank at Monte Carlo.
I hasten to point out that nobody has ever actually broken the bank in Monte Carlo. Should you be lucky enough to clean out a croupier, his table is covered in mourning cloth until a new employee arrives with more chips. This is referred to as "Faire sauter le banque", or blowing up the bank. Listen, if any casino in Monte Carlo should actually go broke, the residents would have to start paying taxes again, which they haven't done since 1869. I point this out so you can put Charles Schwab's behavior in context.
Thomas Edison (above, left) called his friend Charlie M. Schwab (center) a "Master Hustler". One of Charlie's public school teachers in the working class town of Loretto, Pennsylvania described him as "...a boy who...went on the principle of pretend that you know and...find out mighty quick.” Later in his life Charlie attempted to explain himself this way; "Here I am, a not over-good businessman, a second rate engineer. I can make poor mechanical drawings. I can play the piano after a fashion. In fact I am one of those proverbial-jack-of-all-trades, who are usually failures. Why I am not, I can't tell you."
 
It was Charlie's (above) boundless self-confidence which quickly brought him to the attention of his prudish boss, Andrew Carnegie (below). Carnegie became so fond of Charlie that when he sold out his steel  mills to J.P. Morgan for $480 million in cash and stock, Carnegie made sure that Charlie got $25 million.
In February of 1901, Morgan combined Carnegie's steel mills with those of nine other companies and formed U.S. Steel. This gave him a near complete monopoly - 231 steel mills, 78 blast furnaces, some 60 iron and coal mines, a fleet of ore barges, 1,000 miles of railroad track and 79% of all American steel sales. There was only one problem. Carnegie had agreed to the sale only if the 39 year old Charlie Schwab was made President of U.S. Steel. And even if Charlie was well qualified for the job, (and he was) Morgan did not like hiring anyone whose first loyalty was not to him. But Morgan was not worried.
An intuitive judge of men, Morgan (above) knew who Charlie Schwab really was; a gambler. Charlie was happily married to his home town sweetheart, Eurania Dinkey. But in all other regards Charlies' life had been built on calculated risks. He enjoyed fast cars, fast women and roulette. While J.P.Morgan knew that Charlie had never lied to Carnegie, he also knew that Carnegie assumed that every person he liked was a Puritan, just like himself. And just a year after Charlie had overseen the formation of U.S. Steel, Morgan used Carnegie's myopia to defeat Charlie.
I, to Monte Carlo went, just to raise my winter's rent.
Dame Fortune smiled upon me as she'd never done before,
And I've now such lots of money, I'm a gent. Yes, I've now such lots of money, I'm a gent.
I'm the man who broke the bank at Monte Carlo
Charlie arrived in France in January of 1902, for a "working vacation". He was accompanied by Eurania, his doctor, and a fellow steel magnet. Stopping in Paris, he bought a roadster, and then drove the 430 miles south to Nice (in just 18 hours), where he met up with (amongst others) Henri Rothschild. According to Charlie, they "made a jolly party … racing all over the Riviera”. Their diversions included, said Charlie, four visits to the casino 10 miles up the coast Azure at Monte Carlo. In fact Charlie was having such a good time that he failed to notice the presence in the Hôtel de Paris of several American newspaper reporters.
The story of his visits to the casino appeared in half a dozen newspapers on Monday, January 13th, 1902. The New York Sun trumpeted from Monte Carlo, " Charles M. Schwab is here and the lion of the day. (He) has been playing roulette...broke the bank this afternoon.He has had an extraordinary luck and repeatedly staked the maximum. ...the coupler pushed over to him $200,000, his winnings for the day....Mr. Schwab sauntered from table to table playing the maximums...." The New York Times editorialized, "A man who is at the head of a corporation with more than a billion dollars of capital stock...is under obligation to take some thought of his responsibilities...(and yet Charlie had joined) the intellectual and social dregs of Europe around the gaming tables of Monte Carlo, and there (made)..a prolonged effort to ‘beat’ a game which to a mathematical certainty cannot be beaten”

Reading all of this in his West Fifty-first Street mansion, Andrew Carnegie immediately cabled Charlie in Nice, "Public sentiment shocked...Probably have to resign. Serves you right." Then he sent a letter to JP Morgan, " I feel...as if a son had disgraced the family...He is unfit to be the head of the United States Steel Co.—brilliant as his talents are...Never did he show any tendency to gambling when under me, or I should not have recommended him...He shows a sad lack of...good sense...I have had nothing wound me so deeply for many a long day, if ever. Sincerely Yours, Andrew Carnegie."
I patronised the tables at the Monte Carlo, Till they hadn't got a sou for a Christian or a Jew;
So I quickly went to Paris for the charms of mad'moiselle,
Who's the loadstone of my heart - what can I do, When with twenty tongues that she swears that she'll be true.
I'm the man who broke the bank at Monte Carlo
Charlie issued the obligatory press statement. “I have been on an automobile trip through the south of France with a party of friends. ..I did visit the Casino at Monte Carlo, but the statements of sensational gambling are false.” He insisted he had won no more than $36 on any occasion. But it did not matter whether he had won at the tables or not. Charlie returned home on February 16th, 1902 (that's him, smiling), and now refused to even comment on the affair. That did not matter, either. Carnegie would never support him again. Morgan, never said a word in public about the affair. He did not have to. Now that Charlie was isolated from his mentor, he was easy prey for Morgan.
The next year, 1903, Charlie resigned from U.S. Steel. And without his dynamic leadership, Morgan's monopoly lost half of its market share by 1911. Charlie went on to buy Bethlehem Steel (above), which he ran until shortly before his death, in 1939. Like all gamblers, he died broke. As Charlie himself said, "I have probably purchased fifty 'hot tips' in my career, maybe even more. When I put them all together, I know I am a net loser."
But what Charlie never did, as least publicly, is he never asked what all those New York reporters were doing at the Casino in Monte Carlo, on that particular winter weekend in 1902. If he had it might have occurred to Charlie that the man who actually broke the bank in Monte Carlo had been John Pierppoint Morgan (below). And he wasn't even there.
I stay indoors till after lunch, and then my daily walk
To the great Triumphal Arch is one grand triumphal march,
Observed by each observer with the keenness of a hawk,
I'm a mass of money, linen, silk and starch - I'm a mass of money, linen, silk and starch.
I'm the man who broke the bank of Monte Carlo
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Sunday, May 01, 2011

THE LITTLE GREEN HOUSE ON K STREET PART TWO

I have to tell you that the American Constitution says many magnificent things and some really dumb things. An example of the latter is hidden in the very first amendment, which insist, amongst other items, that “Congress shall make no law....abridging the...right to petition the government for redress of grievances.” The problem is the founding fathers never actually defined what a grievance was. The original justification for the revolution - no taxation without representation – was corrected by the establishment of the Constitution itself. But once corrected that complaint morphed into the petty jeremiad , “No taxation if I can afford to buy my Representation.” In such a situation the middle man, the facilitator, the go between between you and your representative is called a lobbyist. And they can make you rich. And themselves.
“William Irving, who as chairman of the ward meeting in New York, denounces De Witt Clinton for visiting Albany - (he) has forgotten, perhaps, that three years ago he visited Albany nearly a whole winter as a lobby member, to procure a charter for the City Bank.”
The Albany Register, March 25, 1817
Under that new flawed Constitution William Hull was hired in 1792 to convince the first Congress to cough up the benefits owed to veterans. He quickly realized he was outnumbered. All about Independence Hall swarmed a great cloud of lobbyists, for shipwrights and New England merchants seeking to stop a tariff bill (delayed but passed) merchants seeking an end to the tax on molasses (passed), a pay raise for Federal clerks (denied), military officers seeking repayment of personal moneys (passed) and even states themselves, who sought a louder voice in the federal government than the one already provided for them by the Constitution. The Senate was even forced to block the pitiless lobbyists from their own chamber. In desperation William Hull called for reinforcements. He urged veterans' groups to send supporters to Philadelphia so those who had served their country could be heard above the din. The veterans' bill still died. And eventually so did the veterans, which ended the problem as far as Congress was concerned.
“In the legislature of New York, some years ago, “lobbying” was reduced to a system. The agents for the various private bills...met in a tavern, and took the “yeas and nays” on every bill in which they were interested...So complete was this machinery, and so perfect the sagacity with which the opinions of the independent members were guessed at, that the decisions of the chambers became ludicrous echoes of those of the “lobby!”
Notes on the United States...by George Combe. 1841
In the 1850's Samuel Colt found his original patents were running out, and he launched a campaign to have Congress extend them. The profits he hopped to gain were so great, and the funds he expended to achieve that end were so manifest that Congress launched an investigation. It recorded that the Connecticut arms maker had supplied women, company stock, Parisian gloves, dinner parties, theater tickets and a great many pistols, even giving one to a congressman's “little son, only eleven or twelve years of age.” Said the chief lobbyist for Colt, “To reach the heart or get the vote, The surest way is down the throat.” Presumably he was referring to food, but the ultimate benefactor of Mr. Colt's tactics, the National Rifle Association, has never been shy about shooting off its own mouth.
“...Then there are the lobby-members, a race very little if any inferior to the real members...It is the business of a lobby member to bribe the real members, in any way that seemeth to them best.”.
The United States of North America as They Are.... By Thomas Brothers. London. 1840
Jay Gould was the head of the Union Pacific Railroad and the clever mastermind behind the Credit Moblier, in which congress paid $145 million ($2.5 billion today) for a transcontinental railroad that actually cost only about $50 million. But to listen to Gould tell it, he was getting shafted by his Washington lobbyist, William Eaton Chandler. Chandler pocketed $10,000 from Gould, and equal amounts from the other members of the scam. Gould's co-conspirator, Collis Huntington, owner of the Southern Pacific Railroad, complained that the lobbyists “are very quick and hungry in Washington this winter.” Still, as Huntington admitted, “We must take care of our friends.” Just not like they were family. The friendly members of Congress, who approved the skyrocketing bills for the construction, had been gifted stacks of railroad stock. But the day the railroad was completed, their stock almost worthless. All the profits had channeled through Credit Moblier, which had been held by Gould and Huntington and a few partners so close they were like family. (If you wish to see but a sliver of the fortunes that were stolen from the American taxpayers in the Credit Moblier, please visit the Huntington Library, art galleries and botanical gardens just south of Pasadena, California. Just tell the guards that your great-great-grandfather paid for the Gainsborough, or the Japanese Tea Garden, and you've come to pick it up.)
"This business of lobbying, so called, is as precarious as fishing in the Hebrides. You get all ready, your boats go out--suddenly there comes a storm, and away you are driven.... Everybody who knows anything about Washington, knows that ten times, aye, fifty times, more measures are lost than are carried; but once in a while a pleasant little windfall of this kind recompenses us, who are always toiling here, for the disappointments. I am not ashamed--I do not say I am proud, but I am not ashamed--of the occupation."
Samuel Ward. Congressional Testemony. 1875
Samuel Ward liked to be known as the King of the Lobbyists - quite an ego. And there was no doubt, he was one of the most fascinating men in the Gilded Age. He'd been educated at the best schools in Europe. He had made and lost half a dozen fortunes. His best friend was Henry Wadsworth Longfellow and his sister wrote the “Battle Hymn of the Republic” for heaven's sake. He was a poet, and perhaps the anonymous author of “Diary of a Common Man.” It seemed he had only become a lobbyist because it allowed him to dine like a king on the client's dime. And his clients included insurance and telegraph companies, steamship and railroad lines, bankers, mining conglomerates, manufacturers, investors, the nation of Paraguay, amongst others, and whichever private citizens had enough money to afford government protection against their business competitors. To all comers, Sam Ward was living proof that the American government thinks with its stomach.
 "To introduce a bill properly, to have it referred to the proper committee...to attend to it, to watch it, to have a counsel to go and advocate it before the committee, to see that members of the committee do not oversleep on the mornings of important meetings, to watch for the coming in of the bill to Congress day after day, week after week, to have your men on hand a dozen times, and to have them as often disappointed; to have one of those storms which spring up in the Adriatic of Congress, until your men are worried, and worn, and tired, and until they say to themselves that they will not go up to the Capitol today--and then to have the bird suddenly flushed, and all your preparations brought to naught,  these, these are some of the experiences of the lobby."
Samuel Ward. Congressional Testimony  1875
At a time (the 1880's) when Washington was infamous for its dearth of quality restaurants and horribly bad food, Samuel Ward was a gourmet, a bon vivant and cognoscente of fine wine and conversation. A meal at his table was seasoned with witty stories of the famous, and his guests were a happy mix of the powerful and the wealthy. An evening at his tables was described by one guest as “The climax of civilization”, at least in Washington, D.C.. One year his clients reimbursed Sam $12,000 just for “Dinner Expenses” - over $200,000 today. It was Sam who inspired Mark Twain to define the age as “The Great Barbeque.” His “ambrosia nights” inspired imitators but no real competitors. The only drawback to such a life as that lived by Samuel Ward is that he was honest. He died broke, in Naples, in 1889. The New York Times was rapt in its praise – once he was dead. “He never resorted to vulgar bribery; he excelled rather in composing the enmities and cementing the rickety friendships which play so large a part in political affairs, and he tempted men not with the purse, but with banquets, graced by vivacious company, and the conversation of wits and people of the world.” They had to invent a phrase for what Samuel Ward did. They called it “The Social Lobby”.  The next generation would broaden the definition of the practice.
“Wife of Washington Lobbyist Uses Money as Wrapping Paper
The wife of Washington lobbyist Ed Rogers gets the money sheets from the United States Bureau of Engraving and then slices and dices as you would any wrapping paper to best fit the gift and get the best pattern on the front of the package (in this case it's lining up Washington's face just right). No matter that she regularly cuts several bills in half in the process, to be frugal she sticks to the dollar paper and only uses it to wrap "small" gifts. A sheet of money paper consisting of 32 $1 bills and sells for $55. “
Luxist. (“a web site dedicated to covering the best the world has to offer.”) September 8, 2008
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