JUNE 2017

JUNE  2017
J.P. Morgan as a young man in his own words - "The Public Be Damned."

Translate

Amazon Contextual Product Ads

Friday, May 27, 2011

WHEEL MAN

I want to talk about revolutions on the small scale – the American, the French, the Industrial, the Electronics Revolution. These are huge, earth shaking history making momentous events that grind up individual human beings like a butcher grinds hamburger. As a small example, consider the life and death of a grease monkey and a gear head, a man who had one big dream. He was a gentle funny man by the name of Eddie Sachs. And he loved to go very fast
For most of human history, traveling 500 miles in a single day was the stuff of fantasy, Aladdin and his magic carpet. With the invention of the internal combustion, it became a possibility. But in its first century of its existence, the distance remained a significant challenge. In the laboratories of race tracks the limits of the technology and human reactions were pushed to the limit over and over again.
In 1946, nineteen year old college freshman Eddie Sachs lied his way into the garage area of a local race track. He fell in love with the sport and spent the next year following the circuit as an a mechanic's assistant for $15 a week. And just like thousands of other twenty year old's, he pestered the owners to give him a job behind the wheel. According to Eddie, the drivers warned him, “Eddie, when you climb into that race car and when you punch that gas pedal down, things are going to happen you never dreamed of before. Eddie, its going to scare you so bad your foot is going to come off the gas so fast you might break your foot And Eddie, when you get back into the pits and the guy who owns the car looks at you and asks, “What's wrong?” You just say, “Mister, this car isn't getting enough gas.” And that was what Eddie Sachs did. As he jokingly put it, “No guy, and I mean no guy, ever went further on less ability than I did.”
To compete at Indianapolis, each driver must first pass a ten lap test, increasing his speed by ten miles-an-hour every two laps. Eddie Sachs took his driver's test in 1953, and spun out. “In 1954, I returned to the track and... failed my driver's test. I became the first man in the history of the Indianapolis Speedway to fail his driver's test twice. In 1955...I failed my driver's test again. I made sure that nobody would ever break my records. In 1956, I passed my test and became the first man in the history of the track to run a 40-lap test.” Eddie declared himself to be “"beyond a shadow of a doubt, the greatest failure in the history of Indianapolis Motor Speedway.”
When racing returned to the Indianapolis Motor Speedway after the World War Two, the engine that dominated was the reliable, powerful four cylinder 4.2 liter motor developed by Fred Offenhauser. In the decade of the 1950's, Offys won 10 straight pole positions and often captured all the top finishing spots The Offys had no speedometers, no tachometers, not even an oil pressure gauge. The steering wheels were huge, to give the drivers leverage in the age before power steering. The cockpits were open, to give the drivers' more arm room. These cars had to be muscled around the track. The biggest technological improvement of the age was laying the engine on its side, and offsetting the driver's cockpit. Allowing the drive shaft to pass to the right of the cockpit lowered the car a foot or more.
The greatest surviving American racer of our age, A.J. Foyt, described racing with Eddie Sachs on the thousands of small dirt and asphalt tracks (above) across America in the 1950's; “He could take the worst-handling pig...and just manhandle that thing into looking like a winner...Most drivers have a bad day now and then, but more often their cars have a bad day. With Sachs....it didn't make a damn if his car was having a bad day or not. He made it go.” The fans had a different perspective. A reporter once asked Eddie which track was his favorite, and Eddie replied, That's easy - Salem (Indiana) Speedway. Of all the tracks we race at, it's the closest to a hospital.” They called him the “Clown Prince of Racing”, but it was no joke. There were 11 deaths at the Speedway between 1947 and 1960. Of the 33 qualifiers for the 1955 500 mile race, 17 would die while racing. As Eddie put it, “In the long run, death is the odds-on favorite.” Thirteen times over his own career, Eddie Sachs left the track in an ambulance.
In 1957 “rookie” Eddie Sachs finished this first Indy 500 in 23rd place. In 1958 he started second but engine trouble put him out after 68 laps. But that year, Eddie managed to lead a lap. In 1959 Eddie started second again, and raced the entire 500 miles. He finished 17th. In 1960 (above) Eddie captured The Pole, being the fastest qualifier, but he was forced to drop out on lap 132 with a bad magneto. Then came 1961 and one of the greatest finishes in 500 history.
Eddie and A.J. Foyt traded the lead, lap after lap, racing wheel to wheel, first Foyt leading and then Eddie. Because of a refueling malfunction Foyt was forced to make an emergency fuel stop at lap 184, surrendering a 3 second lead. Eddie put his foot to the floor, determined to seal his victory. Then, leading by almost 30 seconds, he saw the flashing of the warning tread in his left rear tire. Said Eddie, “I looked down at that tire and saw fabric and kept on going. Then I looked down and it looked whiter and I slowed down. Then I looked at it and it looked like a white sidewall and I knew the next thing I would see would be air. So I didn't need to do anymore thinking.” Eddie was forced to pit, giving the race to Foyt, who won over Eddie by eight seconds. The difference between first and second place was $65,000 in prize money. Still, Eddie explained, “I wanted to win that race so bad I could taste it, but I wanted to live even more. That's why I stopped for that tire.”
But finishing eight places back that year was quite revolution, a rear engine race car (above). It looked like a toy next to the the big powerful front engine roadsters. It's 2.5 liter engine was about half the size of the Offenhauser's. But putting the engine in the rear did away with the need for a heavy drive shaft, which allowed the suspension to be lighter. The Cooper was the only rear engine car at the Speedway that year. Finishing ninth was beating very long odds. Everything Eddie Sachs thought he knew about race cars was turned on its head. They required relearning how to design, how to design maintain and how to drive a race car.
The next year rookie Parnelli Jones qualified in a roadster at an average speed of 150 mph. On race day, driving a roadster, Eddie started far back in the field and finished third. In 1963 Eddie was running fourth before, on lap 181, he spun out in oil laid down by Parnelli's leaking roadster. Parnelli won that race, but what people remember was Eddie strolling down pit lane, rolling his tire which had come off, grinning like a winner and waving to the crowd. The next morning, Eddie and Parnelli had breakfast together. Eddie said something about the victory being tainted, and Parnelli punched Eddie in the face. The following morning, on the front page of an Indianapolis newspaper, was a still smiling Eddie Sachs, with a black eye and a small checkered flag stuck between his teeth.
In 1964, just two years after Parnelli's record setting 150 mph pole, Jimmy Clark won it in a rear engine Lotus, at 159 mph. Twelve of the 33 starters  (above) were driving rear engine cars, including Eddie Sachs. People had begun referring to the roadsters as "dinosaurs". Many of the new car designs were still  experimenting with suspension set ups, and on the second lap a rookie named Dave McDonald lost control of his unstable car, spun out coming off the fourth turn and slammed into the inside wall. His fuel tank exploded in a ball of fire. A shroud of ugly black smoke instantly loomed over the track. McDonald's car careened back across the racing line, spewing flaming gasoline. Drivers tried weaving around the wreak. Seven failed -  and one of those was Eddie Sachs.
For the first time in its history, the 500 was red flagged. It was an hour and forty minutes before it could be re-started. Just before the green flag was dropped again, it was announced that Eddie Sachs had died. Announcer Sid Collins gave Eddie's obituary live, on the air, just minutes after learning of his death. “We are all speeding toward death at the rate of 60 minutes every hour. The only difference is we don’t know how to speed faster and Eddie Sachs did. So since death has a thousand or more doors, Eddie Sachs exits this earth in a race car. Knowing Eddie I assume that’s the way he would have wanted it. Byron said “who the God’s love die young.” Eddie was 37. To his widow Nancy we extend our extreme sympathy and regret. And to his two children.”
But Eddie had offered up his own obituary years earlier. “I think of Indianapolis every day of the year, every hour of the day, and when I sleep, too. Everything I ever wanted in my life, I found inside the walls of the Indianapolis Motor Speedway. I love it all, from the first to the last day in May. On the morning of the race, if you told me my house had burned down, I'd say, "So what?" The moment that race starts is always the greatest moment of my life, and the day I win that race, it will be as if my life has ended. There is nothing more I could want out of life”
Nineteen Sixty-four would be the last year the 500 would be won by a front engine roadster. In 1965 only six of the cars qualifying for the race had front engines. That year Jimmy Clark won in a rear engine Lotus-Ford. The revolution was just beginning. And Eddie Sachs would be far from its last victim.
- 30 -

Wednesday, May 25, 2011

A LITTLE HELP FROM MY FRIENDS

I apologize, but the closest I can come to describing the drama in the board room of the New York and Erie Railroad on that crisp November afternoon is to recall one of the concocted tribal councils on the “reality” television show “Survivor”. Now, because of the time compression, deleted conversations, subtle “background” music additions and the myriad of other minor manipulations that fall under the label of “editing”, the only common element between a modern day “Survivor” contestant and Mr. Jacob Little, the Antebellum Napoleon of the Board Room, was that over the span of just a few moments they both stood to win or lose a fortune. And that has not been a reality for corporate managers in America for so long as to make it hard for modern readers to imagine it was ever true. It ain’t a real game if you are “too big to fail” because then, you can’t lose. And Jacob could.
Jacob Little was called “the original Wall Street Bull”. That was not quite true. The ancient traders, who bought hides from butchers, invented the ‘futures market’ by buying and selling the hides of cattle that had not yet been born. And if farmers thought the prices for hides were approaching the bottom they might hold onto more of their bulls, thus ensuring more cows for next season, when the prices might be better. So, those who expected prices were going up, were expecting a “bull market”.  A bull in the stock market is a gambler, aggressive and willing to use his horns to get his way. And that is an apt description of Jacob Little.
Jacob’s contemporary, Henry Clews, claimed that Jacob “…made and lost” nine fortunes on Wall Street. And Matthew Smith, in his book “Sunshine and Shadow in New York” recorded a moment of introspection which Jacob experienced while walking past the mansions surrounding Union Square in New York City. “I have lost money enough today to buy this whole square. Yes, and half the people in it,” he said. And that was probably not an exaggeration.
At a time when railroads were the high tech, Jacob Little, tall and slim and “careless in his attire, wearing a hat like that of a farmer, and not a very prosperous one”, was known as the ‘Railway King’. He had realized early that there was far more money to be made in railroad stock than in running railroads. Between 1830 and 1855, when the nation quadrupled its miles of track, 125 railroad companies issued stock but never laid a single mile of railroad track. They sold preferred stock and common stock, and several varieties of bonds in their non-exsistent roads. And then there was the "futures’ market" in stocks and bonds of railroads that did not exist. Before regulations, this was the Wall Street version of the Wild West - have printing press, will fleece all suckers. Under this cloud of conspiracies,  even those railroads that were real, suffered from endless manipulation.  A few got rich. Many were cheated. And worse, millions dared not invest, thus hurting the nation as a whole.
Consider the very real and profitable Norwich and Worchester Railroad in Massachusetts, whose largest stockholders signed a secret agreement to sell their Norwich stock only to each other. This created an artificial shortage of the stock, which drove the price up. The partners had agreed to hold their stock until Norwich topped $90 a share. They would then dump the stock and leave the suckers owning a suddenly broke and worthless railroad; As the lawyer Tom Hagan explains in “The Godfather”, “Its just business, Sonny.” Just to keep all the crooks honest, any member of the “cartel” who sold below $90 a share pledged to pay a $25,000 fine to his fellow conspirators.
Jacob Little was one of the few non-New Englanders in on this game and one of the largest holders of Norwich stock. But he was the smart one. As the price of the stock began to rise, Jacob quietly offered to sell his partners a portion of his shares at $89 a share. Well, perhaps offer is the wrong word. Because after Jacob had done this several times it dawned on the crafty New Englanders that they had to buy his stock in order to avoid a price collapse of their stock. But once Jacob had unloaded all of his Norwich stock at $89 a share, he dutifully mailed a $25,000 check to his “partners”. By then he had profited several times that amount by shafting his partners exactly as they had planned on shafting the suckers. The partners let it be known that if the Bull of Wall Street showed his face in Boston again, they intended on claiming his ears.
It was maneuvers such as that which inspired a handful of the lesser wizards of Wall Street to plot Jacob’s demise. They were his fellow board members on the New York and Erie Railroad, and it seemed to them that Jacob was overextended. Besides owning a large chunk of Erie stock of course, Jacob had recently bought several thousand ‘options’, pledging to buy even more. When those options matured in six months, if the option holders demanded it, Jacob would have to deliver the stock, whatever the price.
Jacob was betting, of course, that the price would go down, and as a board member he had the power to help that happen. But the wizards decided to use Jacob’s genius against him. First, they quietly bought up all of Jacob’s options. And then, as the six months ran out, they began to buy every share of Erie stock they could find, bidding the price up 15 points above the price of Jacob’s options. And Jacob remained so blissfully unaware of the doom that was impending, he actually bought even more options, digging the hole he was in that much deeper.
The ultimate “Survivor” moment arrived at the 2:00 p.m. meeting on Friday, November 16, 1855. It was the maturity date for Jacob’s options. Jacob was late arriving, and the meeting droned on, until the board room clock struck 3:00 p.m. The New York Stock Exchange was closed for the day. It was no longer possible for Jacob to buy stock to meet his options. And in the best tribal council fashion, one by one the wizards presented their options to their cornered prey. The stack got very impressive. The Napoleon of the Board Room had been broken and broke right before their eyes. But just as Jeff Probst was about to say, “The next person voted off Survivor,..."  Jacob Little pulled an immunity idol right out of his derrière.
Actually he pulled it out of London. Jacob was late to the board meeting because he had stopped in the corporate stock transfer room to convert Erie “convertible bonds”, bought weeks earlier on the London Stock Exchange, into Erie common stock. Now, "convertible bonds" are usually not worth the premium they sell for. If you are going to pay extra for a premium stock, you might as well buy the common stock. But in this case the wizards had helpfully bid the price of Erie stock so high, they made the premium more than worth the price. And as Jacob fastidiously signed over each share required to fill the options, he was also diluting Erie Stock so that, come morning, the stock took a nose dive. The wizards had been so intent on cutting off the limb that Jacob had climbed out on, that they failed to notice they were on the same limb. And right in front of  their eyes, Jacob climbed down first.
Clearly somebody had leaked the plot, and, in retrospect that was inevitable. During his 12 years as an independent broker Jacob had built friendships and done favors for local bankers from San Francisco to New Orleans. At lest one of them was bound to warn Jacob about the brewing coup d’etat. But so brilliantly had Jacob gamed the system that future generations of Wall Street bulls used his trick to transfer future fortunes into their bank accounts at the expense of future generations of suckers - until the rules were changed to require a convertible bond be held for at least sixty days before it could be transferred into common stock.
Most Wall Street fairy tails end the story here, with The Napoleon of the Board Room winning until he faded into history. But inevitably Jacob lost one more fortune than he made. He died broke on Sunday, March 28th, 1865. The Board of the New York Stock Exchange adjourned for the day to attend his funeral, but I can not say for certain whether they did this out of respect, or to confirm that Jacob was really dead. But I can say it has been the goal of Wall Street players ever since to rig the game so that they never run the risk of dying broke, ever again. And that makes it a very different game than the one that Jacob played.
 - 30 -

Sunday, May 22, 2011

THE LITTLE GREEN HOUSE ON K STREET PART FIVE

I guess that houses are like people, in that if they remain standing long enough  they can become all things. First the little house on K street was a home and then it was a bordello and a bar, and then it sat empty for a few years. I mean, who would want to live in such an infamous den of inequity? That question was answered during the roaring twenties, when 1625 K street became the home of various fraternities associated with George Washington University - the campus is one block south across Pennsylvania Avenue, between 24th and 19th Streets. But the frat parties came to abrupt end with the onset of the Great Depression.
One in four Americans lost their jobs. Those who still had a job saw their wages fall by almost half, at the same time that the price of food went up. Those who lost their home or apartment threw up shacks and shanties on vacant land and called them "Hoovervilles". Empty pockets turned inside out were called "Hoover Flags". There were literally millions of Americans in agony. Industrialist Henry Ford proclaimed that the Great Depression had been caused by “an era of laziness”, and President Hoover, from his government subsidized home three and ½ blocks south of the Little Green House, seemed to agree. But to the vast army of unemployed, that did not seem to be so much an answer as a justification as to why Ford's family was not going hungry like theirs. The District of Columbia in 1930 had a population of 607,000 people, and, even many of them out of work.
Still the town should have barely noticed when on December 5th ,  1930 some 3,000 communists came from all over the eastern half of the United States to stage a “hunger march” in Washington. The march was badly organized. The timing was stupid. Two marchers died from exposure to the harsh weather, fifteen others came down with pneumonia, twenty with the flu. Still the government managed to overreact. There were more cops than marchers. Great sums had been spent to isolate the communists, far more than was spent in relief efforts. If the American Communists had been better organized, they might have posed a real threat to the capitalist system, because President Hoover decided the best capitalism could do was to encourage those with money to invest it.
In response to Hoover's pleadings, some investments were made. In 1931 the frat house at 1625 K street was remodeled into office space. But by then there was not much call for new office space, even in Washington D.C. The economy did not need old spaces given new names. It needed new purposes. The little Green house, now a little green office building, sat empty, waiting for something to happen.
In 1932 fifteen thousand well organized WWI veterans marched on Washington, petitioning their government for early payment of their long promised war bonuses. The money was supposed to be paid in 1945, but the men were hungry now, their children were hungry now. But this time the government had the tools to respond to such a petition. This was why Washington had been established. The powers that be called out their District of Columbia police force (above). Shots were fired. Two veterans were killed. A few cops were beat up. The Federal government decided that the problem was not that the working stiffs had been pushed to far, it was that not enough force had been applied to keeping them under control.
That “enough force” had a name – General Douglas MacArthur (above, left). Ordered to clear the “Bonus Army” from around Jenkin's Hill, the imperious MacArthur sent in tanks and troops with fixed bayonets and tear gas. Crowds of government workers shouting “Shame, shame” at the soldiers did not shame MacArthur.
Once the area around capital had been cleared the General led his little army across the river to attack the shackytown  where the desperate veterans had left their families (above). This had not been ordered. MacArthur did this on his own. The two infants who died in this assault were MacArthur's trophies, as were the hundreds of mostly women, who were beaten and bloodied in this lesson for the lazy. Major Dwight David Eisenhower, who was the liaison with the district cops, described the burning of the shantytown as “pitiable.” MacArthur, who had pity only for injustices suffered by himself, was quietly retired and given the job in the far off Philippines where it was to be hoped, he would never be heard of again.
In 'upper crust' Washington, “Old” Washington, the removal of General MacArthur was a defeat equal to surrender at Appomattox Court House. He had been one of them. Still, with the incoming new adminstration there was reason for the wealthy denizens of Washington to hope. Wrote the Saturday Evening Post, “No occupants of the White House since Theodore Roosevelt had been so significantly favored as to birth and material circumstances (as FDR). Even the Cave Dwellers dropped their masks of indifference and cheered openly. At last the Nation was to have a President and First Lady who have enjoyed exceptional privileges due to family position and wealth”.
The upper crust of Washington had acquired the nomen of The Cave Dwellers, because they were rarely seen outside their Kalorama neighborhood, to the North of K street. And the subsequent invasion of Washington by the army of Roosevelt's New Deal technocrats now destroyed “the incomparably delightful relationship between the official and social life” of Washington.
The small southern town inside Washington was suffering a revolution - as usual, hardest felt in the mundane things of life. In 1937 some 40,000 people jammed Washington's Union Station (above) twice a day, coming and going.
Federal clerks toiling away in the unconditioned offices now numbered a daily invasion of  200,000, since most could only afford to live outside the district. And then came the final insult.  In 1937 plans were announced to cut down 50 of the imported Japanese Cherry trees to make room for the planned Jefferson Memorial.
Outraged, a group of female Cave Dwellers chained themselves to the trees – their final line in the sand had been drawn at trees, not people. But it was a pitiable last stand. A brainy New Dealer came down in person and served the ladies coffee in china cups. He listened to their passion for tradition. He served them more coffee and promised to replant any trees damaged. Then he served them more coffee, and when the ladies slipped their chains to escape to the toilet, the trees were bulldozed, and the construction proceeded. (the trees were later replaced).
Like an anceint totem which had lost its magic, in early December of 1941 the Little Green House on K street was finally bulldozed. The safe in the backyard was plowed over. And in its place an 11 story steel frame structure would rise. And like the rest of Washington, it would be filled with lobbyists.
- 30 -

Blog Archive

Amazon Deals