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.The Eternal American Battle - Humans V Money

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Friday, November 25, 2011

A LITTLE HELP

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 great 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. “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 there was far more money to be made in manipulating railroad stock than in running railroads. Between 1830 and 1855, when the nation quadrupled its miles of railroad track, 125 railroad companies issued stock but never laid a single mile of track. They sold preferred stock and common stock, and several varieties of bonds. And then there was the "futures’ market" in railroad stocks and bonds. There was even an ‘options’ market, which was the buying and selling of promises to buy or sell stocks in companies that might not even exist. This was the Wall Street version of the Wild West; have printing press, will fleece all suckers. And even those railroads that were real, suffered from endless manipulation.
Consider the 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 agreed to hold their shares 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 largest conspirators in the Norwich stock scam, but he was the smart one. As the stock began to rise, Jacob quietly offered to sell his fellows a portion of his stock 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. And once Jacob had unloaded all 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. You see, besides owning a large chunk of Erie stock, 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 at 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.
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 at the meeting, but even after he finally arrived, the meeting droned on tediously until the board room clock struck 3:00 p.m. The stock market was closed for trading. 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 piled up before Jacob got very impressive. The Napoleon of the Board Room had been broken and broken 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 Erie’s stock transfer room to convert Erie Railroad “convertible bonds”, bought weeks earlier on the London Stock Exchange, into Erie common stock. Such bonds are usually not worth the premium they sell for. If you are going to pay that much, you might as well buy the 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, when the market reopened in the morning, the stock price 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 out on the same limb. And Jacob had 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. Somebody was bound to warn Jacob about the brewing coup d’etat. But so brilliantly had Jacob gamed the system that generations of future 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 eventually 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 smiling a winning smile while the image fades to black. But in reality, inevitably,  Jacob lost one more fortune than he made. He died flat 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 finally really dead. But I can say it has been the goal of Wall Street bankers and gamers 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 -

Wednesday, November 23, 2011

TURKEY WARS

I don’t understand why anyone believes any of the popular myths about Thanksgiving. The truth is our Puritan forefathers were a humorless bunch who showed their devotion to God by going hungry - fasting. Their God was not interested in contentment, just punishment. And the only feasts they had were in the late  summer, when food was plentiful. By late November they were already deep into their grain stores, and watery stew. Why would they be saying “thanks” for staving to death?
The mother of Thanksgiving was actually the widow and a poet (she wrote “Mary Had a Little Lamb”), Sarah Hale. She was the 19th century version of Martha Stewart. For forty years Sarah was the editor of the prestigious “Godey’s Lady’s Book” magazine. And each November Sarah would bombard her 150,000 subscribers with recipes for Roast Turkey, Turkey stuffing, Turkey gravy, and Turkey stew. Now a lot of selling and some kitchen chemistry was required because 19th century turkeys were scrawny and almost exclusively dark meat. Sarah championed turkey because her middle class homemakers were on tight budgets, and the randy, strutting bird-brains cost less than half per pound what a chicken might cost.
But the real revolution came when, in 1934, the United States Department of Agriculture discovered the key to making turkeys palatable; artificial insemination. In 1932 the average American ate just two pounds of turkey a year. Today that amount is closer to twenty pounds.
But the popularity has come at a price - less sex for the turkey. Today’s buxom white breasted Tom Turkey is too obese to climb atop an equally buxom white breasted hen. Without human intervention, the Thanksgiving turkey would have bave gone extinct; ah, ceste se la guerre. But this brings us to my real topic, which is the year when Thanksgiving became a real la guerre; 1939
It was the third year of President Franklin Delano Roosevelt’s second term as president. And Republicans were determined that he should not get a third term. However they were not in a good position to prevent it, holding only 177 seats in the House of Representatives (to 252 Democrats) and a paltry 23 seats in the Senate (to 69 Democrats). But then in August, Roosevelt handed Republicans an early Christmas present.
In July Franklin had received a visit from Fred Lazarus (above), head of the Federated Department Stores, the single biggest volume retail chain in America, including Macy’s and Bloomingdales in New York City, Filenes in Boston, and Strauss in Brooklyn. Fred pointed out to the President that in 1939, November would have five Thursdays; the second, the ninth, the sixteenth, the twenty-third and the thirtieth. And Lincoln’s 1863 proclamation calling for a day of Thanksgiving -  first issued after the battles of Gettysburg and Vicksburg, and re-issued by Presidents every year after - specifically designated Thanksgiving as the final Thursday in November. That final Thursday would be, in the case of 1939,  the 30th . The last time Thanksgiving had fallen on the fifth Thursday in November had been 1933. So that year, the Chistmas shopping season, which traditionally began the day after Thanksgiving, was just 20 days long that year, and had proven disastrous. Lazarus wanted Roosevelt to move the Turkey Day forward one week, to give merchants another week to tempt their customers into spending on Christmas. The President had also heard from the National Retail Dry Goods Association, as well as executives of Gimbels and Lord & Taylor.
Roosevelt listened to these pleas, and at a Press Conference held August 14th, he said that “I have been hearing from a great many people for the last six years, complaints that Thanksgiving came too close to Christmas”. Roosevelt reminded the press that Thanksgiving was still not an official holiday, and that each year the President picked the date. And, since "experts" believed that adding another week to the shopping season would increase sales by 10%, Franklin announced, this year, at least, he was moving Thanksgiving to Thursday, November 23rd., the fourth Thursday in November.
The first alarm went off  the next day, when Fred Lazarus ran into his younger brother Simon. Simon Lazarus was was ranting over the change because it had disrupted his Ohio State Universities’ Thanksgiving day football game. “What da-n fool got the president to do this?” Simon barked at his brother, who, in fact, was the da-n fool himself. But that was just the beginning.
The Republican attorney general for Oregon, turned to poetry. “Thirty days hath September, April, June, and November; All the rest have thirty-one; Until we hear from Washington.” A shopkeeper in Kokomo, Indiana preferred to protest in prose. He put up a sign in his window which read, “Do your shopping early. Who knows, tomorrow may be Christmas.” Republican Senator Styles Bridges of New Hampshire urged the President to simply abolish winter by fiat. And Methodist minister Norman Vincent Peal got very outraged, charging it was  “…contrary to the meaning of Thanksgiving for the president of this great nation to tinker with the sacred religious day with the specious excuse that it will help Christmas sales. The next thing we may expect Christmas to be shifted to May 1st to help the New York World’s Fair of 1940.”
Twenty-three governors went with the President’s switch, and twenty-two did not. Texas and Colorado couldn’t make up their minds and recognized both days as the holiday in question, although the Governor of Colorado, Ralph Carr, announced he would eat no turkey on the 23rd. The 30th was labeled as the Republican Thanksgiving, while the 23rd became the Democratic Thanksgiving, or, as Nucky Johnson, the recently indicted Republican mayor of Atlantic City called Franklin Roosevelt’s holiday, “Franksgiving”.
There were a few real problems hidden under this haze of invented outrage. Calendars could not be changed in time for the 1939 switch over. And schools were suddenly uncertain of vacation schedules. Some families found their holiday dinners split between the two dates. But it turned out that the real problem had been identified by Simon Lazarus, the angry brother.
The headline in the New York Times said it all; “PRESIDENT SHOCKS FOOTBALL COACHES” The coach of Little Ouachita college in Arkansas warned, “We'll vote the Republican ticket if he interferes with our football.'” Chairman of the Athletic Board at New York University wrote to Roosevelt, “…it has become necessary to frame football schedules three to five years in advance, and for both 1939 and 1940 we had arranged to play our annual football game with Fordham on Thanksgiving Day…” And then Roosevelt had changed the date!
A Gallup poll found that 62% of Americans wanted the President’s decision reversed. But it was too late for Roosevelt to change his mind in 1939. And FDR was too stubborn to admit defeat in November 1940, which also had five Thursdays, and was a Presidential election year. Despite the addition of even more politics into the mix, nine states switched from the Republican Thanksgiving to the Democratic one in 1940. That left just sixteen celebrating the “old” Thanksgiving. And that seems to have been enough of a victory for Roosevelt, that looking ahead to November 1941 (also with five Thursdays), he asked New York City Mayor Fiorello LaGuardia to study the sales figures. Was that extra week of shopping really helping the economy? In fact it had, but not very much; certainly not enough, considering all the angst and confusion the move had cost.
In early May of 1941, LaGuardia’s report informed the White House that “the early Thanksgiving date has not proved worthwhile". So on May 20th 1941, Roosevelt set Thanksgiving 1941 as the last Thursday in November. And in a rational world, that would have settled that. But, of course, politicians are not rational beings.
Being lawmakers the politicians in the House of Represnetatives decided to get involved by writting a bill, House joint resolution 41, which justified itself by pointing out that there was nothing to designate the day as a holiday except the annual President's Procamation (which Roosevelt had mentioned at the start of this mess!). Henceforth, the last Thursday in November would legally be Thanksgiving. But when HR 41 got to the Senate, those gentlemen felt compelled to improve upon it.  They did  this by changing one little word. Thanksgiving would now be, not the last Thursday in November as the House had intended, but the fourth Thursday in November. As Connecticut Senator John A. Danaher pointed out, in four out of five years, the last Thursday in November was the fourth Thursday in November, anyway. The House went along and Roosevelt signed the new law into effect on December 26, 1941. And amazingly, since that date, the Republicans had been determined not to notice that Roosevelt and the merchants won.
No matter what the right wing sympathizers may chortle about on their blog posts, Roosevelt got his earlier date for Thanksgiving.  He just called it something else, so the Republicans would swallow the common sense of it without chocking on their own press releases. And that is something we can all be thankful for, in four years out of every five years, anyway.
- 30

Sunday, November 20, 2011

AIR HEADS - Part Three Cross Winds

I figure that Cal Rogers (above)  was feeling pretty confident on the morning of Saturday, September 23rd, 1911. But then, Cal Rogers was always pretty confident.  This morning in particular he had received word that one of his competitors, Jimmy Ward,  had dropped out of the “Hearst Coast-to-Coast Race” after crashing (yet again!) 5 miles outside of Addison, New York. Cal already knew that his other competitor,  Bob Fowler had failed on his third attempt to get over the Sierra Nevada Mountains, finally cracking up near the summit, and reducing his Wright Flyer “B” to kindling and canvas. That left just himself, Cal Rogers, the six foot four inch adventurer from Pittsburgh in the running for the $50,000.00 first place prize.

Of course, Cal still had to get to California. He was barely a tenth of the way across the continent now, and he had already crashed three times. He was already decorated with bandages from all the scrapes and scratches he had suffered in those crashes. Part of the problem was that Cal had been a pilot for all of four months. He had less than 60 hours of flying experience. He knew nothing about navigation by air, and there was no one to teach him. The longest flight so far in the United States had been one from St. Louis to New York City, completed just a month before, by somebody else. In short, Cal was at the very edge of human experience in flight, both physically and mechanically. 

The Wright engine (above) on his “Vin Fiz Flyer" had no throttle. The engine was either on or off, at full power or at zero. The pilot had only one way to alter his speed, and that was to “advance the spark”, meaning to alter the instant in the compression cycle when the spark plug fired. In a modern internal combustion engine of the 1920's this would be controlled mechanically. But in the Wright engine of 1911 it was done by physically moving the spark plug a fraction of an inch into or out of the cylinder via a dial – by hand. The engines' designer, Charlie Taylor, had taken a leave of absence from the Wright workshop in Ohio to accompany the "Vin Fiz Flyer" across the country. So Cal had the best mechanicalareonautical brain in America behind his flight.  But this process of adjusting the spark plug had its own problems which would soon become evident to both Cal and Charlie.
It took two days to repair the Vin Fiz after the crash at Middletown, New York on September 17th. So Cal did not get back into the race until the twenty-first of September. His first leg that day was to be a hop to Hancock, New York, (40 miles east of Binghamton). But half way there Cal noticed his radiator had sprung a leak. He kept an eye on the precious fluid dripping out of his engine and then, just as he was over the town “…plop!  Out flew a the spark plug. Making the plug adjustable had also made it prone to vibrating itself right out of the engine! In an instant, the Vin Fiz suddenly lost 25% of its power, and the plane had precious little to spare. Cal suddenly found himself plummeting for the ground. He managed to steer for an open field, pulling the "Vin Fiz's" nose up at just the last second. But it was still a crash. There was nothing to do but wait for the his service train, the "Vin Fiz Special".
The next two weeks would prove to be difficult, as California receded farther and farther away in distance and in time. While making a normal landing at Binghamton, as Cal would later say, “…There was a snap of breaking timber and my right skid had gone". The broken skid was easily replaced over night, from the supplies carried on board the “Vin Fiz Special”, the three car train that followed and led Cal across the country. It carried fuel and a rolling repair shop, Cal’s wife Mable, his mother Maude (ne Rogers) Sweitzer, his chief mechanic Charley Tailor, his second mechanic, Charles (Wiggie) Wiggen, three assistant mechanics and assorted newspaper reporters and photographers.
With such lavious support, Cal was airborne again on the morning of the twenty-second. But as he approached a landing at Elmira, New York that afternoon he snagged some telegraph wires. More repairs were required. As Cal traversed the border lands between Pennsylvania and western New York State, he hit a patch of good weather and made up time, at least until late in the afternoon of September 24th, just after Cal had taken off from Salamanca, New York, high up on the Allegheny River. Another spark plug vibrated its way out of his engine. But this time Cal coolly reached behind his back, grabbed the hot plug in his glove just before it popped completely out. He screwed it back into the engine and held it in place as he made a perfect landing (with one hand) on the Allegheny Indian reservation outside of Red House, N.Y. Cal now screwed the spark plug firmly back in and,  with help of a couple of native Americans, turned the plane around for take off.  But he couldn’t work up enough speed and had to abort. He tried again, but the second attempt also had to be aborted. Each time the two helpful locals had tried to warn Cal that he was aiming at a barbed wire fence. But either because he didn’t understand what they were saying (he was deaf,) or because he was in such a rush, Cal ignored their warnings and the third time proved to be the charm. Cal taxied directly into the barbed wire fench, ripping the fabric covering the wings to shreds, and wrapping the prickly barbed wire around the frame. It would take two days to free the “Vin Fiz Flyer” to fly yet again.
Cal was back in the air on September 27th , and had safe landings that day and the next. But on the 29th, he was grounded by bad weather. Still, September 30th saw him break out of the Alleghenies and enter the flat lands of the old Middle West. The "Vin Fiz" covered 200 miles on September 30th . He would have gone further but a clogged fuel line forced him down late in the day near Akron, Ohio. Cal spent that night fending off curious cows who seemed determined to crush his fragile airplane under their big fat hooves. (Or maybe they were just looking to catch a flight to some place more accommodating to vegetarians.)
On Sunday, October first, Cal stopped at first Mansfield and then Marion, Ohio, before being forced down by another clogged fuel line at Rivare, Indiana, just over the state line. Under threatening skies Cal cleared the fuel line and took off again, only to fly directly into a thunderstorm, the first pilot to ever do so. As lightning snapped around his plane, Cal was the first pilot to experience downdrafts and wind shear, and as quickly as he could, Cal landed the "Vin Fiz" again, in the tiny Hoosier town of Geneva. As soon as the weather cleared he flew on to Huntington, Indiana, where he was met by an enthusiastic crowd, and was able to spend the night on board the train with his dear Mable. And his dear mother Maria.
The next morning, October 2nd, the winds were still gusting and again Cal had a hard time working up speed on his 35 horsepower Wright engine. Just as he felt his skids leave the ground he realized he was heading for a crowd of people. Cal yanked the stick to the left, passed under telegraph wires, and bounced his left wing off the ground. Cal was thrown out of his seat and scrapped his forehead. The left wing of the “Vin Fizz” was crumpled and folded up. But the “lucky” bottle of soda dangling from the strut was unbroken, yet again.  It would take two days to repair the “Vin Fiz”, essentially its third complete rebuild since takeoff.
On October 4th Cal flew to Hammond, Indiana, where he landed just before 6 P.M., on a plowed field on the Jarnecke Farm. He slept that night in the comfort of the Majestic Hotel. But high winds kept him grounded for another two days.
Finally, in desperation, on the 7th, Cal loaded the “Vin Fiz” aboard his train and moved it to the village of Lansing, Illinois, where he found a fallow field with a wind break. This allowed him to finally take off again. (As his journey westward by rail had not moved him closer to Chicago, technically, he had not advanced his position in the race.)
Cal Rogers finally reached the air field in Cicero, Illinois, on the westside of Chicago, on the afternoon of October 8th. This was near where, at the air show in Grant Park on the lake shore just two months before, Cal had made his public debut as a pilot. By the rules, Cal now had less than three weeks left to fly the remaining 2,000 miles across the Mississippi and the western half of the Untied States, cross the Rocky Mountains and the Sierra Nevada and the desert in between. Cal Rogers was the only man still in the race, but he was running out of time.
- 30 -

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