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Friday, March 30, 2012


“If pro is the opposite of con, what is the opposite of Congress?”
Will Rogers
I find it curious that Charlie Humphrey Keating Jr (above) spent his adult life crusading against pornography, which he called a “Perversion for Profit”. At the same time he saw no perversion in profiting from duping naive investors, even telling his sales agents, “...the weak, meek and ignorant are always good targets.” Charlie did not invent hypocrisy, nor the investment scam, nor even political graft. But when asked if he had bought five U.S. Senators, Charlie responded forcefully, “I certainly hope so.” It was Charlie's sociopathic self-serving arrogance which made him famously wealthy and infamously despised. And then Charlie got his hands on a bank.
A holding company is a thing where you hand an accomplice the goods while the policeman searches you.”
Will Rogers
Once upon a time in America there were two kinds of banks, commercial banks, with few restrictions on their investments, and “Savings and Loans”. Federal regulations kept S&L's the dull, cautious bedrock of private home ownership. But even real estate suffers the boom and bust of capitalism, better known as the “business cycle”. So politicians, following an ideology of greed, created the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980, which amongst other things, lifted the limit S&L's were allowed to invest in things other than homes. In the decade after, S&L's went from 53% of their money being in home loans, to less than 30%. Seeking profit bankers then invented the Certificate of Deposit, or CD's, which allowed them to pay higher interest rates and compete with commercial banks for investors. But paying higher interest rates meant each new customer also cost more. In the world of academic economics this is known as an “asset-liability mismatch”. In Charlie Keating's world this was known as a business opportunity.
“Don't gamble. Take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.”
Will Rogers
Charlie had arrived in Phoenix, Arizona  (above) in 1976, having been chased out of Cincinnati, Ohio by the Federal Securities and Exchange Commission. Once in town he proceeded to duplicate the behavior which had gotten him into trouble in Ohio, metamorphosing a faltering home construction company into American Continental Corporation, a holding company with maze of 54 divisions (and a few secret overseas operations), $6 billion in assets, 2,500 employees and a couple of corporate jets. When federal regulators started sniffing around Charlie even got economics guru Alan Greenspan to write him a letter of recommendation. Forbes Magazine, although impressed with Charlie's explosive growth, noted, “It seems almost impossible to find anyone who actually likes Charlie Keating.” His own brother admitted that Charlie was impatient and aggressive - but he left out, greedy. And then in 1980, Ronald Reagan won the White House, and geed became “good”, and deregulation, such as DIDMCA, became the mantra of the day. In 1984, Charlie used American Continental to buy Lincoln Savings Bank of California, for $51 million. He fired the management wholesale, and converted it into his personal bank.
“Big business don’t go broke any more. The minute it looks bad for them, they combine with something else and issue more stock.”
Will Rogers
Three years later an audit by three investigators for the San Francisco office of the Federal Home Loan Banks Board found that Lincoln had unreported losses of $135 million, and had exceeded the new looser limit on risky investments by $600 million. But what Charlie had learned from his first run-in with financial regulators back in Ohio was that it paid to have friends in high places. He had made over $1 million in political contributions to five U.S. Senators – Alan Cranston (D-Ca), Dennis DeConcini (D-Az), John McCain (R-Az), John Glenn (D-Ohio) and Donald Riegle (D-Michigan). Charlie now insisted that his “Keating Five” have a joint sit down with the three investigators from the FHLBB.
“Ancient Rome declined because it had a Senate. Now, what's going to happen to us, with both a House and a Senate?”
Will Rogers
On Thursday, April 9, 1987, the investigators were flown to Washington to be intimidated by the five senators in person. DeConcini explained that “Our friend at Lincoln...is a big employer and important to the local economy.” Former Astronaut and former Marine Senator John Glenn had little patience for such niceties. “To be blunt”, he told the bureaucrats,. “You should charge them (Lincoln Savings) or get off their backs.” The regulators worked up the courage to explain that it appeared money was being siphoned out of Lincoln to fuel false profits at American Continental. That converted their audit into a criminal investigation. The Senators backed off and rushed to tell Charlie.
“There ought to be one day - just one - when there is open season on senators.”
Will Rogers
Charlie was not happy "his" senators had not shut down the investigation. . He even called Senator John McCain a “whimp” to his face, and went looking for politicians more willing to do his bidding. When the San Francisco regulators persisted in recommending that Lincoln Savings be seized, the Reagan administration appointed a new head of the FHLBB, who forgave Lincoln for any past violations and started a brand new audit, this time run from Washington, D.C., where it could be controlled.  Charlie always said if they just relaxed the rules, the Savings and Loan industry could be “the biggest moneymaker in the world.”
“A lobbyist is a person that is supposed to help a politician make up his mind—not only help him but pay him.”
Will Rogers
It was at this point that the tellers at Lincoln Savings were ordered to begin pushing their customers to switch their savings from insured CD's to the uninsured American Continental bonds. Twenty -three thousand eventually fell for this sales pitch. Thanks to the delay in moving against him, Charlie had now bypassed the bank entirely. He was siphoning cash directly out of the customers' pockets into his. Federal Deposit Insurance Corporation chairman Seidman would later call this “one of the most heartless and cruel frauds in modern memory.”
“The short memories of the American voters is what keeps our politicians in office.”
Will Rogers
By December of 1988, even the bought politicians had become convinced Charlie was a fraudster. In January they finally ordered him to stop transferring money out of Lincoln savings. Three months later, both American Continental and Lincoln Savings and Loan went bankrupt, and those 23,000 dupes, who had trusted the tellers and managers at their neighborhood bank, lost their life savings by buying $288 million in uninsured bonds. Among the many suicides this crime produced, was that of Anthony Elliott, who slit his wrists after losing his life savings - $200,000 – to feed Charlie's ego. Anthony's Thanksgiving Day 1990 note asked, “My government is supposed to serve and protect, but who?" He then answered himself, writing, "Those who can gather the most savings from retired people. . . . It takes billions to fill the pockets of spendocrats”.
“I tell you folks, all politics is applesauce.”
Will Rogers
The FDIC had to shell out $3.4 billion to cover the insured part of Charlie's looting of Lincoln Savings. Finally, in December of 1991, the state of California convicted Charlie of 17 counts of fraud, racketeering, and conspiracy. In January 1993, the feds convicted him of 73 counts of fraud, racketeering and conspiracy. In 1994 the Resolution Trust Corporation, which had been created to clean up the Reagan deregulation mess, won the largest judgement against a private person in American history - $4.3 billion, against Charlie Keating. Still, somehow, after serving just 4 ½ years in jail, Charlie Keating was released, free and clear. He now lives with his daughter in Phoenix, Arizona, maintaining to this day that he was a political prisoner, and if the government had just left him alone, today all those investors, even Anthony Elliot, would be rich.
“There are three kinds of men. The ones that learn by readin’. The few who learn by observation. The rest of them have to pee on the electric fence for themselves.”
Will Rogers
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Wednesday, March 28, 2012


I bet the hero of this story was not Frederick Wells. He is the man credited with finding a legendary jewel, but to me it seems unlikely that in the South Africa of 1905 a white man would have been at the dig’s face, where the danger was greatest, and where, in fact, the huge crystal was found. Still, the legend has it that Frederick spotted the rock embedded in the wall just above his head, reached up and pried what he first thought was glass out of the stone with his pen knife. And if that seems as unlikely to you as it does to me, we should both remember that everything about this particular artifact is unlikely.
The nursery where this carbon crystal grew was an odd place. First, the surface above it had to have been stable for 1 to 3 billion years – maybe three fourths of the age of our planet. And for all of that time 90 to 120 miles below this stable surface the temperature had to be a constant 1,000 degrees centigrade, and the pressure about 653,000 pounds per square inch. The longer a carbon crystal remains under that pressure and temperature, the larger the crystal might grow. And this one grew to one and a half pounds. There are only a few spots in the earth where the temperature and pressure has remained consistent for so long; beneath the Canadian Shield, beneath Siberia, beneath the center of the Indian subcontinent, beneath northwest Australia, and beneath South Africa.
The heat allows the molecular bonds of carbon atoms to become plastic, but does not break them down completely, while the immense pressure squeezes them into an eight side crystalline shape. Over eons such carbon crystals grow slowly and they must be fairly common in these regions of the mantle. But then something unlikely happens. The earth burps.
If one of these carbon crystals rises to the surface slowly, over decades or even years, the atoms binding its carbon molecules together return to their fail-safe state, which is graphite – pencil lead. For carbon to remain a crystal, it must reach the surface in a burst, over no more than a minutes. To travel from the nursery to the surface, then, the stone must reach speeds of several hundred miles an hour. Such a speed can only be reached if the capping pressure is suddenly punctured through by a narrow fissure, at which point the temperature and pressure produces a massive volcanic explosion at the surface. For that to happen is unlikely. But over a billion years unlikely becomes inevitable.
The first European who “owned” the surface above this jewel was a Dutch farmer named Cornelis Minnaar. But this was not Holland. It was the southern part of Africa, north of the River Valaal, 25 miles east of the city of Pretoria (Tshwane). The Boers, as these Dutch transplants called them selves, had made the trek to this region to avoid the British, who had stolen their colony. In 1861 Cornelis sold a section of his land to his brother, Roelof , who in 1896, sold an even smaller part to Willem Prinsloo (above) who was just starting a family. The sale price was 570 English pounds, and it was William who owned the land when another Dutchman named Fabricus arrived looking for buried treasure.
Being experienced in this sort of thing, Fabricus first inquired as to where the Minnarrs and Prinsloo households had dug their “sanitary pits”. This was a euphemism for the holes used to bury the products of your outhouse, politely known as “night soil”. Why did a hole when a hole had already been dug? But since to date nothing unusual had been found in the sanitary pits, Fabricus assumed he would have to look elsewhere. Once he had located some “virgin dirt”, he scrapped away the thin red top soil, and then hacked his way through ten feet of yellow limestone gravel, the bi-product of primordial coral reefs, before reaching a blue slate gravel peppered with tiny red garnets, a rock called Kimberlite. Fabricus had struck pay dirt
Fabricius was working for an Englishman named Henry Ward, who had paid for the option so search on Prisloo’s land. But Ward didn’t have the money to make the buy, and besides Prisloo was not interested in selling at the moment, since it looked like war was about to break out between the Boers and the English. Which it did. By the time the war was finally settled in 1904 – The British won – Ward had sold out his options to Thomas Major Cullinan (above), and Willem Prinsloo was dead. So Cullinan made an offer to Wlliam’s widow, Maria Prisloo. Broke and defeated, she sold the farm for 52,000 pounds. Not a bad profit.
Cullinan and partners named their new venture "The Premier Mine". Production started at the end of April 1903, and in a year 2,000 people, mostly non-Europeans, were blasting, chopping, digging and hauling blue Kimberlite out of the open pit. They were looking for diamonds.
Most diamond mines start out as open pits. A Kimberlite Pipe is famously “carrot shaped”, wide at the top, narrow towards the bottom. And after less than a year of digging, on January 25th, 1905, this new mine is credited with producing the largest diamond ever found. Diamonds are not rare, but gem quality diamonds are. On average two hundred tons of ore must be culled for every 1 caret diamond, (there are 141.7 carets in every once) and only one out of every five million diamonds weighs two carets or above. The one and one half pound diamond Mr. Wells pulled out of the rock face that January afternoon, was rated at 3,106 carets. In the name of good publicity, it was named after Mr, Cullinan.
After a nondescript voyage to England via the royal mail in an unmarked plain brown box, The Cullinan, as it was now known, was presented to King Edward VII. He asked as many experts as he could find - geologists, gemologists and even the physicists Sir William Cookes (above) -  how to cut this hunk of rock.
Cookes noted that around a small black spot in the interior of the stone the colors were very vivid, changing and rotating round the spot as the analyser was turned. These observations indicated internal strain…there was a milky, opaque mass, of a brown color, with pieces of what looked like iron oxide. There were four cleavage planes of great smoothness and regularity.” At issue was how to turn this indescribably rare nondescript lump into something indescribably rare and beautiful.
Diamonds had been known since the tenth century, but it was not until the 17th century that they became popular amongst the aristocracy, not until the first “Brilliant Cut” by Italian jeweler Jules Mazarin, really showed the beauty that was hiding inside. His diamonds sparkled with 17 facets, each one reflecting light back out at the viewer. By 1900 the skill of the diamond cutter had increased the possible reflections to 57 facets.
The general consensuses was that the best cutter for this job was Joseph Asscher, ironically another Dutchman. He studied the Cullinan for six months in his shop in Amsterdam, surrounded by a small crowd of bankers, experts and royal representatives, laying out a plan of attack.
As the London Evening News reported in mid-January, of 1908, “…a special model of the diamond in clay was made…It was cut into pieces to give an idea of what would happen if the genuine stone were treated in the same way. After several experiments a definite plan was arrived at…”
Finally, on Monday, February 10th, 1908, at 2:45 pm, Joseph was ready. Surrounded by a small crowd of anxious interested third parties, Joseph poised his hammer over the chisel, the blade of which was lodged against the precise point which he had calculated the first strike had to be made. If he missed, or struck a glancing blow, the one-of-a-kind diamond worth a million pounds would be rendered damaged and worth a few thousand. Joseph drew a breath, and sharply struck the chisel….which cracked apart against the diamond.
Immediately Joseph ordered the room cleared, except for the notary republic for the bankers, who were financing this entire thing. Joseph checked the Cullinan and found it, thankfully, undamaged. He checked his tooks, re-examined his plans and announced a week's delay while he fashioned a new, larger, chisel.
So it was that on February 17, 1908, alone in the room with the diamond and the notary, Joseph lined his hammer up for a second time over The Cullinan, and struck the precise strong blow, directly above the dark inclusion...and the diamond fell apart into three perfectly clear pieces. Despite legends to the contrary, Joseph did not faint. He did, however, drink a glass of Champaign.
The Cullinen was cut into nine large stones and 96 smaller diamonds, so many that it took 8 months just to polish them all. And if you ever get to the Tower of London, you might make a note that the Crown Jewels of England on display there, might be literally billions of years old, but they have only in the royal families’ possession for about a hundred years. But they will always be a testament to the creation of timeless beauty under pressure.
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Sunday, March 25, 2012


I was surprised to discover, after actually reading the famous "Potsdam Declaration", issued in July 29, 1945, that it says nothing about Japan. The public statement released concerning Japan was the "Potsdam Statement", which was issued on July 26th.The confusion is an easy mistake to make. The tone of the "Declaration" and the "Statement" are similar, as they were both issued in triumphant from amidst the rubble of a vanquished and occupied Nazi Germany. But where the "Decrlaration" is also a working blueprint for the shape of Europe's future, the "Statement" is pure American politics: part boastful victory display, and part pure posturing for the voters back home. It was signed by the U.S., Great Britain and China, but it had been written by and for the Americans.
The Pacific was America's war, beginning on December 7, 1941, the "date which will live in infamy...".  And the Potsdam Statement began with a blunt warning, “The might that now converges on Japan is immeasurably greater than that which, when applied to the resisting Nazis, necessarily laid waste to the lands, the industry…of the whole German people…”   The statement was blunt and it was accurate.
In the 44 months since Pearl Harbor the United States had largely supplied the allied victory in Europe, and at the same time the nation had built eight new battleships, 13 heavy cruisers, 2 large cruisers, 33 light cruisers, 18 heavy aircraft carriers, 76 light or jeep carriers, more than 600 destroyers and destroyer escorts, plus 4,000 large landing craft and 79,000 small landing craft, all of this almost solely for use against Japan.
The U.S. Marine Corp had grown to over half a million men and the U.S. Army to one million men in actual fighting divisions in the Pacific. And it was this force, supplied in abundance and seeking revenge, which was descending upon Japan in the summer of 1945. Americans could be forgiven if they had come to believe that they were the single greatest military machine on the planet.
It was that supreme confidence and a sense of moral outrage and the thurst for revenge which explained the haughtily tone in which the U.S. informed Japan that the “Following are our terms. We will not deviate from them. There are no alternatives. We shall brook no delay. There must be eliminated for all time the authority and influence of those who have deceived and misled the people of Japan into embarking on world conquest. Until such a new order is established and until there is convincing proof that Japan's war-making power is destroyed …Japanese territory…shall be occupied…Japanese sovereignty shall be limited….as we determine…(and) stern justice shall be meted out to all war criminals…We call…(for the) unconditional surrender of all Japanese armed forces,…The alternative for Japan is prompt and utter destruction.” It could almost have been written by an American political speechwriter; In fact, it was.
But the Japanese, reading this statement, noted two things; first, the Russians had not signed it; and two, there was no direct mention of the Emperor. They had of course already noticed that American propaganda often included hateful images of the Emperor. And the section about removing “...those who have deceived and misled” seemed to the Japanese, and to most Americans, to refer directly to the Emperor. In 1945 the Japanese leadership was prepared to destroy the entire nation to prevent Hirohito, and the army leadership,  from standing trial like mere mortals.
From the 1890’s on, all Japanese children were indoctrinated in the belief that the nation and the Emperor were synonymous, that Japan began and ended with the Chrysanthemum Throne. According to the Imperial Cult, the Emperor was a spiritual leader, closer to a pope than a king. His subjects fought “for the Emperor” even as they took orders from mortal men who ran the government, men like Tojo.
Hirohito certainly approved of the wars against China, England and America, but they were not "his" wars. He had not ordered them and was often a mere prop for the war makers. He was not expected to speak at meetings of his "Big Six" cabinet. Besides, Japan had a long and ancient history of ignoring or “working around” in-convienent imperial wishes; which was the problem the Emperor now faced in ending the war.
Like all Kings and Presidents, he was a prisoner of his office, but the Edo Palace was especially confining. Without a free press Hirohito only knew what his staff and advisors told him. And they rarely knew everything going on what was nominally his kingdom.  Worse, the Emperor could only act through his staff.  He, like everyone else in Japan, believed the nation could not survive without the Emperor. And he had come, finally, to believe his throne could not survive unless the war was ended quickly. Now he had to convince the Americans that without his moral impinture, there would be no Japan which could surrender to the Americans. 
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