u.s. grant’s humiliation — 8/04/17

Today’s selection — from American Ulysses: A Life of Ulysses S. Grant by Ronald C. White.
U.S. presidents did not receive pensions until well into the 20th century. Prior to that time, a president was expected to return to work to earn his living after serving. For U.S. Grant, who was never well situated financially, this was a challenge. For this reason, late in his life, he joined a small Wall Street firm that had been started by his son Buck and Buck’s friend Ferdinand Ward, who was reputed to be a financial wizard. Soon he learned to his horror that his firm was nothing more than a Ponzi scheme, and he was soon destitute:
“Today, we might call [Ferdinand] Ward’s maneuvering a Ponzi scheme, made infa­mous by Bernie Madoff in 2008. In Grant’s day, it was called ‘rehypoth­ecating.’ It worked like this: Ward paid abnormally high interest to his customers by pledging securities as collateral on a loan, whereas the same securities had previously been pledged for other loans. As a result, Ward was able to pay his investors their interest by siphoning off money from new investments. None of his customers knew, including the two Grants. [By late 1883, Grant] estimated his wealth at $1.5 million, mostly thanks to Ward’s investments.  …
Wall Street Panic of 1884
“Sometime in early 1884, Horace Porter, Grant’s former aide and now president of the Pullman Palace Car Company, felt compelled to warn the general that the profits he had heard about could not be legitimate. It just so happened that when he arrived at Grant’s house, Ward was pres­ent. And after listening to the enthusiastic Ward and watching the gen­eral’s appreciative response, he withdrew, deciding not to interfere.
“On Sunday afternoon, May 4, 1884, Ferdinand Ward rang the door­bell at 3 East Sixty-sixth Street. Ward’s visits to Grant’s home were always welcome, but usually he did not come uninvited. A maid escorted him into the parlor, where he was greeted by Grant and Buck. He told the two men the Marine Bank was in grave difficulty because the city chamberlain had decided to withdraw some of the city’s funds.
“Grant expressed surprise and asked how this matter concerned him. Ward replied that since Grant and Ward had $660,000 deposited there, this could put the firm’s financial position in jeopardy.
“Buck interjected, But isn’t the bank good for the funds?
“Certainly. Nothing to be worried about in the long term. But the firm would need money to cover the potential shortfall. Ward said he already had checks for $230,000 but wondered if the general could borrow an­other $150,000 that day. Ward assured Grant the money would be needed for only twenty-four hours.
“Grant agreed to try to borrow the money. With Ward and Buck in tow, he traveled in his carriage down Fifth Avenue, stopping at the tur­reted fifty-eight-room home of William H. Vanderbilt. Once inside, em­barrassed by his unannounced call, Grant explained the reason for his visit. Vanderbilt, eldest son and heir of Commodore Cornelius Vander­bilt, made it a habit not to make personal loans. Known to be a cantanker­ous man, he told Grant, ‘I care nothing about Marine Bank. To tell the truth I care very little about Grant & Ward. But to accommodate you personally I will draw my check for the amount you ask. I consider it a personal loan to you and not to any other party.’
“Grant accepted the check for $150,000.
“He rejoined the younger men in the carriage and returned to Sixty­-sixth Street, where he endorsed the check and handed it to Ward. [The] young Napoleon assured the old general the whole matter would be all right.
“On Tuesday, May 6, the Marine Bank opened its doors promptly at ten A.M. The bank’s directors arrived and assembled for their weekly meeting. But … where was Ward? Someone contacted his office, but no one had seen him.
“The directors’ meeting ended at eleven A.M. A few minutes later, all doors to the bank were locked even as depositors began to congregate outside. …
“In midday, Grant arrived at his office at 2 Wall Street. Crowds milled in the street, but newspaper reporter Alexander Noyes wrote, ‘The gen­eral looked neither to right or left.’ As Noyes watched, ‘Nobody fol­lowed him, or spoke to him, but everyone in the cynical “hard-boiled” group took off his hat.’ The young reporter declared, ‘It was not so much a tribute of respect to a former Chief Magistrate as spontaneous recognition of the immense personal tragedy which was enacting before our eyes.’
“Behind closed doors, Grant asked Buck what had happened.
” ‘Grant and Ward has failed, and Ward has fled. You’d better go home, Father.’
“Not saying a word, Grant steadied himself on his crutches, which he still used five months after his [recent] fall, walked silently past the gathering crowd, and made his way home.
“Deeply humiliated, he told Julia all that had happened. Then he opened his wallet and removed its contents: $81. She had $130. All his dreams for retirement had vanished….
“Grant determined he would repay every debt, starting with what he owed William Vanderbilt. He prepared an accounting of all he owned: his farm in Missouri, homes in Galena, Philadelphia, and Washington, plus land in Chicago. He gathered his swords, campaign maps, the gold medal awarded by Congress, the pen used to write orders for the Battle of the Wilderness, and rare souvenirs acquired on his world tour. Julia con­tributed jewelry and vases, including her prize vase filled with gold coins given them in many countries. Grant held back nothing. In the end, he believed the total amounted to almost exactly $150,000.
“He sent everything off to Vanderbilt. Upon returning from a Euro­pean vacation to find Grant’s shipment, the financial titan was perplexed. He notified Grant he would return everything. Grant would not hear of it.
“In the end, Vanderbilt accepted the repayment and wrote Julia, ‘All articles of historical value and interest shall at the General’s death, or if you desire it sooner, be presented to the government at Washington where they will remain as perpetual memorials of his fame, and of the history of his time.’ Vanderbilt acted both to preserve Grant’s pride and to preserve his story for future American generations.
“Even though Vanderbilt took title to the house at 3 East Sixty-sixth Street, he insisted Grant and Julia continue to live there.
“The public did not blame Grant. Most Americans believed him an un­informed bystander to Ward’s gigantic swindle. Known and unknown persons stepped forward to help.
“Charles Wood, who owned a brush factory in Lansingburgh, New York, wrote the general, ‘I enclose check for five hundred dollars on ac­count my share due for services ending about April 1865.’ He did so be­cause ‘I owe you this for Appomattox.’ Reading of ‘the Grant Failure’ in the Troy Daily Press, Wood simply wanted to help.
“Grant immediately wrote Wood to acknowledge this gift from a stranger. Within days, two more checks from Wood totaling $1,000 ar­rived. ‘The country will rally for you but large bodies move slowly,’ he encouraged. …
“On the afternoon of May 27, the doorbell at 3 East Sixty-sixth Street rang. Once again, Ferdinand Ward stood at the entrance. Having been arrested on May 21, and destined to spend the next eight years in jail, he was free on bail. He wished to see Grant for only a few minutes. The general sent his answer: he had no more to say.”
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American Ulysses: A Life of Ulysses S. Grant

Publisher: Random House
Copyright 2016 by Ronald C. White
Pages 629-633

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voters never approved the euro — 4/06/17

Today’s encore selection — from War and Gold by Kwasi Kwarteng. European countries have high levels of trade with each other, so they needed currency exchange rates that are relatively stable. In the early twentieth century, having their currencies tied to gold provided that. After World War II, it was provided by the Bretton Woods agreement, which tied these major currencies to the dollar, which was in turn tied to gold. But after President Richard Nixon took the U.S. off the gold standard in 1971, the need reappeared and a number of European countries created a mechanism called the “snake,” which constrained fluctuations of currencies, and then the “exchange rate mechanism,” which did much the same thing. But the ultimate dream was to create a single currency — the euro — in one of the boldest monetary initiatives in history. For something so resolute and so laden with potential moral hazard, and for something that has in recent years contributed to so much European economic pain, it was surprisingly the creation of technocrats, and never taken to any country’s voters for their approval:
“The fiscal situation of the European countries which aspired to join the single currency [in 1997] did not inspire confidence. All through the late 1990s, the lack of preparedness of certain EU countries to join the euro was a subject of open debate. ‘There has, of course, been some sleight of hand,’ wrote Rupert Cornwell in the Independent in February 1998. ‘It remains mysterious quite how Italy, which for years regularly ran double-digit budget deficits, conveniently slashed last year’s to a mere 2.7 per cent of GDP.’ It was obvious, even before the euro was launched, that the single currency was an almost purely political project, which would be pursued without any real regard for the underlying economic reality. As the Frenchman Jacques Rueff had said, ‘Europe will make itself by money or not at all.’ The words of the Portuguese Prime Minister António Guterres at the Madrid summit in December 1995 were even more grandiose and emphatic: ‘When Jesus resolved to found a church, he said to Peter, “You are Peter, the rock, and upon this rock I will build my church.” You are the euro, and upon this new currency we will build our Europe.’

“There was never any idea that the people of Europe, the citizens of the individual states, would be consulted before this momentous step was taken. As [Otmar] Issing [the German economist who also served as a member of the European Central Bank’s first executive board], himself later admitted, it was ‘doubtless in Germany that resistance to EMU was the greatest’. The decision to ‘abandon the D-Mark required a great deal of political courage’, he remembered. In opinion polls conducted as late as the autumn of 1995, only 34 per cent of Germans were in favour of the single currency, while 45 per cent were against. Needless to say, these figures were reversed as the decade wore on and the single currency became more imminent. By the spring of 1999, some 55 per cent of Germans now supported the single currency while only 36 per cent continued their opposition.

“In the same poll from 1995, the Finns were shown to be the least in favour of the currency among the nations which eventually joined: 53 per cent of Finns were hostile to the currency, while only 33 per cent approved. It is important to grasp the extent to which Europe’s political elites were committed to the single currency. The reasons why numerous political figures and bankers became strong advocates of the euro differed. For the Germans, it was often as much a symbol of fiscal discipline as a badge of European unity. For Issing, the benefits of the euro were explicitly focused on the need for fiscal discipline. This was a view widely held in Germany and the Netherlands.
“The people of Europe, of course, had not been consulted before the single currency was officially launched on 1 January 1999. The euro was always conceived as an elite project, conjured up by technocrats, to be foisted upon a largely acquiescent and amorphous European public. There was as yet no European superstate, a fact which worried Germans, unsure of whether a monetary union was possible without a political union.”
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War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt

Publisher: PublicAffairs
Copyright 2014 Kwasi Kwarteng
Pages: 277-278

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