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. …
“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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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
Author: Kwasi Kwarteng
Copyright 2014 Kwasi Kwarteng
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|Today’s selection — from Commodore: The Life of Cornelius Vanderbilt by Edward J. Renehan Jr. The miraculous gains of the Industrial Revolution in the early 1800s brought untold new wealth to western societies, but simultaneously brought a new type of poverty and disruption among workers — equally unprecedented in its scale.
“The first few decades of the nineteenth century were a largely cynical and callous time in American history — a period of institutionalized harshness. It was in 1817 that a group of prominent New York merchants and professionals (many once having been the principal supports of such institutions as the New York Hospital and other worthy causes) officially and publicly began to rethink their charitable habits. Such previously generous philanthropists as DeWitt Clinton (now governor of the state), Thomas Eddy, and John Griscom took their cue in this from British reformers. In so doing, they succumbed to the rhetoric of several hard-nosed British social thinkers, most notably Thomas Robert Malthus, Jeremy Bentham, and the Scottish conservative Patrick Colquhoun.
“Twenty years earlier, all three of those gentleman had been instrumental in the founding of the London Society for Bettering the Condition and Increasing the Comforts of the Poor. Despite the burden of its long-winded name, the London Society did not distribute charity but specialized in cutting off funds for social welfare. Malthus, Bentham, and Colquhoun believed that a distinct line must be drawn between the ‘deserving poor’ (those facing hard times as a result of unfortunate histories) and ‘undeserving paupers,’ namely, the drunk, the lazy, and the whorish members of society for whom aid was considered a reprehensible act of facilitation. Another key underpinning the London Society’s logic was the presumption (for lack of a more accurate term) that paupers outnumbered the deserving poor by a factor of about nine to one. In reform meetings and from church pulpits, politicians and clerics repeatedly cited this astonishing though unverifiable statistic, which soon became accepted as fact. In time, the public mind became convinced that a mere 10 percent of London’s poor were the crippled and the orphaned, while 90 percent were degenerates. For every one person in London’s slums who genuinely needed aid, popular wisdom said there were nine who required something else entirely: intolerance, punishment, and correction. As a corollary to this line of thinking, logic dictated that 90 percent of the charitable aid previously offered was superfluous. In turn, wallets closed.
“For decades the London Society remained influential in the development and spread of such institutions as workhouses and debtors prisons. It was also influential, through its example, in New York and other American cities. By the end of 1817, Clinton, Eddy, and Griscom, joined by hundreds of other New Yorkers, had formed a clone organization on the banks of the Hudson: the Society for the Prevention of Pauperism (SPP).
“Several months before the founding of the SPP, New York’s Humane Society forlornly announced the startling result of recent research: no less than 15,000 men, women, and children — the equivalent of one-seventh of the city’s population — had been ‘supported by public or private bounty and munificence’ the previous winter. Historians Edwin Burrows and Mike Wallace have eloquently described the SPP’s point of view, expressed in response to the above data. In the London Society’s grand tradition, the SPP said it believed that ‘willy-nilly benevolence’ only made things worse. ‘Giving alms to the undeserving poor not only undermined their independence but also drove up taxes and sapped the prosperity of the entire community.’ Thus, ‘for their good as well as everyone else’s … the SPP recommended that all paupers in the city be cut off from all public assistance forthwith.’ Soon the Humane Society itself announced its intention to disband in the wake of its realization that the very act of giving charity had ‘a direct tendency to beget, among [the citizenry] habits of imprudence, indolence, dissipation and consequent pauperism.’
” ‘Tough love’ was in. Cruelty equaled kindness. Frugality equaled generosity. And all three were not only cheap, but easy.”
Author: Edward J. Renehan Jr.
Publisher: Basic Books
Copyright 2007 by Edward J. Renehan Jr.
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“In December 2009, DARPA offered $40,000 to anyone who could locate ten balloons that they had placed in plain sight around the continental United States. DARPA is the Defense Advanced Research Projects Agency, an organization under the U.S. Department of Defense. DARPA created the Internet (more precisely, they designed and built the first computer network, ARPANET, on which the current World Wide Web is modeled). At issue was how the United States might solve large-scale problems of national security and defense, and to test the country’s capacity for mobilization during times of urgent crisis. Replace ‘balloons’ with ‘dirty bombs’ or other explosives, and the relevance of the problem is clear.
“There was great speculation in the scientific community about how the problem would be solved — for weeks, it filled up lunchroom chatter at universities and research labs around the world. Most assumed the winning team would use satellite imagery, but that’s where the problem gets tricky. How would they divide up the United States into surveillable sections with a high-enough resolution to spot the balloons, but still be able to navigate the enormous number of photographs quickly? Would the satellite images be analyzed by rooms full of humans, or would the winning team perfect a computer-vision algorithm for distinguishing the red balloons from other balloons and from other round, red objects that were not the target? (Effectively solving the Where’s Waldo? problem, something that computer programs couldn’t do until 2011.)
“Further speculation revolved around the use of reconnaissance planes, telescopes, sonar, and radar. And what about spectrograms, chemical sensors, lasers? Tom Tombrello, physics professor at Caltech, favored a sneaky approach: ‘I would have figured out a way to get to the balloons before they were launched, and planted GPS tracking devices on them. Then finding them is trivial’.
“The contest was entered by 53 teams totaling 4,300 volunteers. The winning team, a group of researchers from MIT, solved the problem in just under nine hours. How did they do it? Not via the kinds of high-tech satellite imaging or reconnaissance that many imagined, but — as you may have guessed — by constructing a massive, ad hoc social network of collaborators and spotters — in short, by crowdsourcing. The MIT team allocated $4,000 to finding each balloon. If you happened to spot the balloon in your neighborhood and provided them with the correct location, you’d get $2,000. If a friend of yours whom you recruited found it, your friend would get the $2,000 and you’d get $1,000 simply for encouraging your friend to join the effort. If a friend of your friend found the balloon, you’d get $500 for this third-level referral, and so on. The likelihood of anyone person spotting a balloon is infinitesimally small. But if everyone you know recruits everyone they know, and each of them recruits everyone they know, you build a network of eyes on the ground that theoretically can cover the entire country. One of the interesting questions that social networking engineers and Department of Defense workers had wondered about is how many people it would take to cover the entire country in the event of a real national emergency, such as searching for an errant nuclear weapon. In the case of the DARPA balloons, it required only 4,665 people and fewer than nine hours.”
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“Ironically, [McKinley] had to survive his own brief brush with the economic downturn. He had endorsed notes for an old friend and schoolmate, Robert Walker, in the amount — or so McKinley thought — of some $17,000. Already successful, Walker was starting a tin-plate business. When he went bankrupt in 1893, supposedly with a liability of $25,000 or so, McKinley cut short a trip and returned to Ohio. His plan, he told assembled friends like Mark Hanna, William R. Day, Herman Kohlsaat, and banker Myron Herrick (himself later governor), was to resign the governorship and resume the practice of law. Within a day or two, as banks were contacted by his friends, McKinley’s obligation turned out to rise to $60,000 and finally $130,000 ($3.3 million in today’s dollars).
“Mrs. McKinley’s $70,000 estate from her father was in her name and not reachable, but she insisted on pledging it to help. Hanna, making the arrangements, allowed her to deed it to him in escrow ‘to be used if needed.’ The governor also insisted on turning over his properties to trustees. Convinced not to resign, for the moment, he rejected the suggestion of raising funds through a public subscription. He accepted the services of his friends as trustees in consolidating the debt, but told them that he expected to pay it himself. Instead, they raised the money from private contributors, mostly in Cleveland, Pittsburgh, and Chicago, and paid off the cosigned notes so that McKinley — by now, the probable next president — did not need to go back to practicing law. …