“wall street bankers are stupid” — 5/21/18

Today’s selection — from The Big Short by Michael Lewis. 

As financial cracks began to appear in 2007, bankers were still claiming that all was well, a woman who was a stock analyst at Oppenheimer was the first to claim loudly that the proverbial emperor had no clothes:

“Meredith Whitney was an obscure analyst of financial firms for an obscure financial firm, Oppenheimer and Co., who, on October 31, 2007, ceased to be obscure. On that day she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what inside the stock market, but it was pretty clear that, on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of, and who could have been dismissed as a nobody, had shaved 8 percent off the shares of Citi­group and $390 billion off the value of the U.S. stock market. Four days later, Citigroup CEO Chuck Prince resigned. Two weeks later, Citigroup slashed its dividend.

Meredith Whitney
“From that moment, Meredith Whitney became E. F. Hutton: When she spoke, people listened. Her message was clear: If you want to know what these Wall Street firms are really worth, take a cold, hard look at these crappy assets they’re holding with borrowed money, and imagine what they’d fetch in a fire sale. The vast assemblages of highly paid people inside them were worth, in her view, nothing. All through 2008, she followed the bankers’ and brokers’ claims that they had put their problems behind them with this write-down or that capital raise with her own claim: You’re wrong. You’re still not facing up to how badly you have mismanaged your business. You’re still not acknowl­edging billions of dollars in losses on subprime mortgage bonds. The value of your securities is as illusory as the value of your people. Rivals accused Whitney of being overrated; bloggers accused her of being lucky. What she was, mainly, was right. But it’s true that she was, in part, guessing. There was no way she could have known what was going to happen to these Wall Street firms, or even the extent of their losses in the subprime mortgage market. The CEOs themselves didn’t know. ‘Either that or they are all liars,’ she said, ‘but I assume they really just don’t know.’

“Now, obviously, Meredith Whitney didn’t sink Wall Street. She’d just expressed most clearly and most loudly a view that turned out to be far more seditious to the social order than, say, the many cam­paigns by various New York attorneys general against Wall Street corruption. If mere scandal could have destroyed the big Wall Street investment banks, they would have vanished long ago. This woman wasn’t saying that Wall Street bankers were corrupt. She was saying that they were stupid. These people whose job it was to allocate capi­tal apparently didn’t even know how to manage their own.”

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The Big Short: Inside the Doomsday Machine
Author: Michael Lewis
Publisher: W.W. Norton & Company
Copyright  2011, 2010 by Michael Lewis
Pages: xvi-xvii


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the rape of nanking — 8/30/17

Today’s selection — from Chiang Kai-Shek by Jonathan Fenby. The so-called “Rape of Nanking” witnessed atrocities that were among the most horrifying in the history of war. It was part of the Second Sino-Japanese War, which began in 1937 when Imperial Japan invaded China under Chiang Kai-Shek. Casualties in that war were estimated at between 20 and 35 million people. Nanking was the capital of the Republic of China and was upriver from Shanghai, China’s wealthiest and most important commercial city, which had already fallen to the Japanese:
“The Rape of Nanking was unique as an urban atrocity not only for the number of people who died but also for the way the Japanese went about their killing, the wanton individual cruelty, the reduction of the city’s inhabitants to the status of subhumans who could be murdered, tortured, and raped at will in an outburst of the basest instincts let loose in six weeks of terror and death. The death toll was put at 300,000 — some accounts set it even higher, though one source for the former figure, Harold Timperley of the Manchester Guardian, used it to refer to deaths in the Yangtze Valley as a whole.
“On the first day, a Japanese division killed more than 24,000 prisoners of war and fleeing soldiers. On the wharves by the river, coolies threw 20,000 bodies into the Yangtze before being killed themselves. Behind its white flags and Red Cross symbols, the foreign Safety Zone proved weak protection: indeed, by concentrating refugees there, it inadvertently provided a big target for the killers; the ‘good Nazi of Nanking’, the German John Rabe could only roam the streets trying to rescue individuals in his path.
 
The corpses of massacred victims on the shore of the Qinhuai River with a Japanese soldier standing nearby
“There were no imperial orders, as such, for the Rape of Nanking, and General Matsui gave senior officers a scathing rebuke after he entered the city for the victory parade on 17 December. But the general left for Shanghai two days later and, though he insisted there that misconduct must be severely punished, his words had no discernible effect. Any Chinese was liable to be a target. People were roped together and machine-gunned, doused with kerosene and set on fire. Thousands were buried alive — or put in holes up to their necks and then savaged by army dogs. Others were frozen to death after being thrown into icy ponds. Japanese soldiers used Chinese for bayonet practice. Civilians were nailed to boards and run over by vehicles, Mutilation, disembowelling and eye gouging took place before executions. People were sprayed with acid, or hung up by their tongues. Medical experiments were conducted in a former hospital where Chinese, known as ‘logs’, were injected with germs and poisons. Women, young and old, pregnant and ill, were raped in enormous numbers, and then killed, some with sticks rammed into their ******s. Foetuses were ripped from the bodies of expectant mothers. Other women were taken to so-called ‘comfort houses’ set up for the soldiers, who called the inmates ‘public toilets’.
“Japanese newspapers recorded a competition between two lieutenants to behead 100 Chinese with their swords. When they both passed the mark, it was not clear who had got there first, so the contest was extended to 150. One of the lieutenants described the competition as ‘fun’, though Japanese newspapers noted that he had damaged his blade on the helmet of a Chinese he cut in half. Revelling in their savagery, Japanese soldiers took photographs of the massacres and sent them to Shanghai to be developed; Chinese staff in the photographic shops passed copies to Rhodes Farmer who forwarded them to Look magazine in America in evidence of the horror.
“As the Nationalist capital, Nanking was obviously an important target where the Japanese wanted to achieve maximum humiliation of their adversary. But the sustained mass bestiality can better be explained — if it can be rationally explained at all — by the tensions that had built up in the army since the Shanghai battle erupted, by the knowledge of the Japanese troops that they were heavily outnumbered by the Chinese in the city, by the callousness bred in the previous four months — and, above all, by the dehumanisation of the Chinese which had become part of the psyche of the Imperial Army. The invaders saw the people around them as lower than animals, targets for a bloodlust which many, if not all, their commanders felt could only spur their men on to fight better. In his diary, one soldier described the Chinese as ‘ants crawling on the ground … a herd of ignorant sheep’. Another recorded that while raping a woman, his colleagues might consider her as human, but, when they killed her, ‘we just thought of her as something like a pig’.
“It seems certain that the Emperor in Tokyo knew at least the outline of what was going on. His uncle was in command, and Japanese newspapers reported the execution contests among officers as if they were sporting events. Hirohito still hoped that China could be defeated with one big blow, which Nanking might provide.”
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Chiang Kai-Shek: China’s Generalissimo and the Nation He Lost

Publisher: Carroll & Graf Publishers
Copyright 2003 by Jonathan Fenby
Pages: 307-309

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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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stalin starves more than one million to their death — 3/10/17

Today’s selection — from Bloodlands: Europe Between Hitler and Stalin by Timothy Snyder. Joseph Stalin wanted to build his country and advance the cause of communism. Central to that was his desire to build industrial factories in cities. But to do that he needed to make a massive investment in large-scale machines, purchasing them in large part from more advanced countries. The only way to afford these machines was to sell surplus grain, which required collectivizing and squeezing a surplus from the primitive farming communities in the vast and fertile lands of the Ukraine. Over time, this effort led to the death of millions of Soviet citizens:
“[After an initial attempt at collectivization that failed,] Stalin maintained that the problem with collectivization was that it had been imple­mented with just a little too much enthusiasm. It had been a mistake, he now asserted, to force the peasants to join the collective farms. The latter now dis­appeared just as quickly as they had been created. In 1930, peasants in Ukraine harvested the winter wheat, and sowed the seeds for the autumn crops, just as if the land belonged to them. They could be forgiven for thinking that they had won.
“Stalin’s withdrawal was tactical. Given time to think, Stalin and the politburo found more effective means to subordinate the peasantry to the state. In the countryside the following year, Soviet policy preceded with much greater deftness. In 1931, collectivization would come because peasants would no longer see a choice. The lower cadres of the Ukrainian branch of the Soviet communist party were purged, to ensure that those working within the villages would be true to their purpose, and un­derstand what would await them if they were not. The independent farmer was taxed until the collective farm became the only refuge. As the collective farms slowly regrouped, they were granted indirect coercive power over neighboring independent farmers. They were allowed, for example, to vote to take the seed grain away from independent farmers. The seed grain, what is kept from one crop to plant the next, is indispensible to any working farm. The selection and preservation of the seed grain is the basis of agriculture. For most of human his­tory, eating the seed grain has been synonymous with utter desperation. An in­dividual who lost control of the seed grain to the collective lost the ability to live from his or her own labor.
Starved peasants on a street in Kharkiv, 1933
“Deportations resumed, and collectivization proceeded. In late 1930 and early 1931, some 32,127 more households were deported from Soviet Ukraine, about the same number of people as had been removed during the first wave of de­portations a year before. Peasants thought that they would die either of exhaus­tion in the Gulag or of hunger close to home, and preferred the latter. Letters from exiled friends and family occasionally escaped the censor; one included the following advice: ‘No matter what, don’t come. We are dying here. Better to hide, better to die there, but no matter what, don’t come here,’ Ukrainian peas­ants who yielded to collectivization chose, as one party activist understood, ‘to face starvation at home rather than banishment to the unknown.’ Because col­lectivization came more slowly in 1931, family by family rather than whole vil­lages at once, it was harder to resist. There was no sudden attack to provoke a desperate defense. By the end of the year, the new approach had succeeded. About seventy percent of the farmland in Soviet Ukraine was now collectivized. The levels of March 1930 had been reached again, and this time durably. …
“By autumn 1931 the failure of the first collectivized harvest was obvious. The reasons were many: the weather was poor; pests were a problem; animal power was limited because peasants had sold or slaughtered livestock; the pro­duction of tractors was far less than anticipated; the best farmers had been de­ported; sowing and reaping were disrupted by collectivization; and peasants who had lost their land saw no reason to work very hard. …
“More than half of the (nonspoiled) harvest was removed from Soviet Ukraine in 1931. Many collective farms met their requisition targets only by handing over their seed grain. Stalin ordered on 5 December that collective farms that had not yet fulfilled their annual requirements must surrender their seed grain. Stalin perhaps believed that peasants were hiding food, and thought that the threat of taking the seed grain would motivate them to hand over what they had. But by this time many of them truly had nothing. By the end of 1931, many peasants were already going hungry. With no land of their own and with little ability to resist requisitions, they simply had no way to ensure that a sufficient number of calories reached their households. Then in early 1932 they had no seed grain with which to plant the fall crop. The Ukrainian party leadership asked for seed grain in March 1932, but by that time the planting was already delayed, meaning that the harvest that fall would be poor.
“In early 1932 people asked for help. Ukrainian communists requested that their superiors in the Ukrainian party ask Stalin to call in the Red Cross. … Ukrainian party members bypassed [General Secretary Stanislav] Kosior and wrote directly to Stalin, taking an angry tone: ‘How can we construct the socialist economy when we are all doomed to death by hunger?’
“The threat of mass starvation was utterly clear to Soviet Ukrainian authori­ties, and it became so to Stalin. Party activists and secret police officers filed countless reports of death by starvation. In June 1932 the head of the party in the Kharkiv region wrote to Kosior that starvation had been reported in every single district of his region. Kosior received a letter from a member of the Young Communists dated 18 June 1932, with a graphic description that was probably, by then, all too familiar: ‘Collective farm members go into the fields and disap­pear. After a few days their corpses are found and, entirely without emotion, as though this were normal, buried in graves. The next day one can already find the body of someone who had just been digging graves for others.’…
“That Stalin’s own policy of collectivization could cause mass starvation was also clear. By summer 1932, as Stalin knew, more than a million people had already starved to death in Soviet Kazakhstan. … Stalin, a master of personal politics, presented the Ukrainian famine in personal terms. His first impulse, and his lasting tendency, was to see the starvation of Ukrainian peasants as a betrayal by members of the Ukrainian communist party.”
Bloodlands: Europe Between Hitler and Stalin

Publisher: Basic Books
Copyright 2010 by Timothy Snyder
Pages 32-35

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how george washington got votes

Today’s selection — from Drinking in America by Susan Cheever. Money, alcohol, and votes were regular companions at polling places in colonial and early America:

“George Washington, a wealthy Virginia aristocrat who loved par­ties and fox hunting, found out about the connection between drink­ing and voting for the American electorate the hard way. A rigorous military commander who drove his soldiers hard and expected much of them, he began to aspire to a government position after he did not get a command in the British military. While seeking a seat in the Vir­ginia Assembly in 1755, he was roundly defeated.
George Washington depicted during his French & Indian War days.

“Two years later he ran again, but this time he delivered 144 gallons of rum, punch, cider, and wine to the polling places distributed by election volunteers who urged the voters to drink up. At 307 votes, he got a return on his investment of almost two votes per gallon. Most elections featured vats and barrels of free liquor as well as the candi­date in hand to drink along with his constituency. Candidates showed off their generosity as well as their drinking capacity. Although voting while intoxicated was normal for the colonists, French traveler Ferdi­nand Bayard was horrified to notice, ‘Candidates offer drunkenness openly to anyone who is willing to give them his vote.’

“A few years later the writer George Prentice described a Kentucky election that lasted three days. ‘During that period whiskey and apple toddy flow through our cities and villages like the Euphrates through ancient Babylon.’ Later, after the Revolution, some of the Founding Fathers objected to the American way of voting. James Madison, who drank a pint of whiskey daily to aid his digestion, was also running for the Virginia Assembly in 1777. Madison decided that bribing the voters with alcohol was beneath his dignity and the dignity of the new nation. The influence of liquor at the polls was ‘inconsistent with the purity of moral and republican virtues,’ he announced. He lost.
Old courthouse in Philadelphia during the October 1, 1764 election
“Later, when he became Thomas Jefferson’s secretary of state, Madison’s ideas about democracy began to sharpen. A Virginia aris­tocrat who had grown up on a plantation, he did not believe in ‘excessive democracy’; democracy was too precious to waste on the common man. This belief, which may have begun with his horror at the way polling places were conducted, led him to favor a strong fed­eral government, and he eventually helped Alexander Hamilton­ — another man who was disturbed by drunkenness — draft The Federal­ist Papers.”

Drinking in America: Our Secret History

Author: Susan Cheever
Publisher: Hachette Book Group
Copyright 2015 by Susan Cheever
Pages: 40-41

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ancient pensions

Today’s selection — from A History of Public Sector Pensions in the United States by Robert L. Clark, Lee A. Craig, and Jack W. Wilson.  Public pensions, which have become a source of controversy in contemporary finance and politics, have been used since ancient times as a way to engender loyalty among military troops. The problems resulting from pensions were fully present in these earliest programs:


Imperial Roman legionaries in tight formation

“From the Roman Empire to the modern nation state, rulers and parlia­ments have found it expedient to provide pensions for the workers who carried out their policies and, thus, helped perpetuate their regimes. The history of these public sector pension plans is both colorful and instructive. More than two thousand years ago, the fall of the Roman republic and the rise of the empire were inextricably linked to the payment, or rather the nonpayment, of military pensions.

“During the American Revolution army pensions became such a sensitive issue that only the personal interven­tion of George Washington prevented a mutiny of Continental troops over their promised pension payments. In the nineteenth century the U.S. navy pension fund went bankrupt on no fewer than three occasions, only to be bailed out by Congress each time. The management of the navy pension fund involved misfeasance, malfeasance, and nonfeasance of a strikingly bold nature. These and other episodes … provide the reader with a chronology of these historic events and a series of policy lessons pertaining to current employer-based pension plans. …
“It is typically thought that employer-provided pensions in the United States are a relatively recent form of compensation having been introduced by employers late in the nineteenth century or early in the twentieth. This perception is correct concerning private pensions and most public pen­sions for civilian employees; however, pensions for disabled and retired military personnel predate the signing of the U.S. Constitution.
“Military pensions have a long history in Western civilization and have often been used as a key element to attract, retain, and motivate military personnel.”

A History of Public Sector Pensions in the United States

Authors: Robert L. Clark, Lee A. Craig, and Jack W. Wilson
Copyright: 2003 Pension Research Council of the Wharton School of the University of Pennsylvania
Publisher: University of Pennsylvania
Pages: 1-2

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