Monday, February 7, 2011

Putting the "SC" in Secession




That South Carolina was the cradle of the Confederacy was no accident. Its heat and humidity have always been enough to make people restive and cantankerous. Its largest city, Charleston, was described by a 19th-century visitor from New England as having "the worst climate for unacclimated whites of any town in the United States"--i.e. nice place to visit, wouldn't want to work there. So the hard work of planting rice and cotton fell to Negro slaves, who seemed to tolerate the malaria-infested coastal swamps a bit better. South Carolina's was the blackest population in the mid-century South.

In the forty years leading up to the Civil War, more people moved out than moved in. From 1820 to 1860, South Carolina's white population increased by less than 23%, or barely half a percent annually. Maine's population, by contrast, more than doubled during the same period; the entire country's more than tripled. As historian William W. Freehling has pointed out, only 3.4% of all South Carolinians in 1860 had been born elsewhere, and half of all white South Carolinians born since 1800 had migrated west. Left behind was an insular, hidebound society, stratified and stagnant.

Those of the ruling gentry were defensive and defiant. We have already seen how in 1856 one of South Carolina's congressmen, inflamed by a slur against a colleague, tapped some serious Morse Code upside Charles Sumner's head with a walking stick. When the sluree, Senator Andrew Butler, died a year later, the South Carolina legislature elected one James Henry Hammond to finish Butler's term. Upon arriving on Capitol Hill, Hammond learned that the inmates were not using sticks anymore. "The only persons who do not have a revolver and a knife," he reported, "are those who have two revolvers."

Hammond had served once before in the U.S. Congress, albeit briefly. His first year in the House of Representatives, 1835, had seen a flood of citizens' petitions to Congress demanding that slavery be abolished throughout the nation. A slaveholder himself, Hammond had gained instant notoriety by moving on February 1, 1836, that the House ignore all such petitions. Slavery, he had proclaimed, was "the greatest of all the great blessings which a kind Providence has bestowed upon our glorious region," weeks before resigning from his seat for some R & R in Europe.

Now, in 1857, after twenty years in the political wilderness, Hammond was back in Washington, this time as U.S. Senator. The "gag rules" which he had helped introduce--and which had stifled congressional debate about slavery until 1844--were no longer in effect. Speeches for and against slavery were now
de rigueur. The hot-button issue of the day was whether slavery would be allowed in any of the nation's new territories. In March the U.S. Supreme Court ruled in Dred Scott v. Sandford that only states, and not the federal government, had the power to ban slavery. By this reasoning, slavery was permissible in any territory, and the Missouri Compromise of 1820 was judged to be unconstitutional for seeking to ban slavery anywhere west of the Mississippi River and north of 36°30' , Missouri excepted.

Hammond and other Southerners welcomed that decision. One year later, however, the U.S. House of Representatives refused to endorse a pro-slavery constitution for Kansas. The handwriting was on the wall: no new slave states would likely ever again be admitted to the Union. Even more ominous for slavery's apologists was the rhetoric from Republican candidates in the 1858 elections. Slavery would be not only contained, but also, if radical Republicans had their way, abolished where it had always existed. Hammond parried with rhetoric of his own. In a Senate speech, he stated smugly that Northern extremists "dare not make war on cotton. No power on earth dares to make war on it. Cotton is king."

Maybe abolitionists were not (yet) ready for war, but how about a little more smack talk? On April 5, 1860, Illinois Congressman Owen Lovejoy stood up on the House floor to take on the Slave Power. Lovejoy, who had lost his brother, a newspaper editor, to a lynch mob 23 years earlier, excoriated Southerners for suppressing anti-slavery literature with "violence, outrage, tar and feathers, burning, imprisonment, and the gallows." The extension of slavery would, as a plague, deter settlers. If any new territory were to be inhabited by depraved slaveholders, "leperous, dripping...with disease, no one will go there." Crossing the aisle, Lovejoy defiantly shook his fists at slave-state representatives.

As congressmen glared face to face, South Carolina's Hammond got a charge out of the proceedings. The infamous Sumner beatdown had taken place before his arrival in D.C. That one he had missed. Now he would have a ringside seat for Round 2. This particular confrontation stopped short of blows, but fanned expectations for future fisticuffs on the Hill. Hammond texted, in the fashion of that era, to one secessionist sympathizer to hurry into town to "see the fun." "A great slaughter," he wrote to another, "may occur any day." Oh, and pack a piece when you come.

Two weeks later the National Democratic Party convened in Charleston, of all places, to choose a nominee for President. Arriving during an early-season heat wave, first-time visitors were quickly educated that S.C. without A.C. is no place to B. Public accommodations were scarce, and innkeepers were charging a (Cotton) king's ransom. Hundreds of overnighting delegates had to make do with cots crammed into close quarters. Little more comfort was found in the convention hall itself, which had poor acoustics, making it hard to hear the speakers, and fixed seats on a flat floor, making it hard to see them as well. Debate on the party's platform dragged on for a week. When it was finally voted to reject language more protective of slavery in the territories, disappointed delegates from the Deep South, overheated in more ways than one, walked out. Spectators in the upper-floor gallery cheered when they did. Newly empty seats on the convention floor were decorated with flowers by Charleston's celebrating belles.

The exodus was led by Alabama's delegates. For once, South Carolina, represented by upcountry party stalwarts hopeful of compromise, was not first out the door. Once Mississippi and Louisiana bolted, however, South Carolina's delegates were shamed into following. All week, in the convention and around town, they had been branded by the locals as traitors for not walking the walk. Now the hothouse atmosphere of Charleston had become too much. Georgia alone among the Deep South states stuck around long enough to caucus cooly, but the next day most of her delegates announced their departure as well.

The convention then turned to the task of nominating a presidential candidate. Illinois Senator Stephen Douglas had been the odds-on favorite ever since the 1856 election, but he failed to get the required two-thirds majority in any of the 57 roll-call votes. After three days of fruitless polling and continual jeering from the peanut gallery, the Democrats decided to adjourn. Putting Charleston in the rear-view mirror was more important than nominating a ticket.

Reconvening in Baltimore in mid-June, the party's first task was to decide which delegates would be admitted. Many of those who had walked out of the Charleston convention were back for more, but in the meantime alternative slates of delegates had come forward in some of the Deep South states. After all were sorted and some were seated, Douglas had his nomination on the second ballot. Disqualified delegates from the Deep South, joined in sympathy by most of the other Southern delegates, marched across town to hold their own convention, from which Kentucky's John Breckinridge emerged as the presidential nominee. South Carolina Democrats, having purged the moderates among them, did not participate in either convention.

The split in the Democratic Party opened the door for the Republican candidate, Abraham Lincoln, who would win the 1860 election despite getting less than 40% of the popular vote. He would get no votes in South Carolina, the last remaining state to eschew a popular vote for President. Instead, the state legislature assembled in Columbia, the capital, the day before the national election to assign all eight of South Carolina's electoral votes to Breckinridge. That piece of business taken care of, the legislature remained in session to await the results.

Lincoln's victory on November 6 set off alarms among Southern slaveholders. How far would he go to constrain their "peculiar institution?" They had to decide if they would wait for an "overt act" by the new Administration and, if not, whether they would develop a regional consensus before seceding. In South Carolina, a fringe element agitated for instant action. But Hammond, a rabid separatist during the state's Nullification Crisis nearly thirty years earlier, now counseled caution. He still believed that cotton was king and that the South could protect its own interests within the Union. A revolutionary avant-garde, on the other hand, could be easily crushed.

South Carolina's extremists were willing to take the chance. This was was a time not for a cumbersome pan-Southern convention, but for good old-fashioned patrician leadership. Waiting for popular sentiment to shape events was a fool's game. "Whoever waited for the common people," asked state representative Alfred Aldrich rhetorically, "when a great move was to be made? We must make the move and force them to follow." The day after Lincoln's election, the U.S. District Court in Charleston was effectively shut down when the presiding federal judge and the grand jury foreman resigned.

Hammond considered them "great asses" for doing so. But legislators in Columbia were now emboldened to call a secession convention. On November 9, the state senate voted 44-1 to set the convention date for January 15, a concession to "cooperationists" who wanted extra time to mobilize support in neighboring states. On that same day a delegation of shakers and movers from Savannah arrived in Charleston to help celebrate the opening of a new rail connection between the two cities. The occasion presented a timely opportunity for some after-dinner speeches promising moral support from Georgians should South Carolina decide to secede.

This was the kick that wavering separatists in Columbia needed. The next morning (November 10), Aldrich's House committee amended the Senate bill to move the convention date up four weeks earlier to December 17. The revised bill was reported out of committee and passed by the full House, 117-0, on a second reading. The bill went back to the Senate, where it passed by a lusty 42-0 margin. News of the action inspired one of Charleston's ultras, Robert Barnwell Rhett Jr., to proclaim, "the tea has been thrown overboard--the revolution of 1860 has been initiated."

Hammond's plea for delay had been ignored. Before the day was over, the state's other U.S. Senator, James Chesnut Jr., resigned his seat. Hammond felt pressured to do likewise, which he did the very next day. "It is an epidemic and very foolish," he admitted. "I resigned because Chesnut resigned...What Chesnut and the others resigned for I don't know." Hammond likened the joint abdication to hari-kari, a rather prescient observation.

What followed was less a thought process than a contagion. An election was scheduled in South Carolina for December 3 to choose delegates to the secession convention. Newspapers promoted the new dogma that secession was both inevitable and honorable. There was, in the pages of the Charleston Mercury, "no more doubt of South Carolina's going out of the Union than of the world's turning round. Every man that goes to the convention will be a pledged man--pledged for immediate separate State secession."

To ensure a stacked convention, extremists organized vigilance committees to intimidate candidates and voters alike. These self-styled "guardians of Southern rights," forerunners of the Ku Klux Klan, imposed extrajudicial discipline on politically incorrect whites (Unionists and Cooperationists) and suppressed all gatherings of blacks. It was Code Red in the Palmetto State. "My own countrymen here in South Carolina are distempered," complained James L. Petigru, "...[and] credulous to every whisper of suspicion about insurgents or incendiaries."

Petigru was one of the few remaining Unionists in South Carolina. It was his hope, as it was of other Southern moderates, that the crisis could be resolved without a break-up of the nation. President James Buchanan prayed every night in the White House for the same thing--or at the very least that the shooting would not start until he could get the hell out of Dodge. Alas, Lincoln's inauguration was still three months away.

On the same day that South Carolina was electing delegates to its secession convention, Buchanan delivered his annual message to Congress. Trying to mollify both sides, he pleased neither. He said that no state had a constitutional right to secede, a stance sure to make South Carolinians even more apoplectic than they already were. At the same time, he said that the federal government had no authority to compel recalcitrant states to stay. Disgusted Northerners viewed the vacillation as that of an imbecile.

It was no help whatsoever to Buchanan that certain members of his own Cabinet were undermining his attempts to stabilize the situation. His Secretary of War, a Virginian named John B. Floyd, authorized the sale of 10,000 rifles from the federal arsenal to South Carolina, surely an olive branch if there ever was one. Mindful that the decision might spark controversy, Floyd took care to launder the transaction through a New York banker, proving once again that some things never change. Floyd was soon replaced in a Cabinet shake-up that took out the Secretaries of State and Treasury as well.

December 17, 1860, was a busy day in Columbia. Francis W. Pickens was sworn in as the new governor, having campaigned on the promise "to appeal to the god of battles, if need be, to cover the state with ruin, conflagration and blood rather than submit" to federal authority, which did not quite fit on a bumper sticker, but was kind of catchy all the same. In the same spirit, the secession convention assembled. Completing the trifecta was a local outbreak of smallpox. Rumors quickly spread among the citizenry (confirming Petigru's diagnosis of collective paranoia) that the germs came from a box of contaminated rags shipped from New York. Maybe it was those bankers again.

After the first day, the convention adjourned to Charleston to escape the pox, if not the political miasma. On December 20 the delegates made it official, voting 169-0 to secede and demonstrating conclusively that mindless conformity was the order of the day. Mary Chesnut, the ex-Senator's wife, would write in her diary that South Carolina's radicals "had exasperated & heated themselves into a fever that only bloodletting could ever cure." An ashamed Petigru observed that "South Carolina is too small for a republic and too large for an insane asylum."

Back in the U.S. Senate, Ohio's Benjamin Wade was similarly scornful, dismissing South Carolina as "a small state" that would not be missed. "If she were sunk by an earthquake today," scoffed Wade, "we would hardly ever find it out, except by the unwonted harmony that might prevail in this Chamber." The key for Unionists was to make sure that South Carolina's secession was a one-off, not to be replicated elsewhere in the South. Would it be possible to keep the state in quarantine?




Sunday, February 6, 2011

Quote for the Week, Feb. 6-12, 2011


It's not the notes that make the music, but the space between the notes.
--Miles Davis


Wednesday, February 2, 2011

Banks Get Theirs First


Fed chief to taxpayer: "Sucker!"


"Fed Accounting? Is the Problem Solved?"
--Bob Eisenbeis, Cumberland Advisors

[excerpt:]

"That small accounting change means that the Treasury – and hence the taxpayer – is now in a first-loss position should the Fed become book-value insolvent as the result of potential losses that might be incurred on asset sales as part of its efforts to absorb the excess reserves previously injected into the financial system...

In normal times, a 6% dividend is paid to member banks out of the surplus account, which is then replenished by retained earnings. Under the new proposal, if earnings are insufficient to cover the 6% payment, dividends can and will still be paid. The accounting change permits the Fed to cover the shortfall by increasing the size of the negative liability account to the Treasury and thereby enables the Fed to maintain the equality of the Fed’s surplus account with its paid-in capital. The Treasury will effectively fund current dividend payments by reducing the amount that it will receive from the Fed out of future earnings."

Complete analysis viewable here.


Sunday, January 30, 2011

Quote for the Week, Jan. 30-Feb. 5, 2011


A government big enough to give you everything you want, is strong enough to take everything you have.
--Thomas Jefferson, U.S. President (1801-09)


Friday, January 28, 2011

Nenner Nails It


Charles Nenner

During a radio interview three weeks ago, cycle analyst Charles Nenner predicted that the rally in Bank of America's stock would end shortly, either when the share price hit $14.70 or around January 14. Turns out he was right on. Look at the chart below:

[click to enlarge]

That white candlestick you see at the top of the formation came on January 14, when BAC ended the trading day above 15. Since then it has been all downhill. As I write, the stock sits a buck below Nenner's target price.

If MainePERS portfolio managers had acted on Nenner's exit call, they could have saved themselves, and us, $2.5 million. I say "us" because, as guarantors of retirement pay-outs to the state's public employees, we taxpayers effectively own everything in the MainePERS portfolio. Any losses in that portfolio will have to be restored out of the General Fund to preserve future benefits.

My contention is that equity managers at MainePERS need to be more selective in their stock-picking and quicker to cut losses. BAC has underperformed for a long time and shows no signs of turning things around. Just a week ago the company reported a fourth-quarter loss of $1.2 billion, despite a release of over $1 billion in loan-loss reserves and the multi-billion-dollar sale of most of its one-third stake in BlackRock, the giant asset manager. For all of 2010, Bank of America lost $2.23 billion. Why hold such a dog?

It figures to get worse. The company's chief financial officer warned during a conference call with analysts of another $7 to $10 billion in losses to come for home loans and mortgage-backed securities sold to private investors, who want to put the toxic assets back onto Bank of America. Their beef? That BofA did not properly disclose the riskiness of said assets. The company has already settled with the GSEs on some of the slime, but there's more out there. A lot more. Maybe a quarter of a trillion dollars worth in defaulted and seriously delinquent loans.

BofA's ballpark estimate of $7-10 billion in future putbacks appears optimistic. A suit filed in the last week by several insurance companies alleges "massive mortgage fraud" by Countrywide Financial, which is now part of Bank of America. Preliminary research of a sample of 19,000 Countrywide loans found that over 90% of defaulted or delinquent loans "contained material deviations from Countrywide's underwriting guidelines." If that defect rate can be successfully extrapolated, then BofA needs to up its exposure estimate by a factor of 20.

Company officers admitted on the conference call that it may take years to sort through the mess. Which means that BAC is, at best, dead money until these issues are resolved. At worst, shareholders will get wiped out, which would set MainePERS back a penny or two. Nenner sees the stock sinking back at least to the November lows. The time to dump it, as he had predicted, was two weeks ago.

A useful hint to do just that came the day before the January 14 high, when Robert Lenzner, writing for Forbes, brought attention to an accounting convention that has allowed lenders to overstate revenues. As mortgages mature, lenders are allowed to recognize interest income whether or not borrowers actually make their payments. The phantom income representing accrued, but unpaid, interest does not come off the books until the banks actually foreclose on the distressed properties, a process that can take 16 months or--when the paper trail is sketchy--longer. Right now phantom income is accruing on $1.4 trillion in face-value mortgages industry-wide. So add looming write-offs to the list of reasons to question the earnings power of the big banks.


Sunday, January 23, 2011

Quote for the Week, Jan. 23-29, 2011


A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.
--Robert Frost


Wednesday, January 19, 2011

'Asinine Ethanol Policy'


Price of Corn (/bushel)

Jim Quinn,
"Ever Increasing Corn Prices Are a Real Killer"

[excerpt:]

"Ethanol prices have soared 30% in the last year as the supplies of corn have plunged. Only a policy created in Washington DC could drive up the prices of gasoline and food, with the added benefits of costing the American taxpayer billions in tax subsidies and killing people in 3rd world countries....

The United States is the big daddy of the world food economy. It is far and away the world’s leading grain exporter, exporting more than Argentina, Australia, Canada, and Russia combined. In a globalized food economy, increased demand for corn, to fuel American vehicles, puts tremendous pressure on world food supplies. Continuing to divert more food to fuel, as is now mandated by the US federal government in its Renewable Fuel Standard, will lead to higher food prices, rising hunger among the world's poor and to social chaos across the globe. By subsidizing the production of ethanol, now to the tune of $6 billion each year, US taxpayers are subsidizing skyrocketing food bills at home and around the world."

Complete article viewable here.


Sunday, January 16, 2011

Secession: The Winter of Sumner's Discontent




With all the talk these days about securing the halls of Congress so that our elected representatives may be better protected from the general public, the question remains: what if the inmates take to assaulting each other? Could happen. It has happened, most famously just prior to the Civil War, when tensions between North and South were escalating almost day by day.

Meet Charles Sumner, U.S. Senator from Massachusetts.


Here was a man who, after graduating from Harvard in 1830 at age nineteen, went home with stacks of books to study some more because he did not think that Harvard had really taught him anything useful. By age 30, Sumner had completed law school, practiced some, lectured some at Harvard Law School, published a lot, and spent three years traveling in Europe. He returned a man in search of a mission.

A staunch believer in human perfectibility, Sumner supported local initiatives to reform schools and prisons. He was also a pacifist, the kind of guy who could get up in front of a large July 4th gathering in Boston and give a lengthy speech denouncing American expansionism and militarism. "There can be no war," he asserted solemnly, "that is not dishonorable." Then he went on to criticize U.S. Army training exercises as "farcical and humiliating" and the U.S. Military Academy at West Point as a "seminary of idleness and vice"--all this with veterans and uniformed officers sitting in the front row! Way to make friends, Chas.

Acquaintances at the time described Sumner as earnest, straightforward, and humorless, "almost impervious to a joke." Sumner made no apologies for his seriousness of purpose. Anyone looking for a joke in any of his speeches, he advised, "might as well look for a joke in the book of Revelations." Hardly a ladies' man, Sumner remained a bachelor until well into his 50s. After finally getting married, he separated from his wife a year later. Sumner's best companion, clearly, was his own inner voice.

His outer voice was not bad, either. Standing well over six feet, with a sturdy frame exquisitely tailored, Sumner spoke with great effect, sometimes for hours at a time. His speeches, recited from memory, incorporated an impressive array of borrowed verses, Latin quotations, and statistics. Cut from the John Quincy Adams cloth of moral rectitude, he was more an ideologue in the Senate than a colleague, given to total conviction rather than tepid compromise. Sumner believed that you could no more be a little bit right than a little bit pregnant. Either you were or you weren't. And if you were not right, he would let you and the world know.

No political party could contain such a man, and Sumner felt in no way bound by party platforms. "The slave of principles," as he referred to himself, "I call no party master." In his first foray into statewide politics, he found himself aligned with the Whig Party. But it was not long before he peeled off with a faction of "Conscience Whigs" to protest the willingness of "Cotton Whigs" (among them Massachusetts merchants and manufacturers) to make concessions to the slave South. The nomination of Zachary Taylor for U.S. President was seen by Sumner as the result of an unholy alliance of Southwestern and Northeastern politicians, of "cotton-planters" and "cotton-spinners," of "the lords of the lash and the lords of the loom" (love that alliteration). Sumner and others, including John Quincy's son Charles Francis Adams, immediately bolted the Whig Party altogether to start their own.

The U.S. had entered a period of shifting allegiances, tremors in the political landscape warning of the national cataclysm to come. Parties came and went. Sumner was elected to the U.S. Senate in 1851 (in the Massachusetts legislature) by a coalition of Democrats and Free-Soilers, but by 1854 was gravitating toward the emerging Republican Party because of its resolve to ban the spread of slavery to the western territories. He had become one of the nation's most recognizable and, in Northern quarters, most celebrated voices against the institution of slavery.

To Southern ears, however, Sumner's voice was like nails on a chalkboard. Part of it was his holier-than-thou attitude, part the relentless invective with which he showered his opponents. On May 19, 1856, Sumner rose on the Senate floor to launch a monumental diatribe entitled "The Crime Against Kansas," the printed version of which ran well over 100 pages. He started on the 19th, but did not finish the oration until the following day; it was that long. Sumner argued passionately that the Kansas territory should be admitted as a free state, where slavery would be prohibited.

Then he got personal. Of the chief sponsors of the bill to ratify a pro-slavery constitution for Kansas, Sumner berated all three, including South Carolina's Andrew Butler, who was not even present for the debate. The elderly Butler, according to Sumner, "touches nothing which he does not disfigure--with error, sometimes of principle, sometimes of fact. He shows an incapacity of accuracy." Not only that, said Sumner, he drools--a cruel reference to Butler's stroke impairment. Another of the embattled Three, Stephen Douglas of Illinois, who was there, thought that Sumner had gone over the line. "That damn fool," he muttered during the speech, "will get himself killed by some other damn fool."

Butler's nephew, South Carolina Congressman Preston Brooks, decided that the insult called for retaliation. He entered a near-empty Senate chamber after adjournment on May 22 and found Sumner sitting at his desk, busily attending to paperwork. Brooks complained to Sumner about the libelous speech, then rapped him on the shoulders with the lighter end of his tapered walking stick. It was at that point that some kind of chemical must have been released in Brooks's brain. Beating a defenseless abolitionist felt kinda good.

Before Sumner could stand up, Brooks started raining blows onto Sumner's head, as hard as he could. What had been intended as a measured masterly whipping was turning into a full-blown assault. Sumner finally got to his feet, but only after ripping the bolted desk from the floor with his legs. With blood streaming down his face and over his eyes, Sumner staggered down the aisle, but could not escape his attacker's reach. Brooks broke his cane, but still kept whacking. When the few Senators left in the chamber came to intervene, it looked like a hockey game might break out. But calmer heads prevailed. When it was all done, the cane lay shattered in pieces on the floor, and Sumner lay unconscious.


Brooks was an instant hero in the South, as newspapers applauded his action. The Richmond Enquirer considered it "good in conception, better in execution, and best of all in consequences" and favored making it a daily ritual: "These vulgar abolitionists in the Senate... must be lashed into submission." Suggestions were made that Brooks use something heavier next time (a baseball bat, maybe?). Fragments of the now-sacred cane were fetching a nice price on eBay.

Northerners, meanwhile, were outraged. Sumner was treated almost as a martyr, and his re-election to the Senate later that year became a lead-pipe cinch. A New Yorker wryly observed that Sumner "is made by this act, senator for life." In fact, it took three years for Sumner to recover sufficiently to resume his duties, the initial injuries less burdensome than the post-traumatic stress syndrome that followed.

Sumner found upon his return to Washington in December 1859 that things had changed--and not to his greater satisfaction. The Republican Party, in a tactical shift prior to the 1860 elections, softened its rhetoric on human rights and began focusing instead on economic issues (tariffs, land grants, and railroad charters) that might attract moderate voters. Party leaders nudged Sumner to keep a low profile during the campaign season, fearful that any antislavery agitation would strengthen the standing in the South of the Democratic presidential candidate Stephen Douglas.

Sumner held his tongue and was rewarded with the election of the Republican candidate, Abraham Lincoln. During the winter of 1860-61 the nation, alas, appeared headed for rupture. Before Lincoln could even be inaugurated, seven states in the Deep South resolved to secede from the Union. Moderate Republicans in Congress worked anxiously with Democrats to fashion a compromise that might keep the Upper South from following suit. Such a compromise would allow the extension of slavery to territories south of the 36°30' parallel. Sumner would have none of it. In one of a series of letters to the Massachusetts governor, Sumner pleaded, "Pray keep Massachusetts sound and firm--FIRM--FIRM--against every word or step of concession."

Sumner had a plan for averting civil war, but all depended on the new President's listening to him.


Quote for the Week, Jan. 16-22, 2011


The Utopias of one age have been the realities of the next.
--Charles Sumner


Thursday, January 13, 2011

The Fed Going Bankrupt? No Way

















Yes way!

--William Ford, former president,
Federal Reserve Bank of Atlanta

A
nd this from Richard Fisher, president,
Federal Reserve Bank of Dallas,
the very next day:

"The entire FOMC knows the history and the ruinous fate that is meted out to countries whose central banks take to regularly monetizing government debt. Barring some unexpected shock to the economy or financial system, I think we have reached our limit. I would be wary of further expanding our balance sheet."

Complete speech here.

Need more?
Charles Prosser, president
Federal Reserve Bank of Philadelphia:

"Monetary policy is not going to be able to speed up the adjustments in labor markets or prevent asset bubbles, and attempts to do so may create more instability, not less. Nor should monetary policy be asked to perform credit allocation in support of particular sectors or firms. Expecting too much of monetary policy will undermine its ability to achieve the one thing that it is well-designed to do: ensuring long-term price stability."

Complete speech here.


Unintended Consequences



Some stimulus!
Prices spike, but jobs keep sliding.


"Mr. Goolsbee’s statistical analysis found that 'much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices. A 10 percent investment tax credit increases equipment prices 3.5-7.0 percent'....

The blue line [in the chart above] shows a curious spike in the prices of home building materials, peaking at the end of April 2010, almost exactly when the [First-Time Home Buyer] credit expired.

Perhaps Mr. Goolsbee’s dissertation applies here, and the rush to finish home transactions before the credit expired made home building 3 to 5 percent more expensive during that period than it would have been without the credit. In contrast, the red employment series shows no visible spike in people employed as home builders."

Monday, January 10, 2011

Secession Sesquicentennial: Prologue



The worst U.S. President ever? Many historians give the nod to James Buchanan, under whose watch the sectional rivalry between slave-holding states and "free" states spun out of control. By the time his successor, Abraham Lincoln, was inaugurated in March 1861, seven states had already seceded from the Union. Buchanan's slim claim to fame was that he was able to avoid bloodshed while he occupied the White House.

Slavery, of course, was the issue that eventually split the country. It was also an issue that Buchanan thought had been settled in the early days of his administration in 1857, when the U.S. Supreme Court delivered its infamous Dred Scott decision. With five of the nine Justices coming from slave-owning families, it came as no big surprise that the Court upheld the Fugitive Slave Act, by which slave-owners (and federal marshals) were empowered to pursue runaway slaves across state lines. "Free" states were barred from providing sanctuary to slaves and, indeed, from prohibiting slavery within their own borders.

The Court's reasoning was simple enough. Since the Constitution protected the property rights of free men, and since furthermore slaves were considered property (and not citizens with rights of their own), then it followed that slave-owners could hold their property
wherever. Slavery could not be abolished anywhere in the United States. Thus, the Missouri Compromise of 1820 (which, among other things, birthed Maine's statehood) was deemed unconstitutional for seeking to prohibit slavery in most of the western territories.

President Buchanan was pleased with the ruling. In fact, there is evidence that he tampered with the decision to get a two-thirds majority, a margin that he figured would end the debate for good. Now he could get on with his own agenda: further territorial expansion of the U.S. His was the Monroe Doctrine on steroids. European colonial governments in Central and South America were to be replaced by U.S. protectorates, Cuba would be purchased and annexed as a slave state, Mexico's northern states would be peeled off and annexed, and domain would be seized in Central America for a trans-isthmus waterway. "No nation will have a right to interfere or to complain," declared Buchanan in his inaugural address, "if...we shall still further extend our possession."

But the issue of slavery kept getting in the way. Author Bruce Chadwick (book jacket above) details how events in 1858 escalated tensions between North and South. Against the President's wishes, Congress refused to admit Kansas as a pro-slavery state. And candidates for the new Republican Party were ratcheting up their rhetoric, denouncing the extension of slavery. On June 16 Abraham Lincoln, campaigning for the U.S. Senate, told the Illinois Republican Convention that "a house divided against itself cannot stand. I believe this government cannot endure permanently half slave and half free." On October 25 William Henry Seward, U.S. Senator from New York, electrified a crowd in Rochester--and garnered widespread national attention--by highlighting the "irrepressible conflict" growing over slavery. "The United States," proclaimed Seward, "must and will, sooner or later, become either entirely a slave-holding nation or entirely a free labor nation." Lincoln and Seward both considered the
status quo neither durable nor acceptable.

Lincoln was running against the Democratic incumbent, Stephen Douglas. Normally Douglas could have expected the support of the President, also a Democrat. In fact, Douglas had worked hard to help Buchanan get elected in 1856. But the two fell out over the Kansas debate, and Buchanan tried to undermine Douglas's campaign for re-election by fielding a third candidate. Douglas managed to hold his seat, as well as his prominent place in national politics. His intention was to run for President in 1860.

Though Lincoln was denied in Illinois, his party made huge gains in the 1858 elections, gaining a majority in the U.S. House of Representatives and narrowing the Democrats' advantage in the Senate. Buchanan mused in a private letter that the Democrats' defeat was "so great that it is almost absurd." The new Congress eventually killed Buchanan's design on Cuba and amplified the debate over slavery. With the Democratic Party now deeply split, the winner of the 1860 presidential election would likely be whomever the Republicans might nominate.

And that would almost certainly be William Henry Seward.



William Henry Seward: the early favorite to succeed Buchanan


Sunday, January 9, 2011

Quote for the Week, Jan. 9-15, 2011


The love of possession is a disease with them. These people have made many rules that the rich may break but the poor may not. They take their tithes from the poor and weak to support the rich and those who rule.
--Chief Sitting Bull


Monday, January 3, 2011

TARP Bank Gets Bailed Again



BofA CEO Brian Moynihan has reason to smile. Bloomberg is reporting this morning that Bank of America has reached a settlement with government-sponsored enterprises Fannie Mae and Freddie Mac over soured home-mortage loans sold to the GSEs by Countrywide Financial Corp. (now part of BofA).

The total cost of the settlement to BofA is $2.8 billion, or less than half of the GSEs' outstanding putback demands. Fannie Mae CEO Michael Williams calls the settlement a "fair and responsible resolution." But if it is indeed fair to U.S. taxpayers, who are backstopping the GSEs, then why is Moynihan smiling? And why is BofA's stock price up over 4% in premarket trading?

Some say the deal "smells to high heaven." Congresswoman Maxine Waters calls it a "giveaway." Christopher Whalen of Institutional Risk Analytics calls it "clearly a gift" to BofA shareholders, who have been showered this season. According to Whalen, "the single digit billions BofA paid to Fannie and Freddie is less than a quarter of my firm's estimate of such losses prior to the announcement."

The wrist-slap has goosed the stock to over $14 a share. This is another chance for MainePERS to exit gracefully. Meanwhile, where are the criminal indictments for the bank officers that peddled these fraudulent loans in the first place? Where indeed?


Quote for the Week, Jan. 2-8, 2011


One way to make sure crime doesn't pay would be to let the government run it.
--Ronald Reagan, U.S. President (1981-89)



Saturday, January 1, 2011

Putting the BOOM in Baby Boomers



US at War Since 1950: A New Year's Meditation


by Michael True, truthout


That's a lifetime of war. And I'm no spring chicken.

More bucks for the bang.


Friday, December 31, 2010



Jim Quinn,

"Where Are All the Jobs?"

[excerpt:]


"The profits are being generated on Wall Street through collusion with the Federal Reserve, as the insolvent Wall Street banks accept free money from the Federal Reserve to generate speculative profits at the expense of senior citizens earning 0.20% on their CDs. The mega-multinationals are 'earning' their profits by continuing to ship American jobs overseas at a record pace. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year. The additional 1.4 million jobs would have lowered the US unemployment rate to 8.9%, says Robert Scott, the institute’s senior international economist...The hollowing out of the American economy has been going on for decades and despite the usual rhetoric out of Washington DC, it continues unabated today....

"We’ve degenerated from a productive, goods-producing society to a consumption-based, debt-fueled society. This is a classic late-stage trait of declining empires. Rome and Britain before us experienced similar declines....


"The wealth of the country has been pillaged by an elite group at the very top of the economic food chain who were able to reap the rewards of globalization (outsourcing American jobs), manipulate the debt-based financial system through synthetic fraud products, and avoid taxes by hiring thousands of lawyers, accountants, and tax consultants."


Complete commentary viewable at Minyanville.


Wednesday, December 29, 2010

Kitchen Temperature Rising



Still want to own this bank?

Yesterday Allstate Corporation filed suit in federal court against Bank of America and its Countrywide mortgage subsidiary over Countrywide's sale to Allstate of $700 million in residential mortgage-backed securities that were designed to fail.

Allstate alleges "material misrepresentations and omissions regarding the riskiness and credit quality of the Certificates in which Allstate invested." Further:

"This systemic abandonment of Countrywide's stated underwriting guidelines infected all of the loans it securitized. Whereas Allstate was made to believe it was buying highly rated, safe securities backed by pools of loans with specifically-represented risk profiles, in fact the Defendants knew the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default."

Even though the Countrywide abuses took place before its merger with Bank of America in 2008, Allstate insists that Bank of America is "successor in liability to Countrywide and is jointly and severally liable for the wrongful conduct alleged herein of the Countrywide Defendants."

It is difficult at first glance to evaluate what the hit to BofA would be if the Court finds in Allstate's favor. Allstate wants a full refund on some of the securities (which would be "put back" to BofA) and a recovery of lost principal and interest payments on the securities it must keep, plus a recovery of lost market value of the latter securities. Add attorneys' fees and prejudgment interest, and we're into the hundreds of millions.

But this is just chump change in the entire universe of claims against BofA. In a 10-Q filing with the Securities and Exchange Commission dated last November 5, the company warned investors thusly about pending litigation (bottom of page 60):

"The Corporation and affiliates, legacy Countrywide entities and affiliates, and legacy Merrill Lynch entities and affiliates have been named as defendants in a number of cases relating to various roles they played in MBS offerings. These cases are generally purported class action suits or actions by individual purchasers of securities. Although the allegations vary by lawsuit, these cases generally allege that the offering documents for more than $375 billion of securities issued by hundreds of securitization trusts contained material misrepresentations and omissions...."

Did you get that? $375 billion.

Interestingly, the State of Maine has been trying to get in on this action (court docket here), even as the State's retirement portfolio holds 2.5 million shares of Bank of America stock. Message from the left hand to the right hand: SELL.



Monday, December 27, 2010

Foreclosure-gate Update



L. Randall Wray,
Economics Professor, Univ. of Missouri-K.C.

[excerpt:]

"When we peel back the layers of the real estate 'onion' what we find is layer after layer of fraud. From the mortgage brokers to the appraisers and lenders, from the securitizers to the ratings agencies and accountants, from the trustees to the servicers, and from MERS (Mortgage Electronic Registry System) through to the foreclosures, what we find is a massive criminal conspiracy—probably the worst in human history....

The scale of the problem is huge. Some estimate that as many as $6.4 trillion worth of home mortgages (33 million of them) are frauds, with destroyed or doctored documents....

Every top management official of all the biggest dozen banks, plus everyone at MERS, all officers of every servicer, rater, appraiser, accounting firm, and mortgage broker ought to be investigated for fraud. In the aftermath of the thrift crisis, 1852 bank insiders were prosecuted and 1072 were jailed. So far in this much bigger crisis there have been only 50 criminal probes and 80 civil lawsuits authorized by FDIC. It is time to get serious about the home thieves."


Complete commentary at benzinga.com.

Sunday, December 26, 2010

Quote for the Week, Dec. 26, 2010-Jan. 1, 2011


The only difference between the Kennedy assassination and mine is that I am alive and it has been more torturous.
--Lyndon Baines Johnson, U.S. President (1963-69)


Saturday, December 25, 2010

Gifthorse


Bank of America stock price


Santa Claus's gift to MainePERS: a two-dollar December rally. Times 2.5 million shares. Equals five million dollars.

So take it already. Mega-manager John Paulson has taken his. And better act soon. While the Western world was leaving Santa milk and cookies, the People's Bank of China was raising interest rates by 25 basis points (the second of several hikes?) in hopes of forestalling a hard landing. The Shanghai Composite Index is already down 10% since its November highs. U.S. stocks are next.


Wednesday, December 22, 2010

Pit Stop



Fed Head Ben Bernanke

...is buying billions in U.S. Treasuries every day, day after day, from the Primary Dealer banks, using mere journal entries as currency. Then he prays. That the banks, in turn, will lend the newly created "money" into the U.S. economy, thereby boosting output, creating jobs, and restoring a credit card to every wallet. But where are the banks really putting it? Look below:


That's a copper mine you're looking at. The JP Morgans of the world, it seems, are stashing the trash cash in commodities, hoping to corner markets for their own profit. American workers, find your own sandbox and go pound sand. The Wall Street Journal reports.


Kucinich: "Fire the Fed"



The National Emergency Employment Defense ("NEED") Act of 2010

Dennis Kucinich (D-OH): "My bill would replace the Federal Reserve System’s dependence on private banks to create credit. In its place, a Monetary Authority under the Treasury Department would directly inject liquidity into the economy by purchasing much needed public infrastructure repair. Today, we have idle capital, millions of able-bodied but unemployed workers, unused equipment, and record low interest rates. These conditions are the best possible time to make a long-term investment in our nation’s infrastructure." [Complete bill here.]

Karl Denninger, Market-Ticker: "[This bill] would immediately end the abuse and extortion of The United States Federal Government by banks and other institutions who argue that they 'cannot be allowed to fail', then using that power of extortion to extract monstrous amounts of money from the economy for their personal benefit - by some estimates, as much as 20% of GDP." [Commentary here.]