Friday, April 29, 2011

Downsizing Defense



Col. Douglas Macgregor (ret.),

"A Radical Plan for Cutting the Defense Budget
and Reconfiguring the U.S. Military"

[excerpt:]


"Why does America need all these facilities? The original Cold War goal of protecting European and Asian societies from communist threats and internal subversion has long ago been met, and many overseas U.S. bases are now redundant. What better time than now, when the United States faces fiscal calamity but few real military threats, to judiciously sort those that are truly needed from those the Pentagon can live without? It's time to declare victory and go home."

Total savings: $279.5 billion annually

Complete commentary at ForeignPolicy.com.


Thursday, April 28, 2011

Incredible Shrinking GDP Growth Rate


From Zero Hedge:

[click to enlarge]


The Commerce Department is reporting this morning that gross domestic product in the United States grew at an annual rate of 1.8% during the first quarter of 2011. This is down from the 3.1% pace of the prior quarter--and less than the 3%-plus growth forecast by Fed Chairman Ben Bernanke for all of 2011. More than half of the measured growth for Q1 came from the build-up of unsold inventories. Ex inventories, the rate would have come in at +0.8%, a ridiculously anemic figure given all the monetary stimulus thrown at the economy by the Federal Reserve during the past six months.

Bernanke suggested in a press conference yesterday that the economy would benefit from an improving labor market in the coming quarters. But the Labor Department has just reported that initial claims for unemployment benefits jumped last week to 429,000, the highest in three months. And earlier this week, Standard & Poor's released an update of the Case Shiller housing index, which tracks home prices in 20 metro markets. Prices in February were down 1.1% from the month before and 3.3% from the year before. In other words, the double dip is accelerating.


Wednesday, April 27, 2011

Tuesday, April 26, 2011

Channeling Malthus



Jeremy Grantham,

"Time To Wake Up:
Days of Abundant Resources and Falling Prices
Are Over Forever"

[excerpt:]


"Any improvement at all in lifestyle for our grandchildren will take much more thoughtful behavior from political leaders and more restraint from everyone. Rapid growth is not ours by divine right; it is not even mathematically possible over a sustained period. Our goal should be to get everyone out of abject poverty, even if it necessitates some income redistribution. Because we have way overstepped sustainable levels, the greatest challenge will be in redesigning lifestyles to emphasize quality of life while quantitatively reducing our demand levels."

Quarterly investment letter viewable here.


Sunday, April 24, 2011

Quote for the Week, Apr. 24-30, 2011


By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. . . . The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
--John Maynard Keynes


Monday, April 18, 2011

A Small Minority Lives Large in the U.S.



Joseph E. Stiglitz,

"Of the 1%, By the 1%, For the 1%"

[excerpt:]


"The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably... All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow."


Complete commentary viewable at VanityFair.com.


Quote for the Week, Apr. 17-23, 2011


More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.
--Woody Allen


Wednesday, April 13, 2011

Spending Cuts? You Gotta Be Kidding!



David Stockman,


[excerpt:]


The $39 billion spending-cut deal reached by Washington last Friday night...fairly oozes with cynicism, gimmicks and voodoo accounting...[and] boils down to the following pathetic truth: The US government is currently borrowing 43 cents on every dollar it spends, meaning that it is issuing about $6 billion of new Treasury debt every single business day. During the balance of FY 2011, this allegedly largest spending cut in history will not eliminate one day’s worth of new national debt!...

The trillions in new bonds issued by Uncle Sam in recent years have not been financed honestly out of the peoples’ savings -- either here or abroad. Instead, they have been absorbed by the Fed and its chain of monetary roach motels: foreign central banks where the bonds go in, but never come out. In fact, upwards of $4.5 trillion, or 50%, of all the publicly held debt every issued by the US treasury is now held by central banks and has been bought and paid for with printing-press money.

Complete commentary viewable here.


Tuesday, April 12, 2011

Secessionists Take Fort Sumter




"Of all the trials I have had since I came here," Abraham Lincoln wrote to a friend during his first term as President, "none begin to compare with those I had between the inauguration and the fall of Fort Sumpter [sic]. They were so great that could I have anticipated them, I would not have believed it possible to survive them."

Lincoln got the bad news the morning after his inauguration. There was no Oval Office in 1861, no West Wing. The President's office was just down the hall from his second-floor bedroom in the White House. Settling in for his first day on the job, Lincoln found on his desk a letter from Major Robert Anderson, reporting from Fort Sumter in Charleston Harbor that his garrison was running out of supplies. Attached to the letter was a gloomy appraisal from the General-in-Chief, Winfield Scott, who saw "no alternative but a surrender." Lincoln might have been forgiven for wanting to go back to bed.

Scott's assessment carried considerable weight, as did his massive 6-foot-5-inch frame. Nicknamed "Old Fuss and Feathers," Scott [right] had a dossier a mile long. His Army service dated back to the War 0f 1812. For all kinds of trouble, he had gotten the call. President Andrew Jackson dispatched him (with "my carte blanche") to Charleston the first time South Carolina threatened to secede, during the Nullification Crisis of 1832-3. Scott had commands in the Black Hawk and Second Seminole Wars. In 1838 he was the guy in charge of rounding up every last Cherokee in Georgia, Tennessee, and Alabama and marching the whole nation on the "Trail of Tears" to the far side of the Mississippi River. The year after that, he resolved a border dispute between Maine and New Brunswick in the so-called Aroostook War. During the Mexican-American War, he replicated the march of the 16th-century conquistador, Hernán Cortés, on Mexico City. He was nominated for President in 1852. He had been, like, everywhere.

Scott had implored Lincoln's predecessor, James Buchanan, to reinforce Fort Sumter--to no avail. Now it appeared too late, as the new Confederate Army was methodically positioning gun batteries along nearby shores for a possible attack. An early-January attempt to relieve Fort Sumter had already been turned away. The garrison was even more vulnerable now, surrounded by its very own Ring of Fire, than it had been then.

[click to enlarge]

As Lincoln considered Anderson's letter, literally hundreds of people were lined up in the hall, down the stairs, and out the White House doors. Most were waiting for a chance to speak to the President, to ask for a government job either here in Washington or back home in the local post office. Lincoln felt duty-bound to hear each one out. During the days and weeks ahead, he would be criticized for allotting time to the dispensation of patronage while more pressing matters waited. The New York Times editorialized that the President had better things to do "than to fritter away the priceless opportunities of the Presidency in listening to the appeals of competing office-hunters."

Also worried about the President's priorities was his Secretary of State, William Henry Seward. As the congressional leader of the Republican Party during Buchanan's last months in office, Seward had tactfully managed the secession crisis in Lincoln's absence. As much as anyone, he knew of the delicate work still to be done. But Lincoln's focus was drifting. He was bogged down micromanaging insignificant details, Seward told Massachusetts congressman Charles Francis Adams, with "little application to great ideas." Adams heard the same complaint from Seward's nemesis, Senator Charles Sumner, the self-appointed conscience of the Republican Party. Lincoln, Adams wrote back to Sumner, needed help. "The man is not equal to the hour."

Lincoln was still an unknown quantity in Washington. Many pundits (yes, they had those back then) wondered if it was Seward, and not Lincoln, who was really running the show. Seward's predecessor at the State Department, Pennsylvania's Jeremiah Black, suspected as much. Lincoln himself was, in Black's view, "very small potatoes and few in a hill." We need not consult with spud-farm folk in Aroostook County to confirm that Black's remark was not a compliment.

Seward considered Fort Sumter a no-brainer. He and General Scott were of one mind: evacuate. True, Northern hardliners would not be happy with the concession. But Seward was confident that public opinion would eventually blame Buchanan, not Lincoln, who merely inherited the problem. Better to cut losses now. The political cost would be negligible; even Sumner was resigned. Besides, there was still one other Southern fort in federal hands. Fort Pickens, off the Gulf coast of Florida, could be more easily reinforced and defended. It seemed the logical choice for making a political statement.

But the President was taking his time thinking it over. Scott was asked what it would take to reinforce Fort Sumter. The general came back with an estimate of 25,000 troops, most of them volunteers yet to be recruited, plus a hefty flotilla to get them in. It would take at least six months to put the pieces together. Anderson had provisions for no more than six weeks. Planning for Operation Palmetto Storm should have begun under Old Buck's watch.

Seward was not about to let an eighty-man garrison foil his efforts to hold the remaining 27 states together. It was likely Seward who leaked the latest intel to Illinois Senator Stephen Douglas [left]. This was the same Stephen Douglas who had fought back Lincoln's challenge for his Senate seat in 1858--and the man who might now have been President had the Democratic Party not split the year before. Douglas shared Seward's fervent desire that the Union be preserved at almost any cost. The two were often linked in growing speculation about a new party, composed of moderate Democrats and Republicans, that might guide the country between ideological extremes.

On March 6, Douglas took the Senate floor to applaud Lincoln's inaugural address, which he construed as a "peace offering" to the Southern states. The next day he remarked that the likely evacuation of Fort Sumter would help further relieve tensions. The other Senators pricked up their ears. Say again? Douglas later denied that he had any inside information, only that he was putting two and two together. In fact Lincoln had yet to decide what to do about Fort Sumter. It would be another week before he would poll his Cabinet on the issue.

When he did so, on March 15, almost all in the Cabinet favored evacuation. Seward thought it was a done deal and began working his Southern contacts. Among those were delegates to Virginia's secession convention, which had been deliberating for the past month. Seward figured that news of a federal stand-down in Charleston would help unionists to prevail in Richmond. At the same time he gave a back-channel signal to the new Confederate government in Montgomery, Alabama, that Fort Sumter was to be evacuated within five days. There would be no need for the Confederate army to apply force. So cool your jets.

Seward was doing all this on his own. He had been forbidden by Lincoln from communicating directly with the three Confederate commissioners who had arrived in Washington earlier in the month to negotiate several issues, the disposition of Forts Sumter and Pickens among them. Lincoln did not then, nor would he ever, recognize the Confederacy as a separate nation. Jefferson Davis and his minions were rebels, pure and simple. With formal diplomacy out of the question, Seward enlisted a Supreme Court justice, John Campbell of Alabama, as a go-between. Somehow, Seward would keep talks alive. Talking was what he did best. The man could talk the hind legs off a mule, and he was determined to mediate a peaceful solution.

But he could not budge Lincoln, who seemed strangely paralyzed. More information was needed. Lincoln sent three emissaries to Charleston, one to sound out Major Anderson discreetly about a possible relief effort, one to sweet-talk Governor Francis Pickens about a possible evacuation, and one (Stephen Hurlbut, a Charleston native) just to hang with the local folks to take their temperature. The report back was not encouraging. "Separate nationality is a fixed fact," Hurlbut advised. Forget reunification anytime soon.

The stress was getting to Lincoln. There were sleepless nights, uncharacteristic outbursts of temper, and migraines that laid him flat. Even the unflappable Seward was starting to feel it. In a letter to his wife back home in Auburn, New York, Seward complained that he was "the only
hopeful, calm, conciliatory person...Mad men North, and mad men South, are working together to produce a dissolution of the Union, by civil war." On April 1 Seward penned a bizarre memo to Lincoln suggesting that the U.S. provoke a war with a European nation, say Spain or France. A common enemy just might restore the American brotherhood.

Unionists in Virginia were still holding out for brotherhood. On April 4 the Richmond convention rejected by 88 to 45 a motion to proceed with a popular secession vote. Virginia was still in, but her loyalty was about to be tested. Regarding Fort Sumter, Lincoln had finally settled on a half-measure, mindless of the Confederate conviction that one could be no more half-evacuated than half-pregnant. He would neither evacuate Fort Sumter nor reinforce it. He merely wished to feed the troops already there. He even sent a heads-up to Governor Pickens that a peaceful relief mission would soon be on its way to Charleston Harbor. No harm, no foul. Seward, whose credibility with the Confederates was now compromised by Lincoln's decision, telegraphed Judge Campbell: "Faith as to Sumner fully kept; wait and see..."

Seward's idea of a half-measure was to keep Fort Pickens and let Fort Sumter go. With Lincoln's blessing, Seward began making the arrangements to relieve Fort Pickens. He requisitioned the Powhatan, a sidewheel steam frigate manned by 300 sailors and armed with heavy guns. Concerned about security, Seward withheld details of the operation from Secretary of the Navy Gideon Welles. Trouble was, Welles was counting on the Powhatan to cover the tugboats bringing supplies to Fort Sumter. In fact, the President had already signed orders for that deployment. When Seward brought the orders for the Pensacola mission, Lincoln signed those, too. The Powhatan now had the unenviable duty of being in two places at once.

Maybe Lincoln thought he was robo-signing paychecks. In any event, the Powhatan was on its way to Florida before the slip-up was discovered. Lincoln decided to have the vessel rerouted to Charleston. Seward made one last pitch to prioritize Fort Pickens, but Lincoln was adamant. Soon the Powhatan was overtaken and the change-order handed to the ship's commander, Lt. David Porter. But the telegram had been signed by Seward, not Lincoln. Since his original orders had been signed by Lincoln, Porter figured that he had better obey the bigger boss. He put Charleston in his rearview, leaving Major Anderson to wonder, Who's on first?

Up until now Fort Sumter had been allowed deliveries from the mainland of both mail and fresh food. But once Governor Pickens got Lincoln's message, those were cut off. The Confederate Cabinet in Montgomery debated its next move. The new Secretary of State, Robert Toombs of Georgia, cautioned against force. An attack on Fort Sumter would be "suicide, murder, and will lose us every friend at the North...It is unnecessary; it puts us in the wrong; it is fatal." Ignoring the warning, President Davis sent orders to the on-site commander, General P.G.T. Beauregard, to issue an ultimatum to the federal garrison.

On April 11 Major Anderson refused a demand to surrender. Game face on, Governor Pickens rallied the home folks for the looming confrontation. "We will meet the invader," Pickens promised, "and the God of Battle must decide the issue between the hirelings of Abolition hate and Northern tyranny, and the people of South Carolina defending their freedom and their homes." At 4:30 a.m. on the 12th, the bombardment of Fort Sumter began. The beseiged garrison began returning fire after daybreak.

The fort's greatest weakness proved to be not the outer masonry walls, but the wooden structures within, the barracks and officer quarters. They were soon targeted by Confederate batteries with "hot shot," cannonballs that had been zapped in the microwave prior to discharge. These incendiary bombs were more dangerous than the explosive artillery shells, as the fires they started threatened to set off gunpowder magazines. Smoke from the fires impaired visibility and nearly asphyxiated the defenders.

After a bombardment lasting 34 hours, Anderson had had enough. He agreed to a ceasefire, relieved that he had not lost any of his men. Even that small consolation would soon evaporate. Prior to taking down the American flag, Anderson ordered a 100-cannon salute. Calamity struck halfway through, as often happens when boys play with matches, especially big boys with big matches. A premature discharge of round #47 sent a spark into a pile of cartridges, blasting loose masonry in all directions. One soldier died on the spot, another of his wounds three days later. Overwhelmed by the utter futility, Anderson halted the proceedings after fifty rounds.

If it had been Lincoln in charge, maybe we would have gotten the whole hundred.

The federals were allowed to take their flag and embark for home, while the locals watched from the waterfront. "The whole shore rang with the glad shouts of thousands," reported the Mercury. For Charleston, it was a monumental release after months of foreplay. Ever since the November election, the city had relished a continuous festival of gatherings, parades, speeches, salutes, toasts, banners and bonfires, the showing of arms and the raising of flags. London Times correspondent William Russell now observed "crowds of armed men singing and promenading the streets. The battle-blood running through their veins--that hot oxygen which is called 'the flush of victory' on the cheek; restaurants full, reveling in barrooms, club-rooms crowded, orgies and carousing..."

Wait, stop the orgies. This was a time for one more speech, and Governor Pickens gave it. "We have humbled the flag of the United States before the Palmetto and the Confederate," crowed Pickens. "There is no power on this earth shall ever lower from that fortress those flags, unless they be lowered and trailed in a sea of blood." Or, in later parlance, Bring it on.

Which is what Abraham Lincoln decided to do. On April 15 he sent out the call for 75,000 volunteers to serve 90-day enlistments, mission to be accomplished by summer's end. Virginia's soldiers reported for duty, but to the wrong side. Kentucky's, including the sons and grandsons of Senator John Crittenden, the would-be Compromiser, split up and reported to both sides. The fratricide had begun.

The Union's ranking professional, General Scott, was less sanguine than Lincoln. He figured that a civil war would take at least three years and 300,000 men. Physically unfit to command on a battlefield, Scott offered that duty to Robert E. Lee on April 17, but lost his man when Lee's home state of Virginia seceded on that very same day. Scott, unable to wring an instant victory from raw recruits, was put out to pasture, and Lincoln put away his jumpsuit. There would be no quick celebration, no media event. What lay ahead for the troops were four years of concentration camps, doomed frontal assaults, and summary executions. Followed by the political bloodletting and lynchings of Reconstruction. To no satisfactory end.

Sunday, April 10, 2011

Quote for the Week, Apr. 10-16, 2011


The rate of profit is always highest in the countries that are going fastest to ruin.
--Adam Smith


Tuesday, April 5, 2011

Bank of America Prodded (Again) by Regulators



BofA CEO Brian Moynihan tries to contain the damage.


Yesterday brought to light correspondence between the Securities and Exchange Commission and Bank of America regarding the latter's level of disclosure to investors of potential risks arising from defective home-mortgage loans made by the company in the go-go aughts. After reviewing the company's 10-K filing for 2009 and all of its 10-Q's for 2010, the SEC suggested in a series of letters that BofA was underestimating its exposure to possible "putbacks" and that it needed to sharpen its pencil in future filings. In January the company said that resolving the disputes might cost another $7 to $10 billion. Some industry analysts put the liabilities in the tens of billions.

Excerpt from an SEC letter to BofA:

we [staff at the SEC] note that for all recent historical periods, you [Bank of America] have increased the amount of the repurchase obligation for probable losses, including specifically for the GSEs, and that your chief executive officer [Moynihan] has made remarks in your third quarter conference call about the level of “normalized” expense for this obligation. Based on these factors, it would appear that there is a reasonable possibility that there will be losses in excess of the amounts accrued and that you have the ability to estimate amount, at least for some of your counterparties. Please tell us and revise your disclosure in future filings to provide the range of reasonably possible losses for all counterparties for which this disclosure is possible. [emphasis added]

In its response, BofA pleads the Fifth:

We [Bank of America] have reviewed our disclosure regarding the aggregate range of possible losses in excess of the accrued liability (if any) related to those matters where an estimate is possible. In particular, we have considered, as requested by the Staff, what additional information could be provided that would further enhance the understandability of the quantified information provided. We believe our existing disclosure appropriately addresses the requirements of applicable accounting and disclosure rules. We remain concerned that providing information in certain matters can be prejudicial to existing litigation. [emphasis added]

CEO Brain Moynihan brushed off the regulator's concerns when he boldly predicted on March 8 a return to "normalized" pre-tax earnings of $35 to $40 billion a year, possibly as soon as 2013. Moynihan's boast goosed his company's stock price by almost 5% on the day he made it (notice the second candlestick from the left in the chart below). But some analysts are skeptical. The stock has since given back 10%:


Will the bank ever see "normal" again? Patiently waiting to find out, the Maine Public Employees Retirement System continues to hold 2.5 million shares. I suggest that MainePERS portfolio managers review BofA's 2010 10-K, filed with the SEC in late February. Pay particular attention to pages 8-19, cataloging all the risks plaguing the company, as well as to pages 33-35, where management discusses risks stemming from its failing home-mortgage business. Then tell me again why we should be owning this company.


Monday, April 4, 2011

Where Are the Handcuffs?


CBS News catches up to mortgage fraud. Finally.





Sunday, April 3, 2011

Quote for the Week, Apr. 3-9, 2011


The rate of profit is always highest in the countries that are going fastest to ruin.
--Adam Smith


Friday, April 1, 2011

Sunday, March 27, 2011

Quote for the Week, Mar. 27-Apr. 2, 2011


It's always the good men who do the most harm in the world.
--Henry Adams


Monday, March 21, 2011

Secession Winter: The Adams Family


Henry Adams upon his graduation from Harvard, 1858


If you are the grandson of a U.S. President and the great-grandson of another, your early adulthood is all mapped out. You know, the usual. Go to Harvard, try not to mess up. Get your degree, then go to Europe for a couple of years of seasoning. Take some heat from the old man for slacking. Return to Boston, do a little job shadowing at a local law firm. When your father, Charles Francis Adams, Sr., gets re-elected to Congress for a third term in 1860, you follow along to Washington as his private secretary, now anointed as the next in a lengthening lineage of notable public servants. You are not yet 23 years of age.

So it went for Henry Adams, who later admitted to some ambivalence at this juncture in his life. "[I] had little to do," he would reveal in his autobiographical The Education of Henry Adams, "and knew not how to do it rightly." One thing Henry could do rightly was write. During his brief stay in Washington, he moonlighted as an anonymous correspondent for the Boston Advertiser. While his father served on the House "Committee of Thirty-Three," Henry observed from a unique vantage point the political jockeying going on in the lame-duck Congress prior to Abraham Lincoln's inauguration on March 4, 1861. He captured the proceedings in a commentary, "The Great Secession Winter of 1860-61," intended for publication in the Atlantic Monthly. Not quite satisfied with the piece, Henry mailed it instead to his brother, in whose desk drawer it sat unpublished for many years.

Henry Adams described the first days of January, 1861, as "the blackest our country had seen since the adoption of the constitution." President James Buchanan's aborted attempt to relieve Fort Sumter in Charleston Harbor ratcheted up concern among Southern secessionists that the federal government would resort to force to preserve the Union. So cotton-state militias preemptively seized federal forts and arsenals to defend against such a prospect. And why stop there? Washington's rumor mill foretold marches on the national capital itself, which was geographically engulfed by the Upper South. The buzz was all about a Slave Power conspiracy to disrupt either the February 11 Electoral College vote or, failing that, Lincoln's inauguration three weeks later.

Reliable information was hard to get. Southern postmasters withheld delivery of Northern newspapers, while reporters for those papers dared venture south only under cover. Death threats against both the sitting President and the President-elect were a dime a dozen. To make matters worse, the Cabinet official most responsible for national security was an avowed disunionist. War Secretary John B. Floyd (no relation to Johnny B. Goode) had been siphoning federal arms southward while neglecting Washington's defenses, earning the undying scorn of one Henry Adams. A "most unscrupulous tool," Adams wrote of Floyd. "Long known to be dishonest, and long suspected of being a traitor, his course during this winter would, in any other country or time, have cost him his life." Floyd resigned on December 29 when Buchanan refused to abandon Fort Sumter. For Adams, it was good riddance.

In the fractious atmosphere of that secession winter, when legislators were more heavily armed than the home guard, Henry Adams expected little from a U.S. Congress that was "too unwieldy and unreliable" for anything more than "further embroilment." (Thankfully, Congress has evolved in the 150 years since!) Adams saw profuse signs of sectional partisanship, few of effective leadership. "Of all the members of the Thirty-Sixth Congress," observed Adams, "three or four names only can be picked out, of men who grew during this winter."

One of those names was that of William Henry Seward. The senator from New York was coming off a tough year. In May, Seward had snatched defeat from the jaws of victory at the Republican national convention, yielding the presidential nomination to Lincoln on the third ballot. It had taken months for that hurt to go away. Seward nevertheless had pulled himself back into the saddle and campaigned vigorously for the Lincoln-Hamlin ticket. Arriving in Washington at year's end, Seward found a power vacuum. The President was exhausted, counting down the days until his retirement. The President-elect remained in Illinois, where he was besieged by office-seekers and celebrity-stalkers. Someone was needed to hold the government together. Seward stepped up.

As Henry Adams later described it, Seward was "the virtual ruler of this country" during the transition. Needing some eyes and ears in the outgoing administration, Seward found a source: the newly appointed Attorney General, Edwin Stanton, who would later serve in Lincoln's Cabinet as well. The no-nonsense Stanton leaked intelligence to Seward while stiffening Buchanan's stance vis-à-vis the secessionists. Seward also opened a pipeline to the Union's General-in-Chief, Winfield Scott, who was being largely ignored by Buchanan. Seward tasked Scott with ensuring Lincoln's safe arrival in the nation's capital in late February.

On Capitol Hill, Seward worked to keep peace talks going in both chambers. He served on the Senate's Committee of Thirteen, where the so-called Crittenden Compromise was on life support. When the Committee failed to report out a bill for debate, Seward switched his attention to the House. Using Charles Francis Adams as his proxy, he pushed before the Committee of Thirty-Three a series of resolutions, including a proposal for New Mexico's statehood, that effectively drove a wedge between border-state congressmen and their cotton-state colleagues. The aim was to keep the border states in the Union.

Seward saw that there was no single South. But inoculating a "soft" South against the secession virus would require some TLC from Northern moderates. The President-elect was not helping. A move on January 16 to bring the Crittenden Amendments to the Senate floor failed narrowly, 23 to 25, when Lincoln urged fellow Republicans to stay in line. "Mr. Lincoln is perfectly firm," reported Senator Charles Sumner of Massachusetts. "He says that the Republican party shall not with his assent become 'a mere sucked egg, all shell and no meat, the principle all sucked out.'"

Sumner, a fierce abolitionist, was well satisfied by the impasse. His Bay State constituents, in his judgment, "would see their state sink below the sea and become a sandbank before they would adopt propositions acknowledging property in man." While agreeing with Sumner in principle, Seward disagreed on tactics. Where Sumner was antagonistic, Seward was accommodative. "Each," noted Henry Adams drily, "was created only for exasperating the other."

Adams was partial to Seward. The policy of radicals like Sumner favored "violent destruction of the slave power" either by war or slave insurrection. "The policy of the other wing," as Adams wrote of moderates like Seward, "was to prevent a separation in order to keep the slave power more effectually under control, until its power for harm should be gradually exhausted, and its whole fabric gently and peacefully sapped away." Preserving a peaceful union, seen in this light, was not an abandonment of principle. It was simply another way toward the same end, the ultimate elimination of slavery, without the heavy human cost of a civil war.

Secessionist fever spiked when Buchanan tried to reinforce Fort Sumter. Mississippi delegates convened as the Star of the West steamed toward Charleston. Only 40% had been pledged to immediate separation at the time of the December election. But on January 9, the day that the Star was turned away at the harbor entrance, Mississippi's convention adopted a secession ordinance by a majority of 85%. The next day Florida's convention voted 62-7 to secede. The day after that, Alabama went out, 61-39.

On January 16, all eyes were on Georgia as her convention got under way. Georgia was considered a crucial cornerstone for any new breakaway republic. In fact, Florida's convention had paused to consider a motion to delay its secession vote until after Georgia's, a motion that had fallen short by just five votes. Similarly, a motion before Alabama's convention to wait for a pan-Southern convention in Nashville had also fallen five votes short. So the campaign for regional secession was not without its challenges. Georgia would be a critical test because of strong unionist sentiment there.

Speaking eloquently against disunion was a diminutive ex-congressman, Alexander Stephens [right]. Stephens had served for eight terms in the U.S. House of Representatives, but, dismayed at the increasing polarization in Congress, had decided not to run for re-election in 1858. At the convention, he described the United States as a leaky vessel that could be fixed. The Republicans were not yet a majority party in Washington, he pointed out, and would have to submit to the decades-old tradition of sectional compromise. Before seceding, Georgia might try issuing terms to Congress first. A motion to that effect failed 130-166. After that, the separatist impulse picked up steam. On January 19, Georgia voted 208-89 to secede.

Stephens was one of the 89 nays. Even after the final vote, Stephens held out hope that Georgia's departure from the Union would be only temporary. "Two-thirds at least of those who voted for the Ordinance of Secession," he insisted, "did so, I have but little doubt, with a view to a more certain Re-formation of the Union." For now, Stephens would go along with his fellow Georgians. Within a month he would be sworn in as the Vice-President of the new Confederate States of America.

The idea of a peaceful "re-formation" was gaining currency in many parts of the country. Different regions had different ideas of how to shuffle the deck. Cranky Southerners could be persuaded to stay in the Union, for instance, if those damned New Englanders would just go, just as they had threatened to do during the War of 1812. And take Ohio with you, with all those transplanted New Englanders in the Western Reserve counties. Uppity Midwestern states were free to leave as well. Expatriate the abolitionists, and all would be sweet.

Abolitionists like Sumner were not sorry to see the cotton states go. The United States could be reconfigured with a little northward expansion into lower Canada, another 50-year-old idea. By the same token, the Gulf Coast states, already launching pads for filibustering expeditions to points south, fantasized about consolidating a new Caribbean slave empire. The border states caught in the middle visualized their own slice of North America, a Mississippi Valley confederacy that could annex old states from the lower North and the Upper South as allegiances continued to shift. The admission on January 29 of Kansas as the 34th state was just the latest reminder that the United States remained a protean mass with plastic boundaries and a destiny still manifesting.

As January turned to February, Seward's efforts at damage control seemed to be bearing fruit. The War Department had just received a message from the commander at Fort Sumter, Major Robert Anderson, who was keeping a low profile to avoid hostilities. Anderson was prepared to sit tight for the time being without reinforcements. "I do hope that no attempt will be made by our friends to throw supplies in," the major advised. "Their doing so would do more harm than good." Back in Washington, a bill was introduced in the Senate on February 3 to submit the proposed Crittenden Compromise to a national referendum, which would buy time and possibly produce an outcome binding the nation back together again.

February 4 saw several important developments. In Montgomery, Alabama, delegations from the seceding states (now seven in number, as Louisiana and Texas had just voted) met to discuss forming a new government. But in Virginia, holding elections for its own convention, secessionists found themselves in the minority. Of the 152 delegates chosen, 122 were opposed to immediate secession. Furthermore, Virginia's voters insisted, by a better than 2-to-1 margin, on popular ratification of any later action proposed by the convention. Hitherto, only Texas had allowed a popular vote on secession.

Also on the 4th, delegates from 21 states arrived in Washington for a peace convention, conceived by former President John Tyler of Virginia and heartily endorsed by Seward. This would be one last attempt to resolve sectional differences without disunion. Three weeks of negotiations brought the conferees essentially back to the Crittenden Plan, which would not satisfy Republicans because it did not bar slavery in all new territories. The stalemate frustrated Tyler, who complained that Washington suffered from "an atmosphere where lunacy prevails." Plus ça change.

Seward's reaction to the gridlock? No problem. His job was simply to temporize--to keep a lid on things until his boss could get to town. Still, he had to keep Southern unionists at the table. With the Peace Convention grinding to a halt, Seward chose to revive a constitutional amendment that he had originally offered to the Senate's Committee of Thirteen, an amendment with enough Republican support to stand a chance of passage. Seward handed the amendment off to Ohio congressman Thomas Corwin, who introduced it in the House of Representatives. It read as follows:

No amendment shall be made to the Constitution which will authorize or give to Congress the power to abolish or interfere, within any State, with the domestic institutions thereof, including that of persons held to labor or service by the laws of said State.

The amendment avoided the nettlesome issue of what to do about slavery in the territories. But it protected slavery in the existing states. On February 28, the House approved the Corwin Amendment, 133-65. Two days later the Senate did the same, 24-12, thus effectively sending it out to the states for ratification as a new Thirteenth Amendment.

By now Lincoln was safely in Washington. Alerted by General Scott to a possible assassination plot, Lincoln had altered his travel plans, arriving in the capital city on a night train from Harrisburg, Pennsylvania, to avoid public notice. Seward met Lincoln at his hotel early the next morning for breakfast and was at his side frequently during the next several days, introducing him to the town's movers and shakers. Seward's last major transition task was at hand; that was to help Lincoln fine-tune his inaugural address.

Lincoln, during a long whistle-stop tour from Springfield, Illinois, to Harrisburg, had broken a public silence dating all the way back to the previous year's Republican convention in Chicago. His prepared speeches and off-the-cuff remarks all along his itinerary had offered new clues to his latest thinking on the national crisis. To Seward's dismay, Lincoln had signaled neither a full appreciation of secessionist sentiment in the South nor any aversion to using force to recover federal property. Perusing a draft of Lincoln's inaugural address, Seward found more of the same.

Seward considered Lincoln's tone too bellicose. He spent hours working up a long list of suggested revisions to make the final product more conciliatory toward the South. Lincoln agreed to delete references to the hard-line Chicago platform. A pledge to recover seized forts and arsenals was narrowed to one merely protecting properties still in federal possession. Referring to both the seizures and secession ordinances, the word "treasonable" was replaced with the more palatable "revolutionary." Particularly important to Seward, an endorsement of the Corwin Amendment was added. Lastly, Seward offered some prose to make the ending less confrontational--and more evocative of patriotic sentiments shared across all regions, the oft-quoted "mystic chords."

All during the night before Inauguration Day, visitors walked the streets of Washington simply because there were not enough beds in the city. Dawn unveiled the heavy security that General Scott had put in place to deal with the crush of spectators. As Lincoln took the oath of office below the partially completed Capitol dome, Seward could take some satisfaction in successfully getting the new President to exactly this point. For one thing, Lincoln was not pushing up daisies, an accomplishment in and of itself. And the national government was still in place, as per Seward's mantra during the past several months: "The Government can be saved, if not betrayed before the Fourth of March."

Things were looking up. All was quiet in Charleston Harbor. Secessionists were getting stonewalled in the Upper South. Maryland, Delaware, and Kentucky did not even bother with conventions. Missouri's convention nixed secession, 89-1. Mid-February popular referenda in North Carolina and Tennessee had rejected conventions. The Arkansas convention adjourned after approving an August referendum. In sum, the Confederacy had not grown to a critical mass. Henry Adams saluted Seward's campaign as "a fight which might go down to history as one of the wonders of statesmanship."

Unfortunately, Lincoln's first full day on the job began with a sudden case of manure-meeting-fan. Word came from Fort Sumter that "provisions would be exhausted" before any expedition could bring relief. The new President had just promised the day before to "hold, occupy and possess." What now? Was there a way to avoid war on the one hand, humiliation on the other?

The Capitol on March 4, 1861


Sunday, March 20, 2011

Quote for the Week, Mar. 20-26, 2011


June 3. Cold Harbor. I was killed.
--diary entry of a doomed Union soldier, written the night before, June 2, 1864


Saturday, March 19, 2011

TARP Scorecard



For an update on the recovery of bailout dough, go here.


Monday, March 14, 2011

Quote for the Week, Mar. 13-19, 2011


Start every day off with a smile and get it over with.
--W.C. Fields


Friday, March 11, 2011

Secession Winter: The Forts




On the evening of December 20, 1860, the city of Charleston celebrated long past the curfew bells ushering blacks off the streets. Observing the commotion, James L. Petigru asked where the fire was. Reminded that his home state of South Carolina had just declared itself once again a sovereign state, Petigru issued a solemn warning. "I tell you there is a fire," he insisted. "They have set a burning torch to the temple of constitutional liberty, and please God, we shall have no more peace forever."

Back in the nation's capital, moderates of both major parties were working industriously to prove Petigru wrong. Union and peace, they hoped, would both prevail. As to the former, South Carolinians were past the point of compromise. Preserving the latter, in their view, required the withdrawal of all federal personnel from military installations located anywhere within their state. Soon after adoption of the ordinance of secession, the governor sent three commissioners to Washington to press this demand upon President James Buchanan.


The installations at issue were forts and arsenals in and around Charleston. A skeletal force of 74, half noncombatants, occupied Fort Moultrie near the entrance to the harbor. In command was Major Robert Anderson of Kentucky, a former slaveowner. Anderson had been contemplating retirement from the Army just a month earlier, but got the Charleston appointment instead when his superiors decided that his Southern sympathies would help appease the locals. No sooner had he arrived at his new post than he requisitioned several cases of Tums [notice the right hand in the photo, below]. The next six months would prove unsettling.

For one thing, Anderson did not have enough troops to secure all of Charleston's forts. For another, one month into his command the civilians went from being friendlies to being hostiles. Even before the official act of secession, Anderson had requested reinforcements. But President Buchanan, anxious not to inflame the situation, had held back. Meanwhile, as we have seen, Buchanan's Secretary of War was dealing arms to the state militia. Thanks, boss, Anderson thought to himself.

At the time of the secession celebration, Anderson's orders were somewhat vague. He was to play defense only, but was allowed some discretion as to where exactly to position himself. Fort Moultrie, situated on a peninsula, seemed a poor choice. Wind had blown sand so high up against the outer walls that the neighbor's cows could just walk right on up and over. Sand dunes just to the east exceeded the walls in elevation, which would enable attackers to shoot down into the fort. Nearby dwellings would provide them additional cover. And the fort's interior structures, made of wood, could be easily set ablaze. Sizing up all these deficiencies, Major Anderson could think only of that Southwest Airlines commercial.
Wanna get away?

Fort Sumter, a recently constructed island fortress across the harbor's main channel, was sitting empty. Anderson figured it made
beaucoup sense to move his contingent there, which he did under the cover of darkness on the night of December 26, but not before spiking Moultrie's heavy guns. On the morning of the 27th, South Carolinians were furious. Again. They thought they had extracted a promise from Buchanan to freeze all deployments pending negotiations. Anderson's cross-channel move, in their minds, was a double-cross. Charleston's newspapers had a field day. The Courier called Anderson's switcheroo a "gross breach of faith" amounting to an act of war. The Mercury blared that "the holding of Fort Sumter by United States troops was an invasion of South Carolina."

South Carolina retaliated during the next several days by seizing all federal properties in the area except Fort Sumter. Included were the now-vacated Fort Moultrie, Fort Johnson, Castle Pinckney, the U.S. Custom House, and the U.S. Arsenal, containing over 20,000 firearms. At the same time South Carolina's commissioners in Washington demanded that Anderson be ordered to return to Fort Moultrie, a move tantamount to surrender. Conciliatory though he had been up until this point, Buchanan was not about to relinquish all federal authority in South Carolina. On December 31, he informed the commissioners that Anderson would stay put at Fort Sumter.

More alarming to the commissioners were rumors in Washington on New Year's Day, 1861, that Buchanan would send reinforcements to Anderson's garrison at Fort Sumter, an even more egregious departure from the status quo. The commissioners phoned home, and the news was relayed to Georgia Governor Joseph Brown. Although South Carolina was the only state to have seceded at this point, Georgia was thinking about it. Elections for a secession convention were set to take place the very next day.

On the political front, Georgia's Robert Toombs [right], serving on the Senate's Committee of Thirteen, had warned the folks back home that negotiations for a national compromise were not going well. In a December 23 telegram, Toombs had described the Committee's proceedings as "controlled by the Black Republicans, who only seek to amuse you with delusive hope until your election, that you may defeat the friends of secession." The Committee's Republicans, urged by President-elect Abraham Lincoln to hold firm, were dead set against any amendment or resolution that would permit slavery in any U.S. territory, then or thereafter. "All further looking to the North for security for your constitutional rights in the Union," Toombs had concluded, "ought to be instantly abandoned." On December 31, the Committee tabled the Crittenden Compromise.

Now Governor Brown had a decision to make. Georgia had a federal fort of her own to worry about, Fort Pulaski, situated on an island near the mouth of the Savannah River. Forts Sumter and Pulaski, along with Fort Pickens off Pensacola, Florida, comprised a troika of million-dollar, brick-built, and currently unmanned island fortresses, engineered since the War of 1812 to protect major ports in the Deep South. There was a distinct possibility that the feds, newly ensconced at Fort Sumter, might decide to occupy Fort Pulaski as well. Georgians decided to get there first.

On January 3, the day after Georgia's elections, 125 volunteers entered Fort Pulaski unopposed. The fort secured, Brown secretly telegraphed the Gulf State governors, suggesting that they undertake a similar course of action. Since all of these states were still officially within the Union, the blossoming conspiracy could have been viewed as treason. Meaning this: if the governors were going to start taking forts, they had better confiscate all the hangin' rope as well--and save their necks from a little friction burn. During the next eleven days, eight forts and three arsenals containing 75,000 rifles were seized by state militias with zero loss of life on either side. The only unfinished business was at Fort Pickens, where an 82-man federal garrison took up residence after abandoning their mainland barracks at Pensacola.

Helping to accelerate events was Buchanan's decision to send help to Major Anderson at Fort Sumter. The War Department chartered a civilian steamship, the Star of the West, which left New York Harbor on January 5. Below decks were 200 soldiers, one hundred rifles, three months' worth of Hamburger Helper, and the beef to go with it. The vessel arrived just outside of Charleston's inner harbor after dark on January 8. Early the next morning, the Star began to approach Fort Sumter. Her movements were observed from nearby Morris Island [find Fort Wagner on the map, above] by cadets from The Citadel, who might have been taking their spring break early that year. They entertained themselves by lobbing a few shells across the Star's bow. The Star, in no way fitted to engage a bunch of college yahoos, turned around and sailed home.

Technically, those were the first shots of the Civil War. There was no physical damage, but the incident dealt a serious setback to the Union cause. Not all Southern states were in agreement as to when or whether secession should take place. But they were generally supportive of each state's
right to secede. They would be more likely to band together if the federal government were to add armed force to the equation. Buchanan had taken a needless risk with no effectual result at precisely the time that Deep South states were lining up their secession conventions.

Would southern Unionists be disarmed by the President's provocation?