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Posts Tagged ‘banking

“Results aside, the ability to have complete faith in another human being is one of the finest qualities a person can possess”*…

 

sfburning

Downtown San Francisco ablaze after the 1906 earthquake, from the slope of Nob Hill

 

Amadeo Peter Giannini was born in San Jose, California in 1870. The son of Italian immigrants had an outsized personality and unlimited faith in the American dream.

Giannini began by selling fruits and vegetables from a horse-drawn wagon. But he was made for bigger things. At age 34, he launched a small bank in the Italian neighborhood of North Beach, San Francisco. At the time, big banks lent only to large businesses, handled deposits of the wealthy, and frowned on aggressive advertising.

The novice financier knocked on doors and buttonholed people on the street. He persuaded “unbanked” immigrants that gold and silver coins were safer in vaults than under mattresses. Moreover, the money would earn interest at his “Bank of Italy.”

bankof italy

On the morning of April 18, 1906, a massive earthquake hit San Francisco. The ensuing fires burned down the large banks. Their superheated metal vaults could not be opened for weeks—lest the cash and paper records catch fire when oxygen rushed in.

As flames threatened his one-room bank, Giannini spirited $80,000 in coins out of town. He hid the precious metal under crates of oranges and steered his wagons past gangs of thugs and looters in the streets.

As other banks struggled to recover, Giannini made headlines by setting up a makeshift bank on a North Beach wharf. He extended loans to beleaguered residents “on a handshake” and helped revive the city.

APG

The innovative bank welcomed small borrowers who might otherwise have to use high-cost loan sharks. Most banks at the time regarded people with modest incomes as credit risks not worth the paperwork. But experience had taught Giannini otherwise: that working class people were no less likely to pay their debts than the wealthy.

Seeking more customers, the former produce salesman returned to his old haunts—the fertile valleys of California. He “walked in rows beside farmers engaged in plowing” to explain how bank branches make credit cheaper and more reliable. Town by town, he built the first statewide branching system in the nation.

On November 1, 1930, the Bank of Italy in San Francisco changed its name to Bank of America. The bank today has the same national bank charter number as Giannini’s old bank— #13044.

When A.P. Giannini died in 1949, the former single-teller office in North Beach claimed more than 500 branches and $6 billion in assets. It was then the largest bank in the world…

How a humane response to a community tragedy launched what became the biggest bank in the world: “Bank of America: The Humble Beginnings of a Large Bank.”

* Haruki Murakami, The Wind-Up Bird Chronicle

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As we learn from our elders, we might recall that it was on this date in 2006 that the first news stories based on the Panama Papers were published.  A cache of 11.5 million leaked documents that detailed financial and attorney–client information for more than 214,488 offshore entities, all from Panamanian law firm and corporate service provider Mossack Fonseca, the Panama Papers chronicled tax evasion, money laundering and fraud involving 12 current or former world leaders; 128 other public officials and politicians; and hundreds of celebrities, businessmen, and other wealthy individuals from over 200 countries.

Panama_papers_sz_chat

An online chat between Süddeutsche Zeitung reporter Bastian Obermayer and anonymous source John Doe

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“There are people who have money and people who are rich”*…

 

goldfinger

Every January, to coincide with the World Economic Forum in Davos, Oxfam tells us how much richer the world’s richest people have got. In 2016, their report showed that the wealthiest 62 individuals owned the same amount as the bottom half of the world’s population. This year, that number had dropped to 42: three-and-half-dozen people with as much stuff as three-and-a-half billion.

This yearly ritual has become part of the news cycle, and the inequality it exposes has ceased to shock us. The very rich getting very much richer is now part of life, like the procession of the seasons. But we should be extremely concerned: their increased wealth gives them ever-greater control of our politics and of our media. Countries that were once democracies are becoming plutocracies; plutocracies are becoming oligarchies; oligarchies are becoming kleptocracies.

Things were not always this way. In the years after the second world war, the trend was in the opposite direction: the poor were getting richer; we were all getting more equal. To understand how and why that changed, we need to go back to the dying days of the conflict, to a resort in New Hampshire, where a group of economists set out to secure humanity’s future.

This is the story of how their dream failed and how a London banker’s bright idea broke the world…

The true story of how the City of London invented offshore banking – and set the rich free:  “The real Goldfinger: the London banker who broke the world.”

* Coco Chanel

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As we agree that “fair’s fair,” we might spare a thought for David Ricardo; he died on this date in 1823.  A political economist, he developed a a labor theory of value in his seminal Principles of Political Economy and Taxation, published in 1817; he was instrumental in the development of theories of rent, wages, and profits; and at a time of mercantilist sentiment, he introduced the theory of competitive advance and advocated free trade.  Indeed, most economists rank Ricardo as the second most influential economic thinker working before the 20th century, after Adam Smith.

220px-Portrait_of_David_Ricardo_by_Thomas_Phillips source

 

Written by LW

September 11, 2018 at 1:01 am

“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it”*…

 

As you grow up and experience more of the ups and downs of the economy, you will notice a piece of mindbending hypocrisy: during the good times, bankers, entrepreneurs—rich people in general—tend to be against government. They criticize it as a “brake on development,” a “parasite” feeding on the private sector through taxation, an “enemy of freedom and entrepreneurship.” The cleverer among them even go so far as to deny that government has any moral right, or duty, to serve society, by claiming that “there is no such thing as society—there are just individuals and families,” or “society is not well defined enough for the state to be able to serve it.” And yet, when a crash occurs that is brought on by their actions, those who have delivered the fieriest of speeches vehemently opposing substantial government intervention in the economy suddenly demand the state’s aid. “Where is the government when we need it?” they yelp.

This is not a new contradiction[**]…

Yannis Varoufakis, the motorcycle-riding economist who served as Greece’s Minister of Finance through the depths of their recent financial crisis, offers some plain speaking on economics in general and banking in particular: “A letter to my daughter about the black magic of banking.”

See also this.

* John Kenneth Galbraith, Money: Whence it came, where it went

** Indeed: “Since those who rule in the city do so because they own a lot, I suppose they’re unwilling to enact laws to prevent young people who’ve had no discipline from spending and wasting their wealth, so that by making loans to them, secured by the young people’s property, and then calling those loans in, they themselves become even richer and more honored.”   – Plato, The Republic

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As we contemplate capital, we might send neoliberal birthday greetings to Maurice Félix Charles Allais; he was born on this date in 1911.  He won the 1988 Nobel Prize in Economics “for his pioneering contributions to the theory of markets and efficient utilization of resources.”  Indeed, the Nobel Committee suggested that Allais might be considered (with Paul Samuelson and John Hicks) ” the principal architect of the neoclassical synthesis” (in large measure because they formalized the notion of self-regulating markets).

Samuelson said “had Allais earliest writings been in English, a generation of economic theory would have taken a different course” and the Nobel Prize should have been awarded to him much earlier.  John Maynard Keynes, whose ideas the trio very selectively used, thought that Allais and the emerging neo-liberal idea were dangerously wrong.

 source

 

 

Written by LW

May 31, 2018 at 1:01 am

“Anyone who lives within their means suffers from a lack of imagination”*…

 

Modern Monetary Theory’s basic principle seems blindingly obvious: Under a fiat currency system, a government can print as much money as it likes. As long as country can mobilize the necessary real resources of labor, machinery, and raw materials, it can provide public services. Our fear of deficits, according to MMT, comes from a profound misunderstanding of the nature of money.

Every five-year-old understands money. It’s what you give the nice lady before she hands you the ice cream cone—an object with intrinsic value that can be redeemed for goods or services. Through the lens of Modern Monetary Theory, however, a dollar is nothing but a liability issued by the US government, which promises to accept it back in payment of taxes. The dollar in your pocket represents a debt owed you by the federal government. Money isn’t a lump of gold but rather an IOU.

This mildly metaphysical distinction ends up having huge practical consequences. It means the federal government, unlike you and me, can’t run out of cash. It can run out of things money can buy—which will drive up their price and be manifest in inflation—but it can’t run out of money. As Sam Levey, a graduate student in economics who tweets under the name Deficit Owls told me, “Macy’s can’t run out of Macy’s gift certificates.”

Especially for those who want the government to provide more services to citizens, this is a convincing argument, and one that can be understood by non-economists…

Everyone knows governments need to tax before they can spend. What Modern Monetary Theory presupposes is, maybe they don’t.  Offered for interest (and with no endorsement): “The Radical Theory That the Government Has Unlimited Money.”

* Oscar Wilde

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As we crank up the printing press, we might recall that it was on this date in 2009, several months into the Great Recession, President Barack Obama met with the CEOs of America’s 13 largest financial institutions to discuss a path out of the economic trough onto which the U.S. had descended.  Finding them suspicious of his new (Democratic) administration and worried that he would be less generous to their companies than President Bush and his administration had been, Obama opened by suggesting…

My administration is the only thing between you and the pitchforks… But you need to show that you get that this is a crisis and that everyone has to make some sacrifices…I’m not out there to go after you. I’m protecting you. But if I’m going to shield you from public and congressional anger, you have to give me something to work with on these issues of compensation. Help me help you Everybody has to pitch in. We’re all in this together.

The result was a series of compromises that survived the Obama Administration, but that are now being systematically undone under the Trump Administration.

See also “13 Bankers.”

Kenneth D. Lewis, the chief executive of Bank of America, with other bank executives outside the White House after the meeting with President Obama

source

 

Written by LW

March 27, 2018 at 1:01 am

“These days, the bigger the company, the less you can figure out what it does”*…

 

Late 19th-century Americans loved railroads, which seemed to eradicate time and space, moving goods and people more cheaply and more conveniently than ever before. And they feared railroads because in most of the country it was impossible to do business without them.

Businesses, and the republic itself, seemed to be at the mercy of the monopoly power of railroad corporations. American farmers, businessmen and consumers thought of competition as a way to ensure fairness in the marketplace. But with no real competitors over many routes, railroads could charge different rates to different customers. This power to decide economic winners and losers threatened not only individual businesses but also the conditions that sustained the republic.

That may sound familiar. As a historian of that first Gilded Age, I see parallels between the power of the railroads and today’s internet giants like Verizon and Comcast. The current regulators – the Federal Communications Commission’s Republican majority – and many of its critics both embrace a solution that 19th-century Americans tried and dismissed: market competition…

The current controversy about the monopolistic power of internet service providers echoes those concerns from the first Gilded Age. As anti-monopolists did in the 19th century, advocates of an open internet argue that regulation will advance competition by creating a level playing field for all comers, big and small, resulting in more innovation and better products. (There was even a radical, if short-lived, proposal to nationalize high-speed wireless service.)

However, no proposed regulations for an open internet address the existing power of either the service providers or the “Big Five” internet giants: Apple, Amazon, Facebook, Google and Microsoft. Like Standard Oil, they have the power to wring enormous advantages from the internet service providers, to the detriment of smaller competitors.

The most important element of the debate – both then and now – is not the particular regulations that are or are not enacted. What’s crucial is the wider concerns about the effects on society. The Gilded Age’s anti-monopolists had political and moral concerns, not economic ones. They believed, as many in the U.S. still do, that a democracy’s economy should be judged not only – nor even primarily – by its financial output. Rather, success is how well it sustains the ideals, values and engaged citizenship on which free societies depend.

When monopoly threatens something as fundamental as the free circulation of information and the equal access of citizens to technologies central to their daily life, the issues are no longer economic.

Stanford historian Richard White unpacks an important historical analogue; read it in full at “For tech giants, a cautionary tale from 19th century railroads on the limits of competition.”

[Image above: source]

* Michel Faber, The Book of Strange New Things

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As we wonder if The Invisible Hand is giving us the finger, we might recall that it was on this date in 1852 that Henry Wells and William G. Fargo joined with several other investors to launch their eponymously-named cross-country freight business.  The California gold rush had created an explosive new need, which Wells, Fargo and other “pony express” and stage lines leapt to meet.  It was after the Civil War, in 1866, when Wells, Fargo acquired many of their competitors, that it became the dominant supplier.  (Ever flexible, they adapted again three years later, when the transcontinental railroad was finished.)

From it’s earliest days, it also functioned as a bank, factoring the shipments of gold that it carried.  Indeed, when Wells, Fargo exited the freight business as a result of government nationalization of freight during World War I, the bank (which merged with Nevada National in the first of a series of “transformative transactions”) continued to operate as “Wells, Fargo,” as indeed it does (albeit under unrecognizably evolved ownership) today.

 source

 

Written by LW

March 18, 2018 at 1:01 am

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