Rivers have banks
Remember the Ganges
With ashes and hankies
And Boston has the Charles
With coeds and ivies
But while rivers have banks
Our nation has bankers
Who are bred with the Brahmins
And they give us tankers and cankers
While they hide in the Caymans
We seem to be focused on the scandalous behavior of today’s bankers with regard to being dismal stewards of wealth both at home and abroad. We have marveled at their seeming limitless incompetence and greed as though it were some historical anomaly. It is not. I observed banking close up in the late seventies and early eighties while working for one. That is when bankers chaffed under the rules that limited their grasp to banking while they pleaded for license to offer other stuff like investment products and services that were then largely limited to Trust Banking. Trust Banking was a wonderful excuse for slick bank operators in the northeast to squeeze vulnerable old widows by entertaining them in Florida and selling them questionable securities and planning advice in the winter. Of course, that was a minor scam compared to today’s derivative product schemes, but the roots were well watered and established. As for incompetence, the most salient example for me was the insatiable appetite Colonial Bank of Connecticut demonstrated for international lending. The bank had a well disciplined practice of presenting domestic loans to a loan committee that was responsible for seeing that loans were balanced by geography and by industry or business concentration. Lending to too many dry cleaners or department stores or car dealers could concentrate losses due to the vagaries of the economy or weather or fire, etc. In setting up 29 international bankers in London, however, those lessons were lost and the lending risk was concentrated not only on shipping, but on Greek Oil Tankers. Geography and industry related risks were essentially doubled up and no domestic loan committee reviewed the loans. When the recession came, the tanker “owners” simply anchored their ships in Athens harbor and walked away without a care about the debt. Colonial Bank was then taken over by Bank of Boston which itself was bought out by another bank and the fiasco rolled on. I once asked one of these senior professional bankers why they would spend hundreds of dollars in overtime labor to track down the explanation for a two dollar difference at close of business to balance the books when it would be so much cheaper to simply write off the two bucks or add it as found money. His response was that banking was “precise.” When I then asked how banking could be considered precise if the bank was out of balance in the first place, I did not get an answer.
Examples beyond my personal observation exist and I want to insert some thoughts that demonstrate one item in our national history through a well researched past that has been prelude to power and control anachronistic in our representative democracy. I commend the history Rising Tide by John M. Barry as a documented description of how bankers influenced the events surrounding the catastrophic Mississippi flood of 1927. Barry documents the engineering, politics and financing that controlled the Mississippi river. His book is consistently fascinating and occasionally alarming.
That 1927 flood cost the lives of several hundred Americans and was characterized with politics and scheming from every level of our republic. It was also an interesting stew of engineering and special interests as well as bad luck in weather. Banking, however was the item that will most remind us of today’s situation where bankers have chosen high risk over common sense or commonwealth in any sense of the words.
New Orleans lies near the exit of the Mississippi into the Gulf of Mexico, but there are parishes (counties) between the Big Easy and the sea. As the flood waters moved south along the general path of the big river, it wreaked destruction all along its path and the path itself was tortuous with excursions along the way that in one breech alone exceeded 90 miles east-west by 60 miles deep. The powers of New Orleans sought to remove even the slightest doubt that the river would overtop the levees of New Orleans Parish and they sought to dynamite the levees protecting Plaquemines and St. Bernard Parishes. They went to the Governor of Louisiana and to the President of the United States asking for authority to destroy the levees south of New Orleans and were met largely with indifference and light resistance at every level. They also went to the Secretary of Commerce who was put in charge of recovery activities by President Calvin Coolidge. You may remember Herbert Hoover who later became associated with laiszez faire control of banking. Hoover was Secretary of Commerce and Coolidge could not be bothered to visit the devastation despite repeated requests from most governors and the Congress. At that time, Hoover was known as a publicity hound; skilled at spin before it became a professional art form. He would ride that barge to the White House where it sunk a few years later.
If you are at all curious as to where the power of New Orleans centered, it was not with the democratically elected officials. It was the 27 or so major bankers of the city who, even then, had also been the social elite (Boston Club) of New Orleans who sponsored and supported the major krewes of Mardi Gras. Once they decided to dynamite the levees south of the city, it was only a matter of when and how much they had to pay in reparations. That is power. Most often, these bankers chose to remain anonymous as long as they were able to present their sons and daughters as king or queen of Mardi Gras. That was an honor bestowed on few and cherished by all. It required unmentionable wealth to execute the duties of Mardi Gras, especially for the secret krewe of Comus. It was the social and economically privileged that controlled the major krewes, the banks, the politics and the levee. He who controls the levee controls the world of New Orleans including the life and death of every citizen. It is parades and parties that precede Lent each year for the masses, but it is a perennial party for the bankers of New Orleans. Barry points out that a ball gown for the queen of Comus or perhaps Rex would typically far exceed the annual salary for the governor of Louisiana.
I know that some readers may feel that the impact of privilege is overvalued, but as we fast-forward to current events in banking and finance, the parallel of our banking system to the social structure of New Orleans is curious as a minimum. Banking has little basis in performance. It has a strong basis in power; social power as well as personal wealth and it is unrelated to democratically elected positions. The “Fed” prints and controls our money and yet it is not a government function. How did we get here? Can we change the structure?
When I lived in New Orleans with my wife and kids, I felt that the city was a warm and friendly town and, indeed, that is one level of the city. Peel back the layers and it is far more interesting and perhaps even sinister because nothing is as it appears there or in our national banking system. It is a costume party and you are not invited except to stand on the street at public parades shouting, “Throw me something, Mister.” Please read Barry’s book and the recent banking essay by Larry DiStasi. Catch a trinket.
10 April 2009