Archive for May, 2010

Kindred’s Special: My Financial Interest in America–A chessplayer’s perspective Part 3

May 18, 2010

THE DARK AGE OF AMERICA came after the United States was well heeled as a Nation. Its existence really started during the Colonial Period when wealthy colonists set up a system of  indentured servitude of new arrivals where such immigrants had to work off their debt of passage.  In a sense it was a type of slavery until the debt was paid in full.  Another problem was that one of the southern colonies best and needed crops was cotton and the extreme hot weather conditions made it difficult for the white population whereas the darkies or negro population that grew largely out of the kidnapping slave trade of Africa that provided wealth for mostly northern ship owners who sold the slaves who were fortunate enough to survive the long journey to southern landowners to work on their plantations, and later others to work around New Orleans on the docks. In a real sense it was the ability of the so called darkies to withstand such heat and rural condtions. Contrary to public opinion, the American Negro population contributed to the inherent strength of America from its early beginnings. An experiment by Jefferson to see if they could thrive on their own in America was unsuccessful and determined that for most at the current time would be a disaster for them.  It was many years before the American Negro became recognized for their talents and many contributed during this dark period in American history. Many achieved heroic deeds in the many wars the Nation was engaged in its rather short history. Jesse Owens conquored the imagination and respect of Americans during his triumph in Germany’s hosting of the Olympics  and singlehandedly almost gave Adolph Hitler a stroke. Today they are among the top athletes in many sports and have managed through hard work to gain prominance in business, education, legal and medical fields.

What makes it so hard for people today to realize is the long and regrettable failure to recognize the right of all to embrace and enjoy the fruits of American life. The same holds true of the plight of the Native Americans who continue to wallow in the miseries of clinging to the past, dreams of their forefathers, and while many young people are achieving success, they have a long way to go.

This update to current times I feel is necessary so as to go back now and see the conditions that need-not-have-been.  Our failure in this respect is a national disgrace. It is not simply a problem of the negro population but anyone who differed in any number of ways from the so-called NORM. Much had to do with the lack of education of minority groups. Another was the clanish behavior of such groups as the Italians, Poles, Germans, Dutch, Irish, Russians, Orientals, etc. etc. Many arriving in America tended to band together in their ethnic similarities creating pockets of neighborhoods. In some ways this was wonderful as it greatly enriched American life. Through many trials and tribulations, the peoples of America found and continue to work toward ever improving conditions built on understanding and respect. Unfortunately, this was not always true.

With the advent of the Civil War brought about by the western states approach to the slave issue, the north and south struggle with economic leverage and power, and the election of Abe Lincoln to the presidency created for many years the Dark Age of America. Following the war in which many thousands of whites and blacks were slain or wounded in combat, the startup of the giant industrial base, especially the railroad magnets, such prestine areas as beautiful Appalachia with its rich waterfalls and systems of unique spa resorts was ravaged by greed and ignorance. Its rich farmlands destroyed. The outlaw Jesse James and his gang may not have ever come into being had it not been for the corruption seen following the war.

Commercial banking all through these years conducted business with a conservative hand at the helm in most cases. The Nation existed on the importance of the individual, the family,  heritage. With the migration westward, the Native Americans saw their lands being swept up from a government that sought to annex everything for adventuring settlers who braved to risks of conflict with “savages”. In fact it was a repeat of history only now it was the American Indian who was misunderstood by this vast migration. The government couldn’t grasp the idea that the Indians were not interested by and large to similate and fought to keep their own distinct character so it resorted to conquor by force, lies and corruption by those in govenment employ and agency that dealt with Indian concerns. Yes, history repeats through ignorance and corruption led by greed.

State bank regulations lagged while the number of such banks increased dramatically. 1885 saw 10-states authorizing regular examinations and 9 of those had provided for supervisory officials or boards. From 1886 to 1900, 21 additional states made regular bank examination mandatory. By 1914, all the states required regular examinations but not until 1931 did they create official supervisory authorities. But these were usually political appointments having little or no experience in commercial banking practices or in finance in general. Low wages for bank examiners led to a rapid turnover of personnel.

The national banking system was much different and better organized. Even so, it became clear that much had to advance in the regulatory function to maintain bank security and public support. Woodrow Wilson was the founder of the Federal Reserve System. The main question was whether The Controller of the Currency influence would be retained. It was recognized that the largest loss from bank failures came in the agricultural states while the east and west continued to see relative stability throughout the system of both state and national banks. It was troubling that the growth of state banks left national banks in the dust as to growth.

The 1929 stockmarket crash spelled disaster as many financial institutions felled victim to the mass histeria of sell, sell, and runs on banks to draw out deposits did not help. It was an era of suffering often a product of dust bowls and no jobs as business came to a standstill. It was an era of the hobo, the transient, the downtroddened and hopelessness felt throughout the country. It was indeed THE DARK AGE.  What and who would turn the tide?

In the chessworld there has been many trials and tribulations for the both the art of chess, its champions and devotees. The financial rewards has had a rocky road for hundreds of years. Botvinnik for example received a new car when he won the world championship. Fischer came along and those who followed discovered to fruits of how to turn the world championship into a gold mine with the right energies, contacts, and  a  financial support system.

Kindred’s Special: My Financial Interest in America–A chessplayer’s perspective Part 2

May 9, 2010

The overview of the commercial banking regulation discussed a generalization of the subject in the introductory where we will now expand into more detail of the various steps leading to our current times. A good time to start is a look at the colonial period in America where colonists had numerous problems with their money supply. A substantial part of trade was through the barter system where furs, tabacco, and then gold and silver coinage was commonplace as mediums of exchange. Shipping brought in varieties of coinage from round the world as well. Paper money, promissory notes was a common feature among various merchants and might be carried in several exchanges as money along with bills of credit that was popular.

Paper money was not issued until the Revolutionary War due to the British Parliament prohibition of such currency in 1751 and 1764. It became a sought after means of exchange favored by the Colonists that by 1786 several states were printing and issuing their own currency. This was one of the major attractions by lawmakers for a strong central government and common currency. With the founding of the United States, it was essential and the Congress ratified its adoption in 1789.

Commercial banks were not established in colonial times due to opposition by British merchants. The first such commercial bank was established in  Philadelphia which, for several decades, was the financial center of the USA. It was known as the Bank of Pennyslvania and formed in 1781 later to be renamed the Bank of North America. A number of additional banks were formed and by 1811 there were 88 banks doing business and grew by leaps and bounds with over 1600 by 1861. It was long understood that only federal regulation could provide an acceptable currency. Alexander Hamilton was responsible for the founding in 1791 of the Bank of the United States which was objected to by both Jefferson and Randolph. It proved highly successful accomplishing an orderly expansion of credit in 20 years. Political battles led to considerable strife within the system. However, with the advent of the 2nd Bank of the United States, Hamilton opposed the regulatory language but it was carried forward by the Congress.

Almost from the beginning of commercial banking there were efforts by states to prescribe rules. In due course it was recognized that a national banking system had to coincide with the state banking system. Through the years a number of regulations, laws and procedures were introduced in legislation.  Senator John Sherman was largely responsible for passage of the Currency Act of 1863  making the financial industry of America sounder and more reliable with needed safeguards. THOMPSON’S BANK NOTE AND COMMERCIAL REPORTER provided banks the opportunity to check weekly alphabetic listings by state of bank notes and discounts which valid notes should be accepted, and listing of counterfeit paper. One specializing in counterfeit detection was, BICKNALL’S COUNTERFEIT DETECTOR AND BANK NOTE LIST SAFEGUARD.

The first Comptroller of the Currency was Hugh McCulloch.

As the country expanded its borders ever westward, financial institutions required concrete but imaginative sets of rules and procedures due to the distances which separated many of the banks. North, West and South were developing greater and greater number of banks. The South especially was becoming an economic powerhouse. Branch banking had its ups and downs. Financial leaders often squabbled and either argued for support or objection to various proposals.  Eventually branch banking won out because it helped to establish safeguards and enabling finances to spread out for the benefit of depositors especially within areas of sparse population.

Various shortcomings of an ideal system existed just as it does today in the minds of supporters or critics. Salmon Portland Chase, Secretary of the Treasury under President Lincoln, completed his report on the state of finances in December, 1861. His proposals seemed revolutionary and while not entirely new were less thought about previously. Numerous support of many leaders were dowsed with water by a few who opposed such ideas. With the Christmas holidays, government more or less shut down and subsequent events upon returning to Washington unleashed heated debate; (Do you notice any comparison with today’s Congress?).

Our nation has been one of almost constant turmoil either at the federal, state, or local governance–often injecting the involvement of and with consequences, good or bad.  In time, practices were modified or strengthened and regulations and various Acts were introduced and carried forth or recinded with change of the Party gaining power through the election process. Somhow, out of the hodgepodge of such workings by government, the Nation seems to continue to survive. A number of elections changed leadership over the years following the Civil War where policies put in place is what I call the DARK AGE OF AMERICA.

The chessplayer knows that to conduct successful operations, a plan is necessary whether it be good or bad. The result coming from no plan is worse and leads to complete disaster where postmortem for the justification of play during the game is pure folly.

Kindred’s Special: My Financial Interest in America–A chessplayers perspective

May 7, 2010

Dear Reader: occasionally I find it necessary to delve into my past with regards to understanding the workings of the financial world in which we live. As a former banker, I have studied the current situation and find it personally disgustingly led almost exclusively by people who would not have got in the door of leadership roles in my time. That said, hold on to your hat and learn something worthwhile. For students, you might get a bit of wisdom about how our financial system developed in America. Obviously, you never got a lesson about it in your history classes at least as far as I have been able to determine. So lets begin. Hats off please and put on your thinking caps for a change.

Where to start? Like my chess columns and articles, much is given to history and so-to-here I provide a historic lesson that will enrich your life and add some understanding to what makes our financial world work. I cut out all the garbage: idiots in the media who have little or no knowledge in the area and yet often are proclaiming themselves as experts. Even many economists are ignornant of what I am about to impart to you so you can judge for yourself the value of my lesson and research.

Why the mystery? Why are banks today regulated? To discover this is a beginning of our adventure together. Business conducted as far back as Persia and Greece gave birth to some of our modern day practices in commercial banking. The Dark Ages period financial wizzards of the time knew how to make payments across international boundaries without using gold, silver or other means. Still, it was about the 13th-Century where Genoa (what we might term the center of the finanical world much like New York) began the practice of extending credit to human creativity of ideas, individualism, and risks with speculation toward financial success and reward. From the time of the Renaissance, bankers, their customers and the public-at-large handled financial matters with due conservative principles. Progress in any form was very long term and new ideas really did not take formation until relatively recent times. One might say the commercial banks and banking in general was rather narrow in terms of any consideration toward advancing new proposals. For example, today we see account number accounts which, in the beginning was met with suspicion and fear that it could lead to clerical mistakes, fraud, etc. etc. It was generally accepted philosophy that bankers need to conduct financial matters to create profits while keeping cash reserves for daily bank business with customers. In short bankers began to understand better the loan concept practice with relationships with their customers with reasonable assurance that such loans would be repaid with interest. Hence, we see the expansion of bank role from merely business transactions to one embracing the general public and individual depositor. Today we see advanced economically successful countries utilizing their central structure setting out regulatory govenance of commerical banks permitting certain functioning with constraints with the end result being the creation of the money supply necessary for modern finanical institutions. Today’s households via mortgages, loans, etc. have a broad and knowledgeable understanding of this social fabric but it seldom goes beyond this. Children are rarely ever included in finanical dealings where imparting such education to children have long term benefits.

Where have we gone astray? At one time, bankers recognized that conservative management policies sort of self-regulated the whole industry as the number of banks and types of banks multiplied. The Congress set policy to protect the interests of smaller banks during this period of larger bank expansion. It was definitely a no-no for managers to discard such practice by acting without constraint a drive to maximize profits for their firms. The introduction of the bonus concept achieving such aims began to enter the picture and we see the result of such folly that evolved throughout just about everything to do with wealth–both corporate and personal. Leaving the row boat of financial stability practices in favor of a fast speed boat has put the world financial markets in a HOLE. Part of this can be laid at the foot of a world-wide socialist agenda that counters the capitalistic concept of successful business ventures. Yet the relaxation within the latter has set ablaze any trust toward either system by the public in America.

This ends part one of my paper if you will on the subject. Invite your family and friends to share the enlightenment with my coming essays on the subject. I must apologize for not weaving herewith the first segment a chessic theme per se. Let me see. Is there one I can leave you with? Here goes! Like it or not I leave its worth in your thoughts: Chess is a history of trial and error.