Herbert Hoover-Give the Guy a Break

Mellon pulled the whistle,
Hoover rang the bell,
Wall Street gave the signal,
And the country went to hell.

I went to the library last week and picked up a bunch of exciting books; one of the most riveting in my selection was Herbert Hoover in the White House: the Ordeal of the Presidency by Charles Rappleye. I didn’t know much about Herbert Hoover besides the Hoover Dam being named after him and Christina knew even less – asking whether he was the Hoover vacuum guy. I think the average citizen would be on par with my wife and maybe the rare few would remember he was a crappy president during the start of the Great Depression. To my surprise, Hoover was a very complex man who tried his best – with the tools he had – to fight a perfect storm of economic collapse.

This election year has a few similarities with the election of Hoover in 1928. Hoover was a political outsider who had never been elected to an office (that’s where the similarity ends). After eight years of the roaring twenties, the country was ready to sober up and elect a non-conventional candidate who had avoided political scandals in the past and could keep the economy humming along. Hoover gained his popularity through his effective work as a humanitarian in Europe during WWI and his domestic relief programs after natural disasters. He was so popular in 1920 that both parties brought his name up as a nominee for president. When he did get nominated on the Republican ticket in 1928, he barely campaigned and won by a landslide over his democratic opponent.

All was going well for Hoover in the first few months of his presidency until the greatest stock market crash in history, Black Tuesday, sent the country into an economic-downward spiral. The interesting thing about the Great Depression is that during the first year after the crash, a large majority of people didn’t think the economy was in that bad of shape. Hoover downplayed the hardships of the people because he wanted to reverse any pessimistic attitudes about the economy – which could cause even more panic. Added to this, Hoover lacked empathy for the downtrodden because he was a poor orphan who lived in complete poverty as a child; with this background he compared his upward mobility with the potential of all men.

As the country came to grips with its economic situation, Hoover began to enlist the help of private institutions like the Red Cross to provide aid. Hoover, like most presidents before him, believed the government should not dole out money for things like hunger or poverty; those services were historically always covered by private institutions. This mentality framed his strategy for lifting up the American citizen by limiting direct welfare subsistence and instead using government funds to help lift up the major pillars of the economy – businesses and banks. The Great Depression saw a record number of bank closures which strapped credit, froze assets, and dramatically slowed business growth. To reverse these developments, Hoover created government loans to get the banks back on their feet (similar, but much smaller, to the bailouts in 2008). This made sense economically but it was a PR nightmare for Hoover because it looked like he cared only for the rich.

Added to this image was the fact that Hoover hated the press and in turn he isolated himself from the public. He appeared cold, stern, unsympathetic, and harsh to the average American during a time when a charismatic leader was needed to reassure the suffering public. His policies were extremely conservative and his vice grip on the gold standard helped to prolong the Great Depression. Hoover was in the crosshairs of an old and new government – one in the past that had limited influence, due to the size of the population and economy, now needed to step in and fill the holes that private institutions could no longer fill. Hoover did his best with the tools that he had. He had the work ethic but could only get so far with a wooden hammer when he really needed a jack hammer. Yes, his style of isolated-cold leadership was not helpful in the crises. But I don’t believe any man at that time in history could have done much better with the economy. I see Hoover as a president who came into office either 4 years too early or 4 years too late. Hoover was too conservative and too detached of a leader but he was never a president who didn’t try or didn’t care about the greater good of the people or the country as a whole.

Lehman Brothers: From Superb Cotton to Sub-Prime Mortgages

Does the Financial Crisis of 2008 make you want to punch someone in the face or maybe go run to your cat for a good cry? I would like to punch the bankers, responsible for the world’s most recent economic collapse, right in the man sack. In 2008 I was 18 so naturally Wall Street’s meltdown was not on my radar screen. I have read a couple of books, including Lehman Brothers, 1844-2008: The Last of the Imperious Rich by Peter Chapman. My parents bought me this book for Christmas mainly because it was 70% off (similar to the Lehman Brothers stock in 2008) but I was appreciative because I knew very little about the storied history of this particular investment bank.

Henry Lehman came to America in 1844 from Bavaria and settled in Montgomery, Alabama where he ran a store that sold various goods. His brothers, Emmanuel and Mayer Lehman would join him and in 1850 the store was given the name Lehman Brothers. During the 19th century, cotton was king and the Lehman Brothers would many times accept cotton as a form of payment for their goods; eventually, through this practice, they became brokers-buying, storing, and selling cotton to interested entities. This cotton brokering led them to New York where most commodity trading was taking place. With one foot in the South and one foot in the North they were well placed to invest in both agriculture and industrial operations. This benefited the brothers greatly during and after the Civil War. The Lehmans eventually moved their entire operation to New York in 1870 and continued work in the commodities business until 1906.

In 1906, Phillip Lehman (Emmanuel’s son) brought Lehman Brothers into a new realm of business when he partnered with Goldman Sachs to make General Cigar a public company. Lehman Brothers would go on to underwrite several well known companies: Sears, Studebaker, Woolworth, Gimbel Brothers, Macy’s, Endicott Johnson, Goodrich, etc. Following in Phillip’s footsteps, his son Bobbie Lehman, beginning in 1925 would take the company in the direction of venture capitalism. Lehman Brothers survived the Great Depression by underwriting the first television manufacturer, the Radio Corporation of America (RCA), Halliburton, and the first commercial airlines. The company saw great success through Bobbie’s leadership and had a focus on family partners throughout the 30’s, 40’s, and 50’s. Bobbie died in 1969 which began the era of non-Lehmans running Lehman Brothers.

The 60’s, 70’s, and 80’s showed promising growth for the firm with a transition from underwriting companies to complex trading through newly introduced computers. By the 90’s Lehman Brothers was among the biggest traders on Wall Street and had been bought by American Express. The tangible commodities of the past were replaced in the tech age by extremely complex-virtual stocks. One of Lehman Brothers favorite investments were in bundled sub-prime mortgages. Lehman Brothers would end up leveraging almost all they had on these toxic investments and in the end they would fail because of them. In 2008, Lehman Brothers stock would plummet 90% and they would file the largest bankruptcy in history-613 Billion Dollars. This would, in large part, become the cause of the Financial Crisis of 2008 and send the world into a recession that is still felt today.

American Justice: The Divide Between Rich and Poor

In 2008 I was 18 years old and a senior in high school. During that year I was chasing girls, shaving for the first time, lifting weights, getting ready for college, and trying to endure my last bout of public education. Life was good and I had no idea what was going on in the world around me. Besides randy teenagers, most people were aware of the financial crisis that was taking place in 2008. This collapse in our economy was arguably the second worst financial disaster in United States history-second only to the Great Depression. In only a year, this financial crisis wiped out 40% of the WORLD’S wealth which equated to trillions of dollars of loss. Huge banks like Lehman Brothers imploded while lucky others like Bank of America and Chase were bailed out by the government. What caused the Great Recession? This question was explained to me in the amazing book, The Divide: American Injustice in the Age of the Wealth Gap by Matt Taibbi. Go read this book! This is one of the top 5 books I have ever read and honestly it has changed my perspective on the world. With that said, the book contrasts the Financial Crisis of 2008 with the current state of how the poor are treated in America. The juxtaposition of stories about the rich and poor classes is eyeopening in respect to the unfairness of the current judicial system. This blog post only scratches the surface of this books details, points, and moving anecdotes.

The 2008 Financial Crisis was first and foremost caused by illegal activity on Wall Street. Leading up to the crisis, major banks and lending agencies were addicted to subprime mortgages. A subprime mortgage is a home loan for individuals who have bad credit, have little to no down-payment, and limited knowledge of interest rates. The banks specifically targeted poor individuals to take on these high interest loans even though their financial history was dismal and their likelihood of paying the loan was extremely suspect. These loans were obviously a disaster waiting to happen but the real kicker is that the banks bundled these as secure AAA investments for other institutions (including the government) to invest in. This toxic combination lead to a housing market collapse and subsequent banking collapse because these institutions were leveraged based largely on the subprime mortgages. In the end, these fraudulent practices by America’s leading institutions destroyed countless pensions, wiped out retirement savings, and initiated the loss of hundreds of thousands of jobs over the next five years. What was the punishment for the people who caused this collapse? NONE! No single person was brought to trial or prosecuted. Banks were fined but none were forced to admit that they did anything wrong. Added to that, the banks’ fines amounted to such small amounts that they recouped their losses in a matter of weeks.

This total lack of justice for the ultra wealthy has become the norm in America. There is a ridiculous amount of evidence against bank executives which is not being pursued by the justice department. This is contrasted in the book by the ridiculous police methods being enforced on poor individuals. New York has search and seizure laws that essentially allow police to detain anyone (almost always blacks) for no reason at all. The nation as a whole has laws that don’t allow immigrants any due process of law and the right to hold these individuals indefinitely. Welfare recipients have forced home searches where officials can rummage through all their belongings to ensure they are actually poor enough to receive benefits. If you are an immigrant or poor, the American justice system looks much different then if you are a rich bank executive on Wall Street. Of course we all know this to some degree but the author’s point is that our country’s justice system has to be in a vacuum; treating rich and poor alike. We roll over and let the ultra-rich get away with crime while systematically imprisoning more people (mainly poor) then any other country in the world. This injustice needs to be addressed and we need to at least try to change the system for the better. Again, this book is a must read and goes into these topics in much greater detail. America is currently an oligarchy that is run by very wealthy individuals and institutions. Does this mean we should role over and take it? No. It means we need to be aware of the injustices of the system so we can slowly bring back the balance of equality. Success doesn’t come over night but the sum of small efforts overtime can make America a great place no matter how much is in your wallet, no matter where you live, and no matter what you look like in the mirror.