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July 15, 2014

My followers are aware of my many posts of commentary on Thomas Piketty’s brilliant new book, Capital in the Twenty-First Century. They are also aware of my reverence for Twentieth Century economists such as John Kenneth Galbraith and John Maynard Keynes and today’s economists ranging from Joseph Stiglitz to Thomas Piketty, among others. Missing among this group (including those I have not mentioned) are women, an omission this post will remedy. No, it’s not Hillary. It is another woman I have been watching for the last few years and have finally concluded that she is not just a “comer” but that rather she has arrived as a major player on the economic history scene today with publication of her latest book, All the Presidents’ Bankers. She is not a “messiah” in the biblical sense of the word where salvation is involved but rather one who picks out the problems from our economic stew for all to see and consider so that we can save ourselves from the pursuit of dead-end economic structures.
Who is she? She is Nomi Prins and she comes well equipped for her role in critiquing the tunnel between Wall Street banks and the Department of the Treasury. With degrees in mathematics and statistics, she has been on the Wall Street side of the tunnel while laboring for Bear Sterns, Chase Bank, Lehman Brothers and Goldman Sachs (where she was a managing director). This is the same Goldman Sachs (the nation’s biggest investment bank) that gave George Bush its CEO for a stint as Secretary of the Treasury, Henry Paulson, who stood in for the big banks’ rescue in the 2008 crash (which I will discuss later along with a discussion of the role of another Wall Street bank CEO who served as Secretary of the Treasury, Bob Rubin, who, along with Alan Greenspan, advised Clinton to approve legislation that repealed the Glass-Steagall Act – which he did and was by far his biggest mistake of his eight years in office).
My research base for this and subsequent posts on this topic comes from Professor David Cay Johnston’s article assaying Prins’s latest book in the May-June edition of The American Prospect, and I note here that Professor Johnston is himself a brilliant writer and a jeremiad who speaks truth to power.
Prins’s story begins in the 1880s, when the Gilded Age was just getting cranked up. The railroad barons had already stolen millions of acres and were stealing more. America was changing from an agricultural nation into an industrial one. Coast-to-coast railroads and rapid innovations in science and engineering afforded opportunities for markets far beyond the Mississippi; the discovery of oil in Titusville, Pennsylvania (where, incidentally, my maternal grandmother lived) was already history, and the stage was set for big time economic growth with new products and services in a rapidly expanding economy. Oceans of cash flowed in to the coffers of titans of the Gilded Age, the Rockefellers, Astors, Vanderbilts and others, and this in a day when a dollar was worth much more than it is today.
Thomas Piketty (in his book above cited) noted that if his r > g formula is taken to its dry logical end, then theoretically capitalists will have so much money that they will have nothing left to invest in, all avenues for investment having already been sated. Something akin to that happened when the Rockefeller zillions grew larger than old John D. could invest in his oil enterprises, so he had to look for other opportunities for investment – and he found them – so he (per Prins) “began investing in banks, insurance companies, copper, steel, railroads and public utilities.” He was enabled to do all this with the assistance of one James Stillman, president of National City Bank (now called Citigroup) while drawing on investments made through Chase National Bank (now known as JP Morgan Chase Bank).
The superrich of more than a century ago were composed of people who worked together to maintain and enhance fortunes; even some of their children intermarried (a la European royalty) which not only kept vast fortunes intact but expanded them. (Piketty has shown a century later that larger fortunes make a better margin of profit on their investments than smaller ones, so they were on the right track with their (almost) arranged marriages on economic grounds. The requirements of Hollywood that a marriage had to be for love were ignored for many reasons, one of which was that Hollywood did not yet exist, and another is that love has never been an economic component of capitalism’s brutal marketplace other than capitalism’s ingrained love (lust?) for profit.
Prins writes of how banks haven’t changed much except for their names since the Rockefeller travesties of the Gilded Age. They are still the same old Big Six (which I have written about before) through the products of mergers and buyouts and sales of failing banks by the Fed, though their names have changed from time to time to reflect such mergers and acquisitions. An example of this can be found in my local bank here in Michigan which in a period of just a few years morphed from The First National Bank of Detroit to The First National Bank of Chicago to its present Wall Street owners, JP Morgan Chase, who pretend to be interested in commercial banking when the big bucks are in investment banking both here and abroad with the money scooped up from local accounts by “your neighborhood bank” (if you live on Wall Street).
The foregoing is prelude. I will write more specifically in subsequent parts about “the tunnel” between Washington and Wall Street which CEOs and Treasury Secretaries (the same people) traverse to and fro, much like generals and defense industries back and forth in their much shorter treks from Northern Virginia across the river, and question why we the used and abused profess shock when a Treasury Secretary acts for the benefit of Wall Street rather than for you and me. Why are we shocked? Nomi isn’t. I’m not. I fully expect people to act in their own interests (as did Adam Smith) whatever their job title at any given point. How can wearing a new hat change 35 years on Wall Street?
The question should be, and better asked, is this: We know what the problem is, so what are we going to do about it? Anything? Stay tuned for Part II. GERALD E


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