Close Coupled Character - Road to the Middle Class

I WAS COMMENTING on the financial meltdown of 1907 at the American Thinker today. It’s all about sound collateral, I argued. An alert reader complained about the loose ends lying around.

Back in 1907, you see we, had a major credit crunch with trust companies failing all over the place. J.P.Morgan solved it with a bit of asset swapping, so that a shaky Wall Street broker could have collateral that everyone could trust.

In the aftermath of the crisis Congress hauled banker Morgan up to testify so that they could convict the innocent and let the guilty go free. He rather surprised them by saying that the key thing in business is character. Very good. But I then muddled things up by talking about the danger of close-coupled systems. They are bound to break, sooner of later, and then where are you?

You are right where we are today.

Morgan also flummoxed his congressional interrogator by failing to explain why he would buy a stock like Equitable Life, which only yielded one-eighth of a percent.

The answer, I think is character. We can’t just have people running flat out everywhere, trying to get the last ounce of profit out of the economy. That goes for politicians like Barney Frank who want Fannie and Freddie to squeeze the last ounce of credit into “affordable” homes for Democrats. And it goes for Wall Street Masters of the Universe leveraged up to the eyeballs squeezing the last ounce of profit out of the latest hot stock or derivative.

What is needed is some men of substance around like Morgan who, from painful experience, are willing to provide a factor of safety for the economy. They buy a stock not for its immediate potential but because it needs a good home. They unwind their leverage because they don’t want to be wiped—or wipe others out—if they bet wrong.

With chaps like Morgan around, you hope to avoid the risks of the close-coupled system which, when it fails, fails big.

It’s a tricky thing to implement, because we all want more efficiency in the economy, and more efficient use of resources. But how much should we risk for that?

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Christopher Chantrill blogs at www.roadtothemiddleclass.com. His Road to the Middle Class is forthcoming.

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Faith & Purpose

“When we began first to preach these things, the people appeared as awakened from the sleep of ages—they seemed to see for the first time that they were responsible beings...”
Finke, Stark, The Churching of America, 1776-1990

Mutual Aid

In 1911... at least nine million of the 12 million covered by national insurance were already members of voluntary sick pay schemes. A similar proportion were also eligible for medical care.
Green, Reinventing Civil Society

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“We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.”
E. G. West, Education and the State

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Law being too tenuous to rely upon in [Ulster and the Scottish borderlands], people developed patterns of settling differences by personal fighting and family feuds.
Thomas Sowell, Conquests and Cultures

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The primary thing to keep in mind about German and Russian thought since 1800 is that it takes for granted that the Cartesian, Lockean or Humean scientific and philosophical conception of man and nature... has been shown by indisputable evidence to be inadequate.
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Inquiry does not start unless there is a problem... It is the problem and its characteristics revealed by analysis which guides one first to the relevant facts and then, once the relevant facts are known, to the relevant hypotheses.
F.S.C. Northrop, The Logic of the Sciences and the Humanities

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“But I saw a man yesterday who knows a fellow who had it from a chappie that said that Urquhart had been dipping himself a bit recklessly off the deep end.” —Freddy Arbuthnot
Dorothy L. Sayers, Strong Poison

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I mean three systems in one: a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all. In short, three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is plural and, in the largest sense, liberal.
Michael Novak, The Spirit of Democratic Capitalism

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The incentive that impels a man to act is always some uneasiness... But to make a man act [he must have] the expectation that purposeful behavior has the power to remove or at least to alleviate the felt uneasiness.
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[In the] higher Christian churches� they saunter through the liturgy like Mohawks along a string of scaffolding who have long since forgotten their danger. If God were to blast such a service to bits, the congregation would be, I believe, genuinely shocked. But in the low churches you expect it every minute.
Annie Dillard, Holy the Firm

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James M. Ault, Jr., Spirit and Flesh

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The recognition and integration of extralegal property rights [in the Homestead Act] was a key element in the United States becoming the most important market economy and producer of capital in the world.
Hernando de Soto, The Mystery of Capital

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