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Wednesday, December 11, 2013

The Map and The Territory by Alan Greenspan (2013)


Book Title; The Map and The Territory


Author      ; Alan Greenspan


Publisher  ; Vintage International


Year           ; 2013


Review by


Sampson I. Onwuka


The former Fed Chairman Alan Greenspan argues in this book ‘The Map and The Territory’ that the 2008 experience was profound in its complex largely for exposing the impact of U.S markets on the rest of the world who’s forfeit of troubled Investment Banks such as Lehman Brothers and Bear Stearns left more mark to be desired and may forever live in infamy. But they saw it coming, that it seems to him that the attachment of these Investment Banks to the Federal Reserve, especially JP Morgan where he worked for a time, may have convinced these Banks that lending at such high risk as would have seen inevitable, especially to individuals and corporations with checkered past, will not matter since these Banks were Too Big To Fail and the tenuous bond to the Federal Reserve will revert to their rescue.  


The human factor is that the investment from savings which were thin from as at 2003, continued since the Housing boom in 2000s did not abate or show any signs of diminishing, that it was not justified for any reasons was clear enough but yet it continued to boom. It seems to him that the Banks may well be blamed for the problems of 2008 financial meltdown, but it was a meltdown that was long awaited going by human nature. In rear-view, the hustle over the US market came from elsewhere he argued, particularly Europe with their investment Banks penetrating the US housing market.


Of course the implication is that the houses which are common sense real estate, or for other reasons suitable for converting money from shadow Banking or Moon Walking (hot money) to real money receives the high exposure which is capital investment with future rewards or not necessarily discounting of flows through present value and the White noise of popularity. It did not matter by the argument that the



We would interject that the house prices simply became hot for nothing in the 2000s, and the reasons for the upsize in housing prices were not visible to the greater public and since the reason were not obvious, the heading North of the Stocks could have only suggested an ‘irrational exuberance’ and perhaps nothing more.


Lack of formal or rational reason for the spike in houses may have propelled American based banks particularly JP Morgan, Goldman Sachs, Lehman Brothers, Bear Stearns, etc., to reposition themselves in the housing US market, and the attention may not have forced other economic areas into a recess, and widening the gap of the Balance Sheet. The general investment tool of the 2006 in the discipleship of Modern Portfolio Theory or Efficient Market Theory had to be done with or simply could not apply to the Feds and other Power Lenders – for how else could a spike that signaled an inevitable burst refuse to warn these investment Banks.  The money came, and if they did not come, they were manufactured by the swell of interest from without.


In rearview to the events of this period, yet an equal measure of concentration of the total investment entering the US market was not expedited into other areas saving Housing, few would have mattered in the end of the growth cycle, fewer ridden to the financial erosions that proved its point in 2008. For it seems that such cold blanket by the actions of the Feds and retributive aftermath needs not be spun, even if the FEDS had acted with due respect to the underlining inflationary pressure of the US market under George Bush, particularly its hosting of measured rate cuts by view of economic soft landing.


It would seem that the efforts were primitive, that the Federal Reserve under Greenspan had already accepted of theory of money supply (M2) however digital however psychological, may have lacked the instruments to curtail the exposure of US Banks to such events, and resorted to such steps to exorcise the devils of inflation without hurting the economy as if the market charged forward outside the housing numbers, heralds a doomsday, preventive measures for this scenario is well practiced in all class of economic respect, and in short, the essence of all the trainings required to invest in the markets and FINRA certified is proof that a broker and a brokerage would avoid investment pitfalls.




This sort of risk rest other issues associated with banks but from the exposures that the Feds are concerned it, the total variances of the all external and internal shocks to explicates on an indexes’ AR ‘Auto regression’ and VAR which in spite of the risk and degrees of risk involved in management, excludes the ‘residential investment’.


 The confidence on these numbers and what they may tend to suggest may be misleading going by the native reaction of a Central Bank or our Federal Reserve whose estimates are pretty much reduced to the rate of return of financial institution or banking receipts (bank stocks), and will point to the origins of debt or debt ceiling (rate of debt) as systematic definitions of a Central Bank or Federal Reserve.  


It would not therefore be a high standard in arguing that Investment Banks were not inexperienced in dealing with problems of capacity and over-investment leading to 2008, or lacked the expertise necessary for performing the least functions of the public investment - Short or Long -, saving perhaps, the backroom psychology that it will paper out in the end.


 At the end - if there was such an end - it matters that a greater share of blames is shouldered by the general public who were responsible for their own investment leading up to 2006. Else would have suffered his or her finances to be compromised from narrowing attention on one spectrum of a market from a general or sorted investment portfolio. 


Such outcomes has no defenses saving that of human element… but was consciously ignored as pursuit of risk, which Greenspan believes was human nature hence the cautionary entailment of logic that the trainings then and now is no consequences, for that the Federal Reserve with measure of the blames.


The role of International Banks in US is any and one factor – with or without respect to Gold – the permeating of US Markets would not have mattered, it is from the combined market forces of U.S stock market and the European, or what they call Archipelago, that majority of the short falls in forecast seem to play into the world markets in spite of the separation of the numbers.


By the 2006, the market were showing signs that it could not be contained, that the general expectations is that the failure of the government to erase some of the problems of the bubbles through tightening financial instrument such as the FED rate was a burst day scenario. Although the alleged strategic soft landing of the market did not expose to wage problem of fixed income, investment was largely in one major area.


From the point of view of the 2008 incident where all the fine points about Economic prediction and modern portfolio theory of financing which essentially proved its limits in forecasting burst in the U.S economy is played out, it is accurate to suggest that the book is 3 stars of 5 and possible an additional ½, reduced from 4 star for insufficiency of real life example such as Detroit, where the impact of COCO is felt with resolve on credit and savings as essentially out of the question for debts that fell well below a Threshold.


The Contingent Convertible (COCO) with sufficient respect to Debt to equity is styled to depart from debt and convert equity, whose official point should not be exceeded, or what Greenspan called a debt ‘threshold’ when breached should revert to actions on the Collateral property or revert to extraordinary measures.  


This point equally count against Greenspan, for by the huge Gaps in the investment Portfolios of many overnight lending Banks in 2006 and after, were generally compromised long before the full extent of exposure went public. That from facts that a burst could have arrived too soon, even in the third tier efficient market, there was more than sufficient shreds of evidence of unequal growth in the stock market, a disequilibrium that need not migrate to the point of mathematical indicia given the ‘irrational exuberance’ of one ends of the Market, the Housing Boom.


This breach of Debt stories usually force an action from all sides of Party, with respect to the collateral arrangement, whereas the bigger lenders are said to apply a control of money supply through emphasis on Collateral, an exercise American economist migrate to Savings as the counterweight for Austrian School one or all under Von Mises and Frederick Hayek.


Counter Party economics resolutions of Schumpeter is still popular in Boston, but the symmetrical and asymmetrical (asymptotic) price resolution through technology replacement is closer to Keynes than Mises, largely for the quantity of Credit but the momentum of Keynes aggregate spending and demand theorem does not support savings in Shorts, would also betray the point of micro-disequilibrium which reverts to savings and saving to inflation and rates. 

Therefore it seems natural that firms should convert debt into equity, unless in terms of future money as with the US, that credit in the forms of arbitrary repayment history or in terms of income would not have met the demands of a US economy, will itself the economy a false economy – so also Securities and overnight lending, in real time, revert to the near measure of US currency to Gold (highest collateral) and a diminishing the impact of Greenbacks since 71.


This is pretty much the way most banks with enough foreign exposure operate, and it has a lot of problems associated with it. Why the COCO is not without force, we are concerned with why it made it to the book where it not to shine light on COCO consequences using a common place and real life example, for instance in Detroit or in larger framework such as Freddie Mac and Fannie Mae and HUD, where in another instance such as New York, Banks equally engage in extreme of insuring the loss of equity through Debt.    


Greenspan argues that U.S economy consists of Index and graphs which allow independent Economic sources affiliated with the U.S Government to make financial decision and forecast the economic features of the government. He argued in his book that the process started as Ways and Means to end the Economic Crisis (Bank Crisis) that by the 1930’s they were at least two principle groups of economic measurements available in USA.


One such is the measurement based on Cycles which he argued may go as far back as the period when the available of Agricultural Produce such as Wheat was depended on Weather conditions, and for that Weather experts –not as reliable as those in recent times – made forecast based on the year and the Weather conditions at a given time running mainly the course of a Season. 


With the advent of Rail Roads, the loading factor with respect to production replaced the old Horse and Carriage, the frightening speed of delivery and size almost insured business success and it in effect location along the business route applause for business credit.


Greenspan mentioned that, “Railroad expansion and the Homestead Act During and After the Civil war, opened up the Great Plains to a massive migration that led more than doubling of Wheat production. Steel production, the backbone of American Industrial advance in the quarter of the nineteenth century was propelled forward by the invention of the Bessemer furnace (1856) and the discovery in 1806 of iron ore in Minnesota’s Mesabi Range. Northern Michigan’s canal locks at Sault St. Marie, which opened in 1855 and linked Lake Superior and Lake Haron, enabled Mesabi ore to be shipped to the burgeoning steel industry of the Midwest, and channeled a substantial part of national grain output through the Erie Canal and to the populous East Coast.”, is a way to introduce the changes that new forms of production gave rise, to dissect that saving the accumulated incidents of the Rail Road Recovery Act in 1902 – which was the first of the Recovery Acts in the 20th century, it would seem to suggest that Steel production as a measure of probable demands of labor or productive course of the Rail Roads or vice versa, was by the end of the 20th, the determinant factor in detailing out the production of Wheat or other similar produce, that construction of Rail Roads detailed other avenues of Agricultural estimate, some of which clearly affected the behaviors of consumers towards the periodic prices and seasonal price lags, whereas these consumers rationed out these quantity of Wheat with bushels with the point of realizing profits from Seasonal Agricultural and aggregate demands.   


New York for practical points of heavy investment in the 1920’s was excluded from what was happening in the rest of the country, and the Bank’s Weekly clearing or what they called Letters, reflected new concerns in the Country and hence aided investors comfortable with long or short term investment.  By the end of the 1920’s, and beginning in 1919, the Federal Reserve began to keep an account of its graphs and fluctuations, and in 1920, the National Bureau of Economic Research was founded largely to entertain help the market and the country understand the varying degrees of their actions. Its First Director was a Wesley Mitchell who along with Arthurs Burns compounded the book on Business Cycles.


For Alan Greenspan the role of Arthur Burns in US market and the working formation of the Federal Reserve is largely unknown saving for the removal of US currency from gold standard, based in part on Fischer Black’s citation but coincidental to formative inception of the role of the Feds in helping to stabilize the markets through M1 and M2 monetary injection to banks, particularly M2 (after Friedman and Schwartz) - but proclaims that the 40 years of his friendship with him, that he more than influenced his Chairmanship aptitude.


But then, the country did not expect the depression of the 1929 to have lasted that long, its longevity was diagnosed with the paucity of objective indexing for market forecast. The National Index was measure of information or activity, represents the flow (momentum) during trading hours but then replaces the transaction receipt once the information or transaction is confirmed as Stock Index (Stochastic).


But this stock of index was not itself totally dependent on Business Cycles, it affected Business Cycles on short waves and it shows the range and the graphs over a period of time and a day, reflect a trend which is now behaviors capable of mitigating the Seasonal expectation; all day time trading are dependent of the gaps between history of a price or a stock, which changes to reflect information such as capital and company prospects.


The man responsible for putting together a larger framework of measuring the range of operational dynamics of the United States was a certain Simon Kuznet, though sponsored by NBER, worked for the most part independently. In fact that the understudied implications of Welfare in America was gifted new meaning from the supposed utility assumption of the state and city budgets and the Taxes was a different matter. The relevant association of Kuznet to GNP is derived from the comparative association of the remarkable Business Cycles along with the Government earnings and spending.


Greenspan argued that from all the final computations of the market which mostly took place in his reign and the fulfilling of a certain Graham Moore predictions of the role of computers in the modern banking and financing on one hand and marketing on the other hand, it is not without reason that Modern Portfolio theory took on a new meaning during the Internet and adequate information Age. He cited that a record of these graphs and movements reflect a terrible similarity. Yet no particular decade is suitable for any economic decade in the history of these United States; one whole year cannot explain the other, economic forecast is relative largely for what he believes to be human factor in decision making.


 In essence, the convenience of Maps and Territories for economic forecast of all types should only be useful to a certain degree, does not betray that it heralds some ultimate ends. In vein of 2008, it is not a misnomer, since the impact on rate of returns was European currency migration into US market. The sheer size of the money put on funk on the real estate, and there was no formal estimator saving the human nature.


Such objective opinion on the use of indicators usually cast the wrong aspersion on a system that is based on indexes which represents an attempt on Equilibrium from all corners and tiers of the World Market, and at times, those who promote arguments on the nature of Rational Economics, its Time series, its forecast and limits are usually facing a lot of dislocation or dissociation. For slippery books such as The Maps and The Territories, it will hardly be surprising that the schools of interest in money and psychology of advance economics and financial behaviors will be expected to take their cue on either side of the arguments. Rationality which in many ways than one is nothing else than forecast based on Business cycles and repeat seasons which is about 8% increase in sales yet differ by small fraction year on year.  In all aspects of economic certainty, are expected to be opponents of Irrationality in market.


But this common sense approach is for the sake of argument settled along the Intermediate Path of two possibilities, and it is either logical or economical to cite that during Greenspan’s Chairmanship several signs were already in effect hot comb, the CPI Index was high in Market Sensitivity, that manufacturing applause from value from product took a low measure of market reaction. During Greenspan, Retail Market Index overtook the Index for Durable Goods which demonstrated the leniency of the former Chairman towards Welfare and Consumptive economy.


In the past, Chicago School and Mercantile exchange moved the interest facts of American Industries to the general public and at least up to 1970, University of Chicago placed enormous faith on Studies of US Industries which proved a lightning rod for Investment. But this Index with respect to Industries and to some degree manufacturing, and with respect to Housing certificates and permits as important Indexes proved a low probative market sensitivity proved under Greenspan. It may seem that attention to trade replaced the investment psychology of production and the transition from Small Businesses to Mid Cap companies.


Rehearsed from behind, we may now interpret Greenspan’s use of the word Irrationality as derived from poverty of US financial literacy within the operational risk of the market and the individual or collective investor, a statement which was respect Alfred Marshal’s reduction of Irrationality to the demand driven economy of lower class – usually the larger in number, but not applied to Robert Shilling’s ‘Irrational exuberance’ which is a reflection of the market structure and dissimilar from the human and devised elements of consumptive behavior which Greenspan and Marshall may have alluded. But in kindly light of Greenspan’s Age of Turbulence, Welfare from Greenspan position, may supplant Alfred Marshall’s class complex. 


How well does Government spending resolve the most promising and telling problems faced by the most with the least? It is not the role of the Fed to measure the left and right of Government Spending, it their role to respond to significant Economic indicators, device plans through the tools available to them and from all signs and signals, it applause the case that the Feds is limited in its ability given the throes of Banks and Insurance Companies that day by day determine the future of the Markets. This is probably Rationalistic, since advances in Seasons and Cycles are only relatively estimable.


We begin by adding that a shift from Rational Economics and expectations of the Market is not saved by the spin off from the center which is called Irrationality, rather, a common place argument that Irrationality in market is as constant a factor as Greenspan argues, in indicating the left and right of the market, is arrived by behaviors on the graphs. Therefore the reasons for actions in human behaviors cannot be justified at any time, and it is then Rationalistic to compare the supposing Irrational with as correlation to Rational. Rational Economies is not the center and represents no Sympletic and not true that the econometrics are Rationalistic side of the market, or is it the best or necessarily have the best BLUE for forecast at any time. Bank Stocks and SNL may only make up 20% of that crazy to expect world markets to behave according to plan


The presence of in explicated economic growth or Wealth or profit for instance would not be expected to conform to any statistics or any season or any cycle in Business largely, for the fact that something like a growth in houses and real estate goes beyond the primal numbers to a degree that a sub-optimal of a long term reversal that is so well factored into the markets is considered self-repairing, similar to Walras’ General Equilibrium. The governing dynamics (consumptive expectation) of any market is subject to new forms of sensitive changes. It is a leading argument that housing recovery as an effective economic indicator is sensitive to economic recovery and household management. It also affirms the health of the market, any market, for the sake of expenses; Housing Recovery sensitive to the market as a practical measure of investors’ confidence and an effective economic indicator. 


It does (does mean) not mean that efforts to abbreviate the depletion of US manufacturing Jobs was not factored into the dooms day scenario, but exactly how well the unemployment numbers correlated the size of turnovers and amount of Securitization in the massive and bullish 2000s would not have easily, provides a summary of the lapses in current economic indicators or forecast instrument which Greenspan merely highlighted. 



It does not mean that the portfolio theory for instance suffers in quality; it mirrors the demands of a new form of economic expectations which he, Greenspan, labored in the book to put in clear and concise themes, with emphasis on human financial behaviors. Rational and Irrational Economies is not a study that can fit into any text book, it is a world increasingly polarized on the expectations attached to any market especially in context of two stimuli; one of which is the period of expansion and the period of the contraction.


The latter is revised and advertised as a period in the history of money management which some continue from the standpoint of some benighted Austrian Money people, to be an inevitability from a general high period of robust and loose credit expansionary market policies. Of course, this diet is bad to the bone given the misleading inceptive in real time which both schools employ as a way to absorb any market this boom and burst.


Although we expected Greenspan to place more faith on the argument of Savings which seem at least Austrian, we find that it contradicts his whole existence wherefore he slovenly discusses the paradigm with aplomb and with Lorelei of positivist economist.  Yet his seamless web of interactive discourses on the relevancy of savings manufactures a separate reason for the lack of formal capacity of the Maps and graphs associated with seasons to forecast an economic future.


It is not from the Greenspan’s ‘The Map and the Territory’ that we learn the great expectation involved with Country Wide and it’s dislocating relational to Bear Stearns. It is from Andrew Sorkin’s ‘Too Big to Fail’ (2009) that we have a rearview into the collapsing world of Country Wide. In fact Sorkin at some point began to point to Country Wide as the root of the problems with the 2008 kamikaze. The show which began somewhere in March 2008, concerned Bear Stearns but the connection between Investment Banks





Mr. Greenspan attempted to measure the success of his stay at Fed Chairman from the great demands of the unusual economic challenges of the 2000’s, citing an instance from one of his 2003 speeches where he adjudged the agility of US Real Estate market as experiencing an ‘irrational exuberance’. This speech is memorable for a market looking for a direction and needing to explicate, and its invocation in his book is not a defense of productive involvement, rather, it is an oversight based on the financial role play of the lender of the last resort; the Feds, and the problems of using familiar instruments without the rearview of the consequences associated with them. 


The cornerstone of his book may be reduced to this theme that irrational financial behaviors, especially human behaviors, constitute as much relevant forecast instrument as other business indicators, that emphasis on behavioral economies is not misplaced given the events of 2008 with limited run down of the variables which does not exclude the human penchant for risk especially when the outcomes are less than desirable. Real Price of Oil may represent a kind of shock Index of the spot Price and notional GDP price index (Log) and Feds Rate, it is not necessarily within the … 


From this paragraph, it is clear that we are suggesting that the success and failure of ‘The Map and The Territory’ can objectively be measured by the use and abuse of economic forecast and indicators and not necessarily its history, or perhaps the book success is by the degree through which it offers a defense of economic indicators and its interpretive relevance to the forecast of US economy and Federal Reserve.


It is not to be said that there are alternatives which he pointed to but excess indulgence on degree of argument does equal the index of purely human form. It is not easy to quantity human behaviors but there is leniency towards a full and authorized pursuits of Herd-like behavior which based on instance capacity is often reduced to the opening gaps; beta from alphas, and in spite of the many few arguments on interests and inflation, the 4i quadratic is perhaps a Consumptive economic behaviors whose estimate is based on information, the flow. While the familiar territories and maps for forecast factors inventories and savings – particularly savings, the system here is not saved by rate of return or debt, maps for territories in comparative assessment to any market exist by reasons of the regression from a broad index of graphs. That is, the spread or the gaps between graphs...may or may not be leading the future all the time; it is unlikely that these forecast and monitors would not use savings and investment as tools for very significant tools. 


Greenspan made light the argument that US markets experienced a shift of emphasis from savings to debt in the last decade. He is looking to emphasis savings along the lines of Debt, going at the rate of public consumption of durable goods, and such future estimate may require sacrifice. Hence Savings away from Investors is also a healthy practice in spite of the Chief source of returns for instance Interest Rate. 



The author speaks of a fat tail for instance, that a fat tail in a graph usually reverts to the extent of losses. Subtracting expected losses from actual losses equals unexpected losses, but if any investor is looking to place the ‘beta factor’ role on his or her stock, it should not be done with respect to the stock in of itself, it should incorporate as much information as possible, including the legacy of business cycles and the human behavioral dynamics. Fat tails in ordinary circumstances of economic indexing, may equally result from the shift from production (production possibility) to cost is a transition strategy involving an industry and not necessarily manufacturing, but the length of the risk bearing tail beyond the excision of a risk averse investor mainly illustrates direction of the market after the shocks, and some of the shocks are irreversible.


 A fat tail is usually coincidental to the shift from left to right of the unemployment and inversely correlated inflation graph, best associated with Michael Philip as the Philip curve. The challenge to Philip’s curve by Michael Phelps does not diminish the attention it receives from of all economists since it is a logical explanation behind Labor as fixed index in any economy and there is a matter of wage to consider, and a shift from household to macroeconomics. It is an econometric tool. 


A right hand side variable (all right hand side variables) is mainly vector driven, but may be compressed to a three months, which is a final indicating of what has already transpired in the Markets, both Stocks and Notes, as the Banks indicators arms the Feds with GDP estimate, or conditions the reactions from the Feds or the reaction from the Government.  And the length of the tail usually point to consistent problems of unemployment and may point to short falls in aggregate demand resulting from the disequilibrium of fixed income and price.


Talk about easy money or flow period, where there a foreseeable momentum, credit and securitization hitting a certain shock. The Kurtosis following a unsettling period usually require a definition, when for instance a variable such as Crude oil mitigates cost of production or deflationary Auto index, continues injection of money from the Banks may not be advised, yet withholding credit will force a negative adverse effect – usually psychological – on the market. Here the Feds will be expected to risk a line of Credit or react to the market through bond acquisition, a tool for negative truncation following the unusual agility (zig zag) of the market.


Here the run off is within two major variable, will not necessarily relate the Bayesian model for multivariable Bank Stocks dependent Fed Index, whereas Poisson manifold, dissimilar from Alpha-Beta Gaussian as used by Fischer Black and Myron Scholes, perhaps a Markov (preceding the Credit card) chain will do but on a specific year, the Monte Carlos computation, experience excitation may show better regression given the vectors aligned for 3 months and other deaths and decay will apply, possibly 15th or 22nd of the 30 day calendar.   


The time or duration is important for both the VAR and AR, it is modeled after the previous execution and Time Series, which is not reality with due respect to Walk Process of the Bond as a definition of human financial behaviors, but measures the present from past record and hence the excitation, projection, earnings growth, GDP, in comparative performance to G-7 nations or peculiar others such as Britain and Germany the later Greenspan preferred over Japan for number of Banks and the role of American business tied up in Europe.









It is a shift that began its journey from the dumping of Gold as a standard for US currency 1971, a point that approaches the problems of CAPM from the participation of International currencies in U.S market. It amounts to commentary to add that CAPM safe-net is applause by the corresponding relational between currencies moving to US from International markets at 200 percent profits to nearly twice the amount when it moves from U.S into foreign markets. If the Feds still use Cross Section Dispersion, of bank Stock as estimate, Bank level of return on CAPM regression and daily yields over the S&P 500 Index and estimate, usually on U.S based companies such as S&P 500 Index suing SNL for Bank Stocks, it prompts a 12 month calendar clearing a comparison with a 2 year Treasury Notes (Merrill Lynch). We push the daily calculation from a month to month basis, and calculate the deviation from previous records (standard deviation), and the rest is easy for instance the overnight lending or LIBOR would be reduced to a three months with respect to 12 Bank stock regression and 2 year notes. It is a variance of 12 months measured from daily monitor or estimator with specialization of each Bank for a given month.


The problems of the United States with regards to the Shadow banking is shocking of its system by the negative externalities from Europe or from any regional economic environment such as Asia. Money laundry is one area the Fed Chairman did not torch on. The size of the wealth that is available in the US from foreign littoral impacts the local economy, that shadow banking alters the Internal Rate of return by the sheer size that a spike in Housing in disequilibrium to …the estimate of US Banks Stocks and Treasury Notes, usually eliminates the problems of unforeseen shocks to system and is hence a Univariate applicable model, a Vector Auto Regression (VAR) that mitigates Internal Rates without the housing numbers.  Yet the problem was a credit problem is derived from housing numbers widening on the reasons why there was reluctance to do much yet signifying that the problems was not unknown.


But if the housing numbers now experience more than normal excitation due to foreign or International Hot Money for short  peculating the Residential numbers separately or independent of Feds Index. The 2000s economic boom in measured light was not a Boom, it was uneven and a robust attention on one key area of the market. 2008 was also a housing burst that major Investment Banks with more than one crop Portfolio.   


Ordinarily, this safe-net explains why Japanese interest rate is usually lower than US and US than Europe, but from this arrangement and its relevance to overnight lending, we may fail to discover in the speeches and statements of Greenspan as Chairman in the 2000s that points to the money function of Euro to Dollars and the boom of Shadow Banking in US as A danger to Economic equilibrium, and an attack on the Internal Rate of Return reflecting the measure of general equilibrium, and/or disequilibrium which is not the same as Irrationality (unknown consumptive behaviors – usually a transition from Long Wave to Short Wave and its Variance which are the shocks to the market, or in advance money Fed Index over GDP) in spite of human financial behaviors which impacts (Graphs, Cycles) where the word Maps is here a macabre for these graphs and movement on the graphs and therefore Rational with due respect to the calculus and algebraic matrices of seasons and cycles and estimators, whereas the irrationality as a breakpoint, reflects movements on a graph reduced to a 1% by Greenspan – though not equal to 1 index. Or that the foreign financial machination was practically removing the estimator from the U.S Real Estate. 


Shadow Banking in U.S is not just a European Banking disease; it is a very Asian in concept. If Greenspan is for instance blamed for short falls in the oversight, it is to be said that the source of his ‘irrational exuberance’ which Robert Shilling mentioned without inciting Europe, is clearly a divide between his oversight of the cause of the disequilibrium of US market and the emphasis on housing as an economic indicator, or that his faith in the trusted Fed’s tools and application did not and the large percentage of European banks involved in American Real Estate industry and the impact of Euro has not received adequate press, especially the roles of some its major Investment Banks which in turn acquired by European Corporations.


The Financial Crisis Inquiry Report of 2011 did mention the impact of Euro on US housing, which is a spent force in the new book by Greenspan, the boom in the 2000s was only a housing bubble.


Greenspan argues that in 2006 nearly everyone in the market was using the basic concepts of Modern Portfolio Theory, which Myron Sholes, Harry Markowitz, Fisher Black, Franco Modigliani, along the lines of Paul Samuelson made popular. That it was also observed that the theory had limited applications, and was not unsuspected to measure a fraction of the market. The distribution of risk and losses is not governed by Micro or Macroeconomics, equilibrium or disequilibrium, it is a product of one’s willingness to accept that certain movements in the market cannot be justified and therefore caution is advised. But as Greenspan shares from his book, excitation from robust gains and large increases in numbers is not easy to manage hence the Institutions are also advised. 








Thursday, July 25, 2013

Carl R. Osthaus' 'Freedman, Philanthropy and Fraud; A History of the Freedman's Savings Bank.


Sampson Iroabuchi Onwuka

The primary attention of this article is Carl R. Osthaus' 'Freedman, Philanthropy and Fraud; A History of the Freedman's Savings Bank. The normal process involved in any recitation like this, is to treat argument to a large possible extent and add the sources of the information at the end, all of which may be expected to improve the readers percipience of the overall book from short discourses. There is nothing wrong in doing a review on a book with due attention to what the author wanted us to accept, to the probably reason that a book reviewed is not exactly the same as a book researched,  and that it a new research on an old book only fall short of the authors major-dome.

This book by Carl Osthaus is old, and the point he raised in the book is better rehearsed elsewhere, however, the topic is central to the growing demands of African American capital past, as a way to form the direct measure of the combative forces of the present and in prospects, serve a s a comparative yardstick between that past and present. The Bank had its headquarters in New York and eventually Washington D.C and then other branches such as those in Louisville, Richmond, Nashville, Wilmington, N.C., Huntsville, Memphis, and the proceeded to other places such as Mobile and Vicksburg. It is common history that the end of the 1866 and the 14 branches had opened and had a repository of $199, 283.43. And then by 1871, the Bank has opened 34 branches. The initial deposits from New York rolled a total of $700.00 initially and carrying from other banks $7, 956.37 and by 1874 it accounted for $57 million. These numbers are also discovered elsewhere.

Once more we need to mention that this book is not new and the book is not old, it does not stand out as the better books on the subjects on Freedman banking, but the content is vital or at least one central point proved to be a litmus paper in discharging the allegations of the Bank’s failure. At the center of this litmus paper is a certain Frederick Douglass, once accused to be the hand that doomed the bank, at least the last of the Presidents to grace the top of the Freedman savings and Trust Bank, but in comparative literature as from Osthaus', we are treated to a detailed portrait of the last days of the Bank which suffered from internal bleeding from earlier on, to die on as if the managers were not aware of it.

The Bank was however accused of being directly involved in the “mammoth” buildings in Washington D.C which was to have caved in the Bank financially in spite of the warnings from the Federal Government. But then the young company had seen the 'Credits Acts' 'era of Government subsidy brought to an in 1868. The notions of failures couldn't been any stranger to the economy that repaired paper with gold, and the windfall in profit came from all corners. But just as we witnessed a tidal wave of the rushing 1869, the new forces of financial assassination gathered for a feast. When the only source of provisioning a profit line for a bank and its credit is deposit, there is a tendency towards borrowing which no wise person may overlook. But this was not to be the case of Freedman's bank or a new bank, where as other Banks for profit may be backed for consumption by Government, this one wasn't, couldn't have, since it was designed with intentions of operating a bank model.  

It’s been said that mismanagement at the Bank and its apparent lack of initiative was central to the early sickness and eventually death but here and from the author, we begin to see that both Federal Government and the redeeming class of Freed Soldiers were already with problems of payment, and it is clear that either government did not have all the money to pay at the beginning or one point that seems to suggest this connection to the lack of full capacity by the Federal Government is that the black soldiers who served in the Civil War were already complaining of lack or delayed payment by the paymasters. It was not impossible to suggest who was exactly in charge of the payment for these black freed soldiers – literally meaning soldiers who are both free from institutional slavery and those discharged from army.

The argument about who was paid and exactly when and how was an issue that dragged the Army to the public and one of the means this was to be settled was through a centralized payment system in form of a Savings and Trust.  Historically, it is been said that it was A. M. Sperry who was Army general’s paymaster that suggested that a Bank can be opened ‘Freedman Trust and Saving that would help to solve this problem of payment through Federal Government takeover but in this book however, we learn that it was part of ongoing efforts towards helping the small business owners among the newly liberated slaves, who were primarily laborers, cooks, washers, town builders and construction, waiters, butlers, potters, and rail road workers. As theory goes, it was  

These men who that it borrowed too much from Northern Alliances of Andrew Carnegie, Jay Cooke, Louis Astor and Cornelius Vanderbilt who represented the first half of the Gilded Age were the principal architects of New York’s transformation as a preferred immigrant destination to the financial and banking capital of the world.  It was a good number of these unspecified group of mostly Whites and some Jewish, that truly had a formal knowledge of the demise of the Bank. At least in this book and on several official accounts, we learn that the first 50 board of directors who authorize investment and underwrite checks were all composed of non-blacks. In other words, the board had no single Negro on board.

As we are likely to discover, the Freedman Bank had at 420 thousand repositories, all of whom lost some portion of their money. While it seems clear that a good number of these first Bank Managers which does not mean that it covers all the necessary section. For that we are left with the purpose of making certain citation with view of archiving the broad strokes of Black American business and nothing more.

Freedman savings and trust company  had close to fifty (50 board of trustees, none of them Negroes, March 16th 1865, John W. Alvord, began the first tentative arguments, (1) According to Alvord, that the Freedman savings and Trust Bank was established  as a response to the need for Blacks, to save their money. (2) The only source of dividend was Interest rate  but over time, it was seemingly clear that the "the road to wealth passed through the Freedman's Bank" and for a brief decade it may have stayed that way.

Alvord letter to the Bureau, April 1867 “They changed the By Laws, and bring the principal office here (to Washington) placing the Banks, for the first time being under the special auspices of the Bureau. This, I think accords by Gen’ I Howard as will relieve us very soon of the very embarrassment. The bounty moneys…will be passed over to the claimants to a great extent; and thus we hope, by right influence, to obtain a larger amount of deposits” opens and closely the ambiance that the Bank was deeply involved with deposit line only, there was a any report on the daily outcomes of the Bank that affected those outside the management of assets.

It has been suggested that operational dynamics of Banks/Company was different from the Bureau, which was headed A.W Alvord. In a statement released by A.W Alvord, he is believed as saying that “The Bureau will favor Bank in this business all it can – but how much this will be cannot be told, until we have some practical experience”, we may tend to witness a form of connection to the possibility of a ranking bureau in charge of the day to day operation of Bank, where as we may seen have read elsewhere, A.W Alvord was part of business and management model. The Bank Ownership  “Here at Head Qrs. , we look very much like one concern – a number of Bureau officers occupying the back room of our Bank, though, as before said, we are really only in fraternity as institutions.” 

 The books cited the words of Frederick Douglass that “There was something missionary in its composition, and it dealt largely in exhortations as well as promises. The men connected with its management were generally church members, and reputedly eminent for their piety. Some of its agents had been preachers of the ‘word’. Their aim was now to instill into the minds of the untutored Africans lessons of sobriety, wisdom, and economy, and to show them how to rise in the world.” This appears on Life and Times of Frederick Douglass, and It also appeared in the ‘Complete Biographies of Frederick Douglass.’

And in similar quotation from Robert Yancy ‘Federal Government Policies and Black Business Enterprises; we read of the citation that “One ‘Daddy’ Wilson, who later became cashier at Washington was used and misused by whites as a figurehead. He served as a fine ‘buffer’ for the whites to loot the bank. One Mr. Vanderbrung, for instance, borrowed $30, 00 (from him) on the verbal endorsement of the District of Columbia ‘boss’. Jay Cook and Company, financiers, borrowed $500, 000 at five percent interest, while depositors in this same institution were paid six percent interest on savings.”

 We are not sure who this Daddy Wilson is and whether the full quote can be attributed to Douglass, there is parochialism from the text that suggest that Douglass was probably the author of the statement. There is also something of the charge in the statement about Jay Cooke, that a statement or some account exist under the name Jane Cooke as Wife of certain William Cooke may have sent the message into all kinds of direction.

Was Cooke of Jane Cooke the same as the wife of the Jay Cook and it may mean that the Jay Cooke himself is not without explicating on how he managed to pull $500 000 at the time when it was obvious the Jay Cook and Company was going under following the Panic of the 1873. In another incident, there is a note fiefdom that was equally derived from that view of the bank as a form of a Charity and when this view is factored into the running of any business, you are left with that process of sympathy and not profit, and the business dies gradually. 

W.E.B Dubois in Souls of Black folks Chapter 2, that “Not even ten additional years of slavery could have done so much to throttle the thrift of the freedmen as the mismanagement and bankruptcy of the series of savings banks chartered by the Nation for their special aid.” And there were others such as Booker T. Washington that “This bank had agents all over the south, and colored people were induced to deposit their earnings with it in the belief that the institution was under the care of the United States Government.”

The argument is not that lending excesses of the Bank or vice associated with employee’s inexperience at the earliest stages presaged its failure, or that mismanagement as the Bureau and congressional hearing attempted to show, forced the early demise of the bank. While this view has proven central to the meaning and thesis of the failures associated with the Freedman Trust and Savings, it may seem only appropriate to the more dispassionate observer that such view is derived from the citizenry unsure about the power that was devoted to the newly redeemed.

Yet it is not without the roughing the vulture of the area presume to know now the bank, i.e, true structure is likely to survive with deposit as it ultimate profits ends and it drove the hired hands in fixing the thin sheet of the deposits as if the Bank was backed by the Federal Government.

"Tis little by little the bee fills her cell;
And little by little a man sinks a well
Tis little by little a bird builds her nest;
By little's a forest in verdure is driest'

 The statement is believed to hang in front of Freedman's Bank

'No good, Solid wealth comes in a day', ‘A tree grows very slowly. You cannot see it grow still it does grow. So with your deposits” 

Measured with failures of Banks at previous eras, the failure of Savings and Trust Company hold no special meaning, there will be banks that will fail and there were other banks that failed in the same period. But measured from the promises that the bank held for newly redeemed children of ex-slaves and ex-slaves, the damage to their credit proved impossible to prefigure. It was indeed a first Bank of a company type of its kind, and it was loosely held together by measly sum of the working majority of blacks – of course they were others – but in reality it was a young bank whose capacity would be redeemed only in a time and not in the 8-10 years. 

 The end judgment is that the Bank was forced to do much too quickly, it was easily cornered by those who understood the inside workout of the Banking Sector and it was not never to be survived the first few decades. Its history is overstated, its rescue mission misdirected, and its lessons are better observed from the positions of United True Reformers of Richmond Virginia and probably nothing else. If one is willing to compare the true judgments of people, especially some with background in banking and industries , it will be conscientious title ‘True Reformers’  from Virginia Black Folks who gifted the Bank its highest repository and no doubt bear the lasting epitaph reflecting a episode involving Blacks and Business, the summary of the time.


Reginald Washington research on his ‘Federal Records and African History’ (Summer 1997. Vol.29, n0.2), “The act had a clear objective and purpose; a single savings institution created primarily for former slaves and their descendants. The deposits received by the bank...with the exception of a final set aside for operating costs and other emergencies...were to be invested in “Stocks, Bonds, Treasury notes, or other Securities of the United States.” The Charter suggested that “no loans would be made” and that “all the assets of the Bank were owned by depositors in proportion to the deposits of each.”’ These point appear in Carl R. Osthaus ‘Freedman, Philanthropy and Fraud’ and Osthaus placed emphasis on the point of the Bonds and Securities, suggesting that it was given the right to invest  the depositors money but not to loan it may mean that the ‘Freedman savings and Trust’ was not a Bank but a company.  And the maintained that ”Contrary to what many investors where led to believe, the Bank’s Assets were not protected by the Federal Government” but they had branches in Vicksburg, Richmond, Charleston, Savannah, New Orleans, and Houston. 

That they used advertisement bearing Abraham Lincoln and Senator Oliver Otis Howard, leading the depositors to believe that their money deposits in the Company – which they took for a Bank were backed the Federal Government. This we can understand was not true at all, for sure, the experts including the founders and bureau that managed it by names J.W Alvords and Company would have known that Banks in the United were backed at some level by Federal Government, especially when these Banks also issued Insurance. Historically, this continued till the 1930’s of the FDRs and the slitting of Insurance from Bank operation associated with Glass-Steagall Act. 

But we are looking at the turn of the 1900 century when majority of the Banks that made a difference, made a difference along the lines of Investment Banking, where it was not easily called a company in those years, it was called a company, for instance Jay Cooke and Company, which was the largest investment bank of the time, or what we call investment Banks now, was then not a Bank and not backed by anybody saving their own Insurance and their own notes baited against the Federal Debt. Yet it seems that the success of Jay Cooke coincided with the rise of Salmon P. Chase and eventually the Morgan men at the Treasury. It will be interesting to have shown how mismanagement from the side of those who were not even in the 50 man Board will become the reason why the Bank failed. Even as accurate as it may been from the long Q and A at White House, it would have made more sense for Washington to look at the Bank sheet and exit strategy of funds from their financial main event.  

As such we can now clearly understand the role of J.W Alvord in the whole evolution of the Company, that he like many people today still believe that  That they promoted the face of the Bank along the face of the President Abraham Lincoln suggest that Alvords either in kind or with the proper wish of transforming the company into a Bank, intended from the beginning to mislead the repository and as such many people – even today include Reginald Washington and Carl Osthaus, still think it was bank where as Goldman Sachs not unlike Lehman and Bear Stearn of today was only and very lately transformed into an ordinary Bank by Act of Congress and through emergent effort of the current U.S Treasury , Timothy Geithner and Former Treasury Secretary Hank Aaron. To be clear, Lehman at that last minute asked for the same vitae for daily Bank but it was turned and used for Goldman instead.

Apparently, the structure of the Company was set up in New York in such a way as to mirror the Investing Banks such as Jay Cooke and Company, who was the U.S number of ...agter and whose greatness along with those Andrew Carnegie was tied to the Rail-Roads. As we shall discover that the many areas of the business with Rail-Roads particularly tracking the routes of champion soldiers were tied to the investment position and Branches of the Freedman Company, for instance Vicksburg, Richmond, Charleston, Savannah, New Orleans, and Houston, became as it time went on, a trouble malice because of the quarrels in between the generals, one of which was proven instrument in the Panic of 1873, the opposition of Alexander St. Claire to Joseph E. Brown in the consummate struggle over the Western and Atlantic Rail line and the ending of Vicksburg Rail Road line. 
This point whose details are to be understood as birth of the Panic of the eventual1873 does not appear in Osthaus Book or in Washington’s comparative analyses, either would anyone find it the congressional hearing and oversight committee on the demise of the Freedman’s Savings and Trust Company. While the questions about the lending of Jay Cooke and Company $500,000

Carl  Osthaus we must indicate clearly mentioned that the structure of the ‘Bank’ began with the Federal  Government taking over the Military Savings Bank at Beaufort, South Carolina, which was known eventually as ‘South Carolina Freedmen’s Savings Bank’ a pacesetter if not the pacesetter to the Freedman Saving and Trust Bank. This was where the con began, from a name or page acquired from its inability to pay the Blacks on time and retained as a gratuity to the efforts of A.W Alvords as stated from his acclaimed position of his Fraternity concerning the unity franchise of Military accounts of Blacks, some of which was escrow some of which rendered to the receiver in pennies all of which resulted from unclear and unusual practices of the designated paymasters.  There was also the problems of Regiments and the squad leaders, some of whom did not feel obligated to release the compensation of their squadrons to other people from clearly different and nearly opposing party. 

Besides, the South after unification, did not feel obligated to any Northerner let along Blacks or Freedmen, and had no qualms in confiscating their pay.

One of these soldiers who went on to help their fellow soldiers so to speak was General Benjamin Butler, who established in Norfolk Virginia a similar Freedmen Savings and Bank, and in Louisiana, there was the popular incident of General Nathaniel Banks ‘Free Labor Bank”, received from its inception deposits from African American as well as White Plantation owners. The result was the rift which led to many issues of payment and the eventual actions of the Government including the takeover of the property and Abraham Lincoln singing into law on March 3rd, 1865 “An Act to Incorporate the Freedman’s Savings and Trust Company.” There, and from the beginning and in very Blue Prints, it never said a Bank, it never said an insurance, it said a Company.

There is also a persuasion from these lines, that the incident described thus concerning the inefficacy of Banks to deliver on their payment on time to the Soldiers, may have been touted as a fault line towards the financial engineering on a new form of business or payment option, that (1) allowed the business to be owned and managed by the depositors and (2) to enforce transparency  the tuners of the new financial “were to open for inspection and examination to such persons as congress would appoint.” It may now also seem that the picture which the movers of the New Ideas, A.W Alvord and company showed to the public primarily had to do with new determination and policy from the adverse conditions of the fore-bearers, and was eventually used to plow the public of a new Bank instead of Company which would have the face and standing of the President. It may also seem that the President Lincoln would have inveighed against the indirect abuse of his names, had he survived the Ford Theater assassination. This important factor proves to be the weapon in the hands of New Yorkers.

There is no doubt that Bank of England established in 1694 followed the Dutch model of Bank Funded through Debt.  That America founded its Colony in Virginia moved the country away from the school of Banking, but eventually as many Historians of Finance has mentioned that three Americans, (1) Robert Morris (‘born in Britain) (2) Alexander Hamilton (born in the Caribbean - ‘Nevis’), and (3) William Duer (English born from Antigua) will argue for the Anglo-Dutch system of Banking that is built from Debt or Credit. To be clear, we have to mention that while there is nobody who doubts Hamilton as the Chief Architect of the American Federation and Governance, it was William Duer who was his influence on the formation of American Banks and operational dynamics. Whereas Duer failed as a copy bond manager and speculator, it was Hamilton that finalized his views of the country setting America towards that part of Bank Institution that Funded Debt. This theory of Funding from the time of American Civil War and the consequence victory that handed the North a sweeping hands in redemption and the reform of the years to come.

Already in France, following the end of Napoleonic Wars, particularly his defeat at Waterloo, two Jewish French spectaculars Nathan and James Rothschild became richer than ever by accurately predicting the defeat of the French and consummated this defeat in money times through an information delivery process as with a Pigeon. But the story takes interesting turn when French soldiers had to return from defeat and turned their attention to the paymaster by name Gabriel Julien Ouvrad. His role in delivering the money through a Bank system which installed it made him popular and served as an incentive for American Soldiers half a century later.    

In a book by Kevin Philips ‘Wealth and Democracy’ 2002, he cited this peculiar American frontiers on Funding through Debt and realigned with the rise of Rail Roads in the decade following the U.S Civil war and went on to demonstrate that the country with the government expansion and the permanence of Anglo-Dutch Banking Model, came also the necessity of the Federal Government to call for money, that is the Banks had to purchase “new Federal Bonds” available to issue “Federal Banknotes”. After the victory of the Northern Unionist of the Southern Confederates, the country discovered itself indebted to several privateers; Robert Morris, William Bingham, Stephen Girard and John Jacob Astor. 

The only name lacking from the list was Cornelius Vanderbilt. These men who were mostly from New York home to both William Duer and Alexander Hamilton, and eventually home to Robert Morris as representing his British clients, simply became the first batch of American millionaires on account of profits from war and the rail roads and eventually part of the Gilded Class.But cannot fail perform the obvious that the disappearing of the money tree may or may not have gone under with these barons like Vanderbilt or is appears elsewhere as Vanderbrung, some of which confused both the questioning committee and the very outsiders as these porters of the new redeemed ex-slaves as other Americans outside the banking circle. the struggle of the 19th century per-mulled the seeming baser others into the bliss of ignorance as bonds rose and fail without their least reckoning of it. 

But then, some names are hard to miss and if only small sources express as they appeared in Robert Yancy's book are widened from the gilt of how they managed in the first place to appear on record perhaps so deep a hand should have gloves that be others. Fredrick Douglass after his denouement with Bank's ultimate end, he bemused his fate as being 'married to a corpse'. Yet the surreptitiously cruelty of the Company bad fate on the greater black managed in the end to choke Douglass into the riddle that Freedman's Saving and Trust Company was 'black people cow, white people milk'. But in his more dislocating dismemberment of the whole cruel dealings, the one banner held the light was already among the elite in Valhallas. The myth that accompanies a life 3/4 fulfilled offered a different echo that Lincoln had lived, perhaps.... The end was not an end, it was to the "Virginian Country" folks, a beginning, since they had always opposed the Anglo-Dutch model of Banking, of forcing the hands of profit through debt, or funded debt.         

The author also mentioned that “The principal financier of the North’s triumphant road to Appomattox the great bond-seller Jay Cooke went bankrupt in 1873, pulled down by overextended railroad underwriting as well as by the scheming of the House of Morgan to gain the preeminent role in its government finance. J.P Morgan and a second financier also much involved in under-writing and supporting government bonds, George F. Baker of New York’s First National Bank,….” These men at the end of Civil War took it upon themselves to oppose the controlling influence of Jay Cooke, who historically almost single handily re-wrote the selling of Bonds in U.S, and whose company was based in New York.

In that 1873, “Railroad prices peaked in March. By late summer the Wall Street bears were clawing in the biggest arena of U.S finance; railroad stocks and bonds had a combined value of between $3 and $4 billion in a year when the federal budget came to only $290 million.”

“Drexel, Morgan and Company was hammering at the Northern Pacific financed by the House of Cooke, the biggest investment Bank in the United States and Drexel Morgan’s great rival” In all reality, the author demonstrated in his book what led to the decline of these earlier Northern frontier men, especially Jay Cooke and Company, which brought the crash of 1873, and in the empty casket of the company was never investigated leading to the money they borrowed from an a young Company. That the coming of Drexel, Morgan or the Morgan Men opposing Investment Company, forced Jay Cooke and Company into obscurity and that what followed was a tidal wave of collapse and drowning of an already over-priced rail road bond, was entirely secondary to the process set in motion by officers who had the wherewithal. 

There, within the whole structure, lies the ‘Freedman Savings and Trust Company, never Bank.