Wednesday, October 28, 2015

FOMC | Committee Stands Pat

Jeffery Lacker, FRB Richmond
inflation hawk, voted again for
a rate increase, losing 9 to 1.
Today the Federal Open Market Committee voted to continue interest-rate policy at the zero-bound level, where it has been since 2008.

The sole vote against the decision was that of Jeffrey M. Lacker, President of the Federal Reserve Bank of Richmond, who would have preferred that the FOMC raise the target range for the federal funds rate by 25 basis points at this meeting. He had voted for a rate increase at the previous FOMC meeting.

The case for raising rates is that zero-bound interest policy makes it difficult for the Fed to encourage the economy should it take a turn for the worse, and unemployment rates are low by historical standards.

The majority view is that the FOMC has been charged since 1946 with steering between the twin dangers of inflation and unemployment. The inflation rate is below the Fed target of 2 percent and economic growth has been moderate by historical standards.

Meanwhile, the news from the Bureau of Labor Statistics this morning was that the September improvement in jobs was broadly based among metro areas.

The next meeting of the FOMC is in mid-December. The meeting will be informed by two more months' worth of new data on labor markets and other economic indicators.

Sunday, October 25, 2015

ART BIZ | Oct. 25–Pablo Picasso Born, Commercial Genius

Pablo Picasso (1881-1973)
This day in 1881 was born Pablo [Ruiz y] Picasso in Malaga, Spain. He and Henri Matisse and Marcel Duchamp are the three artists who most defined changes in 20th century painting and related arts.

Picasso's Acrobat on a Ball inspired the symbol for Occupy Wall Street.

Among his most famous works are his early-Cubist Les Demoiselles d'Avignon (1907), and Guernica (1937), a portrayal of the bombing of the Basque town of Guernica by German airplanes during the Spanish Civil War.

Picasso’s father was a professor of drawing and trained his son for a career in academic art. Picasso had his first exhibit at 13 showing extraordinary artistic talent. He was living in an artists'  enclave in Barcelona–painting portraits–when one of his paintings was selected for the 1900 World's Fair in Paris. He went to Paris for the exhibition at the Fair, saw paintings by Manet, Cézanne, Degas, and Toulouse-Lautrec, and decided to be an artist.

The following year got great reviews for an exhibition at a gallery on Paris’ gallery-rich rue Lafitte and decided to stay in Paris. He produced a series of paintings called the Blue Period (1901–1904), evoking the sadness of poverty. It includes The Old Guitarist (1903).

In sequence, Picasso tried different styles, from the Rose Period (1904–1906), in which he often depicted circus scenes such as the previously noted Acrobat on a Ball (1905), followed by the African-influenced Period (1907–1909). His Analytic Cubism (1909–1912) period was shared with the French painter Georges Braque, followed by his Synthetic Cubism (1912–1919) period, also referred to as the Crystal period.  The Cubist art has the subtext that art need not represent reality to have value, and brought collage to painting. Major Cubist works by Picasso included his costumes and sets for Sergey Diaghilev’s Ballets Russes (1917) and The Three Musicians (1921). After Cubism, Picasso explored various themes that included images of violence, culminating in Guernica.

His work comprises an impressive collection of more than 50,000 paintings, drawings, engravings, sculptures, and ceramics produced over 80 years.


My mother Hilda van Stockum stuck to traditional Dutch painting techniques and subjects, having gone to art school in Amsterdam and Dublin (she built a following in Ireland and is considered an Irish painter, having half-Irish mother). Her comment on Pablo Picasso is that he was one of many great painters but was a uniquely competent businessman. "A commercial genius," she said, because each of his artistic periods simulated his death.

My mother points to the many artists, like her cousin by marriage Vincent van Gogh, who were living either in poverty or in a situation where they relied heavily on a patron (in Vincent's case, his cousin Theo). She argues that Pablo Picasso, by killing off a subject matter or style of art, created scarcity in his art. This allowed his gallery promoters to consider the art produced in each period as having been capped, preventing dilution from subsequent paintings.

Thursday, October 22, 2015

BANKS | Comptroller Curry Is Scary

Thomas J. Curry, Comptroller of the
Thomas J. Curry, Comptroller of the Currency, gave mild speeches on March 2 and April 2 focused on risks from terrorist attacks on cybersecurity, a threat to bank operations. Worrisome, but with an enemy on some distant shore and technical fixes waiting in the wings.

Yesterday at the Exchequer Club in Washington, it was different. He allowed himself to step out and make a few spicier comments. He acknowledges that at this stage of the credit cycle, credit quality is and can be expected to deteriorate, and "credit risks are coming to the forefront," ahead of threats from jihadist hackers.

Curry doesn't go much further than that in his remarks. But he plants the seeds of worry. Wall Street on Parade spells out what Curry might have said. Reforms have failed and we may see in this credit cycle a repeat of what led up to the disaster of 2008. One solution is more unified oversight of the financial sector at the Federal level, i.e., encompassing the securities industry.

When I was working for the Federal Reserve and FDIC in the 1960s, the Bureau of the Budget was looking at unifying financial regulation just as a matter of efficiency as well as effectiveness. But if you are an institution being regulated, the last thing you want is efficiency and effectiveness. You want the maximum number of regulators, so you can shop among them.

And if you are the regulator, you don't want your agency eliminated. We can't expect the Comptroller of the Currency, speaking for a 150-year-old office that has had to fight to remain independent from the Federal Reserve System, to advocate for consolidation of Federal oversight agencies.

The issues are surfacing now because of the good work of Pam and Russ Martens of Wall Street on Parade, who are keeping up a steady Pecora-like stream of revelations of what Senator Wright Patman used to call malfeasance, misfeasance and nonfeasance. The candidacy of Bernie Sanders has kept the Glass-Steagall issue in the public eye during the first Democratic debate.

Here is a snippet from today's post from the Martenses outlining the problem:
What Curry didn’t mention are the real elephants in the room – the casino room on Wall Street: the $180.29 trillion of derivatives held at the insured banking units of just four banks: JPMorgan Chase, Bank of America, Citibank (part of Citigroup) and Goldman Sachs. Just those four banks hold 91.1 percent of all derivatives held at the thousands of banks in the U.S. If that’s not concentrated risk, we don’t know what is. Curry also didn’t mention the frightening reality that some of the biggest banks are up to their old dirty tricks of dodging capital requirements through trades with dubious counterparties.
In June, the U.S. Treasury’s Office of Financial Research (OFR) released a report that set off alarm bells. The report, written by Jill Cetina, John McDonough, and Sriram Rajan, revealed that the big Wall Street banks are ginning up their capital measures by engaging in non-transparent “capital relief trades.”
The report indicated that JPMorgan’s London Whale trades, exposed in 2012 and the subject of multiple Congressional hearings and an in-depth report by the Senate’s Permanent Subcommittee on Investigations, was, in fact, a capital relief trade. JPMorgan Chase has owned up to losing at least $6.2 billion of bank depositors’ money on those trades.
Back in 1933, the Pecora Committee - a Senate Committee that was, unusually, named after the aggressive staff counsel, a New Yorker named Ferdinand Pecora - held hearings that led to the Glass-Steagall Act of 1933 and the Securities and Exchange Act of 1933 (while, alas, also skewering a few people who should not have been so impaled).

The Glass-Steagall Act was well-conceived and lasted 70 years. Banks traded deposit insurance for ring-fencing around the commercial banks to keep out the investment bankers. The flaw in the Act was there from the beginning, namely that the securities business was regulated separately and inadequately. The financial lobby has exploited that loophole in stages, notably in 1999 and 2002. The Economist Magazine in 1999 wisely opined that if the Congress was going to take away some Glass-Steagall controls, they would have to extend controls on the securities business; the reverse happened.

A predecessor of Curry as Comptroller of the Currency, John D. Hawke, Jr., in a speech to the NY State Bankers Association in 2000 said:
Regulatory competition has stimulated innovation and efficiency. Competition keeps all of us on our toes, and provides incentives to add real value to our supervision. While the system unquestionably provides opportunities for regulatory arbitrage, there is little evidence that it has stimulated the competition in laxity that former Federal Reserve Chairman Arthur Burns discussed 30 years ago.
Competition in laxity is exactly the term I would choose to describe what happened to the mortgage sector during the next seven years. New York State has now recognized that financial services has  become one industry, and has consolidated banking and securities oversight into one regulatory oversight body that talks openly about financial risk and the risk-taking enemies closer to home. It's time we consolidate financial regulation in Washington.

Wednesday, October 21, 2015

NYC COMPTROLLER | 1992-93, Then & Now (As of Nov. 15, 2015)

1. Fred Palm, Joe Benitez, Barry Skura, David Eichenthal, 
Bob Harris, at Russian Café Andruska. We said Bon Voyage 
to Bob, leaving for Moscow, 1993. Photos by JT Marlin.
Benitez, Joe
Carlsen, Guy
Cohen, Libby
Gmach, David
Dignam, Rhea
Eichenthal, David
Gu, Zheng
Halverson, Dick
Harris, Bob
Hathaway, Dixie
2. L to R: Marlene Rehkamp, Alice Tepper Marlin, Ibby 
Lang, Barry Skura, Joe Benitez, Bob Harris.
Holtzman, Comptroller Liz
Lang, Elizabeth (Ibby)
Marlin, Alice Tepper
Marlin, John Tepper
Mattei, Suzanne
Nairne, Michael
Neustadt, David
O'Marah, Maeve
Palm, Fred
3. Ibby Lang, Fred Palm, Benitez, Barry Skura,
David Neustadt, Bob Harris

Paul, Alice
Rosenthal, Andrew
Sanzillo, Tom
Schindelheim, Marc
Skura, Barry
Stewart, Lincoln
Tallarico, Claire
Wollman, Eric
More here from years 1994-2001.

If you can update present status of anyone on this list, please email me.

4. Bob Harris, Rhea Dignam, Michael Nairne.
Barry Skura
THEN: Office of Policy Management
NOW: Health and Hospitals Corporation

Bob Harris
THEN: Director, Office of Policy Management
5. Maeve O'Marah, John Tepper Marlin, 
David Gmach.
LATER: Gig in Moscow, married Russian lady
NOW: Retired

David Eichenthal
THEN: Deputy Director, OPM
NOW: State of Tennessee, Chattanooga

David Gmach
THEN: Comptroller's Office
LATER: Headed up Business Improvement District

David Neustadt
THEN: Press Officer
NOW: Press Officer, Financial Services Dept., NY State, Albany

Eric Wollman
THEN: Attorney, Comptroller's Office
NOW: Attorney, Comptroller's Office
(and manager of FOCEA, Former Office of Comptroller Employees Association) 

Lincoln Stewart
NOW: Department of Finance, NYC

6. Eric Wollman, at leisure.
He runs FOCEA (Former Office
of the Comptroller Employees Assn.).

Maeve O'Marah
THEN: Comptroller's Office
LATER: Went to Massachusetts Budget Office

Marlene Rehkamp
THEN: Assistant Comptroller
NOW: Editor, Writer

Rhea Dignam
THEN: Executive Deputy Comptroller
NOW: Senior Counsel, Office of Compliance Inspections and Examinations, Securities and Exchange Commission

7. Holiday party, Fiscal and Budget Studies (FABS), 1992.
Who will tackle the Santa Claus piñata? L to R: Zheng Gu,
John Tepper Marlin, Bob de Laurentis, Andrew Rosenthal.

Tom Sanzillo
THEN: Deputy Director, Office of Policy Management
NOW: Leader of
Energy Nonprofit in Cleveland

9. Santa doesn't have a chance. L to R: Zheng Gu,
Dick Halverson, Guy Carlsen.
8. Zheng Gu steps up to
 the plate.

Postscript, Jan. 30, 2017: More information on FOCEA is available in these posts:
2016 FOCEA Florida Meeting
2017 FOCEA Florida Meeting

10. L to R: Lincoln Stewart, Dixie Hathaway, Andrew Rosenthal.

MAC | Keys – Fix please!

TO APPLE: Mac Air at left - Up key lacks heft. Mac Pro at right - Down key has blight.
These are the most-used keys. Can you fix them please?

Tuesday, October 20, 2015

FOMC | Will Fed Hawks Say Boo Next Week?

The FOMC can't do much to help the U.S. economy on Oct. 27-18.
All it can do is scare people. Early Halloween at the Fed?
The long stretch of zero-bound Fed policies since September 2008 must be giving some policy makers cabin fever.

The Federal funds rate (remember that?) was dropped to near zero after the Lehman crisis.

I was there when former Federal Reserve Board Vice Chairman Laurence (Larry) Meyer of Macroeconomic Advisers told the NY Association for Business Economics in December 2008 that the FOMC should take a long vacation - two years. (Till the Fed starts to crunch, they might as well be at lunch.)

Larry Meyer didn't have any idea that the vacation would have stretched from two to seven years. It's now past the end of the Biblical-bovine feast-and-famine cycle. (Is that why the Fed term is 14 years? One full cycle? Senator Carter Glass would know.)

As a Fed hawk when he was Vice Chairman, Meyer would doubtless be on the side of those calling for a rate increase at the FOMC meeting next Tuesday-Wednesday.

The BLS state job numbers for September (as usual coming out more than two weeks after  the national numbers) that were just released this morning show little change in unemployment rates over August.

Unemployment, based on the relatively small sample of households (it's a stretch to rely on them for month-to-month guidance, but you use what there is), shows 37 states and D.C. continuing to decline month over month, with six states registering an increase and seven no change.

A state unemployment-change diffusion index - which I have advocated someone track - would reduce the multiple numbers to a single one that could be usefully charted. Compared with September 2014, the state unemployment data for September show 41 states down, seven states up, and two states unchanged. Sepember's national jobless rate, which was released earlier this month and is seasonally adjusted, was unchanged from August at 5.1 percent; it was 0.8 percentage point lower than in September 2014.

The nonfarm payroll employment numbers are more interesting and they show weakness around the country. They decreased in 27 states, increased in 20 states and D.C. and are unchanged in three  states. The biggest losers by job count - the weakest states based on a count of payroll job losses - were Missouri, Pennsylvania and Michigan. The biggest winners were Texas, New York, and Georgia.

On a percentage basis, the biggest losers were Hawaii, Vermont and Wyoming and the biggest winners were Delaware and Kansas, and South Carolina.

Compared with the same month a year ago, nonfarm employment increased in 46 states and D.C.  and decreased in 4 states. The biggest winners are Utah, South Carolina, Idaho and Washington. The biggest losers are North Dakota, West Virginia, Wyoming and Alaska.

Wednesday, October 14, 2015

BUBBLES | Which Candidate Best Understands Them?

Bernie Sanders wants to bring back Glass-Steagall; Hillary Clinton does not.
Pam and Russ Martens argue that Sen. Bernie Sanders showed in the debate on Tuesday the best appreciation of the causes of the 2008 financial meltdown, the risks remaining today. and what to do to regulate the financial markets.

The Martenses say that Hillary Clinton does not understand that Dodd-Frank gives power to the regulatory agencies to break up large banks.

They are impressed that Sanders opposed the 1999 teardown of the Glass portion of the 1933 Glass-Steagall Act, back when it happened. (The wall between commercial and investment banks was torn down, but the insurance of commercial-bank deposits proposed by Rep. Henry Steagall is still in place.)

Sanders wants to bring back the wall created by Senator Carter Glass (D-Va.). Hillary Clinton does not.

Although Sanders calls himself a Democratic Socialist and calls for revolution, what he is saying fits what the London Economist Magazine said in 1999. I pointed out the Economist position in Huffington Post in 2008.

Wednesday, October 7, 2015

R.I.P. | Mae Doris Corrigan (1928-2015)

Doris Corrigan (lower left) with then-Speaker Quinn (R),
 turning out for Hillary Clinton. Assemblyman Dick
Gottfried and Tom Duane, upper left, were at Doris'
memorial service last weekend.
There are people in New York City who make things work and are insufficiently recognized.

You sometimes don't find out the full extent of their contributions after they die and a memorial service is held for them.

Jane Wood in Chelsea was one of those people, saving so many from evictions from their homes.
Little-known fact: Doris attended
Hogwart's, which explains a LOT.
Here she is graduating from the
junior school at Hogwart's.

Another was Mae Doris Corrigan, who was at the forefront of every Chelsea humanitarian and anti-discrimination cause for one-third of a century.

A memorial for Doris Corrigan was held last weekend from 2 p.m. to 4:30 p.m. at the Hudson Guild in Chelsea. It was opened by Ken Jockers of Hudson Guild.

Laura Morrison. Photo
Doris was 87 when she died July 23, 2015 in the Amsterdam Nursing Home, where she had been a patient for several months. Doris was a major presence in Chelsea, as was indicated by the large turnout in her memory.

State Sen. Brad
Hoylman. Photo JTM.
Doris was widely known in New York City for her advocacy of progressive neighborhood causes within the Reform Democratic Party organization over the past 40 years. She was at the founding of the Chelsea Waterside Park Association. She was president of the Chelsea Reform Democratic Club, and fought to promote affordable housing and to defeat the plan for a football stadium on the West Side.

Her health began to deteriorate in 2011 when she was hospitalized after a fall, said Laura Morrison, a community liaison officer for state Senator Brad Hoylman and a long-time friend of Doris’s.

Five generations of Chelsea district leaders turn out to honor Doris Corrigan.
L to R: Steven Skyles-Mulligan, Sylvia Di Pietro, Tom Schuler, Tim Gay,
Paul Groncki, Kathy Kinsella, former State Senator Tom Duane. Photo JTM.
State Senator Brad Hoylman said : "They say in Albany there are two kinds of people - workhorses and show bunnies. Doris was a workhorse."

Morrison and Tom Schuler, a former Democratic district leader for Chelsea, helped Doris in her W. 20th St. apartment at the end of her life.  They and Steven Skyles-Mulligan, current Democratic district leader for Chelsea, made it possible for Doris to remain in her Chelsea apartment for as long as possible, and found her a nursing home on W. 112th St.

Born Mae Doris Clark, she was raised in Grosse Pointe, Michigan, and went to Wayne University in Detroit. She moved to New York and married journalist Frank Corrigan. Years later, Doris became his full-time caregiver when he became seriously ill. He died in 1982.

Robert Trentlyon (L with Yale cap) at the Harvard-Yale
game, 2011. Bob and Betty are away in Holland. He
is researching storm surge barriers for NYC. Bob doesn't
like this photo (Harvard won big). Selfie by JTM.
Robert Trentlyon, a member of Community Board 4, former publisher of the Chelsea-Clinton News and founder of both the Chelsea Reform Democratic Club and the Waterside Park Association, said to Al Amateau that Doris worked for his office and then just appeared on the political scene in the early 1980s:
She was always dependable and then indispensable. She came to the Chelsea-Clinton News office on 24th St. in the late 1970s after she lost an advertising job somewhere. [...] She took care of the details in everything she did.
State Senator Duane, District Leader Corrigan and
Governor (Mario) Cuomo.
Doris Corrigan joined Trentlyon in his community work and when it came to planning for the Hudson River Park - which now covers the entire west side from Battery Park to 59th Street - she came aboard for that as well.  The nine-acre Chelsea Cove now includes a skate park, lawn and carousel.

The Proclamation by then-City Council  Speaker Christine Quinn expresses "gratitude" of the City of New York to Trentlyon and Corrigan for “breaking down the wall that kept Chelsea removed from its waterfront."Speaker Christine Quinn called them “living legends of the West side.”

Rep. Carolyn Maloney (L) and former District Leader Kathy Kinsella, with
Steven Skyles-Mulligan behind at right. Photo by JT Marlin.
Trentlyon was not at the the memorial service because he is in Holland investigating the potential for barriers to prevent catastrophic storm surges of the kind that occurred during the Katrina storm. Trentlyon is now working on storm-surge barriers and is away in Holland doing research on them.

Councilman Corey
Rep. Carolyn Maloney, whose district now takes in much of Chelsea, said: "Doris held every position she could within Chelsea. You always knew that her petitions would come back looking beautiful. And, by the way, she was a great cook as well."

Rep. Jerry Nadler praised Doris' work on parks and on the fight against the West Side Stadium as proposed sequentially by Mayors Giuliani (baseball) and Bloomberg (football).

Kathy Kinsella, former president of the Chelsea reform club said of Corrigan:
NYC Comptroller Scott
She was famous for her short stature [just under 5 feet] and a short temper that went with it. She was impatient at times, yet a very thorough teacher. She was our go-to person who knew everything and got it all done. Fierce and forceful, kind and generous, Doris will always be with me. 
Corey Johnson, the District 3 city council member, noted that Doris remembered the trees she had planted. She was at work so many years that some of the trees she planted on the blocks have grown to their full glory. He said: "Doris was Chelsea. She was involved in every community win and every battle over the last generation."

Comptroller Scott Stringer, who spoke first, said: "In so many cases, Doris was the one who got it done."

Assemblyman Richard Gottfried said of her: "I knew and worked with Doris for over 30 years. In everything she did, whether service on Community Board 4, or as president of the Chelsea Reform Democratic Club, and later as Chelsea’s Democratic district leader and then Democratic State Committee member, Doris Corrigan was always forceful and energetic and fought for what she believed."

Sources: Some quotes above are excerpted from the reporting of Al Amateau of Chelsea Now and Tara Kyle of DNA Chelsea.

BANK SINS | Bernanke Says Too Few Execs Indicted

Former Fed Chairman Ben Bernanke
Should more bankers have gone to jail over the financial laxity that led to the meltdown of 2008?

Former Federal Reserve Board Chairman Ben Bernanke says yes.

The problem is, he says, that the Department of Justice has prosecuted Wall Street firms rather than individuals. In Bernanke's view, the firms are "legal fictions" and the malfeasance should have been pinned on the individuals who were profiting from it. But:
You can't put a financial firm in jail. There should have been more accountability at the individual level.
In an interview with USA Today's Washington Bureau Chief, Susan Page, related to his new book, Courage to Act, Bernanke says that the worst of the crisis was the so-called "Lehman Weekend" when Lehman Brothers became bankrupt.

He regrets he and his colleagues did not communicate better with the public when they were in the midst of the crisis in the fall of 2008. He repeats a theme of his book, that there was nothing the Fed could do to save Lehman, although at the time he did not say that.

Tuesday, October 6, 2015

R.I.P. | James S. Avery, Sr.

James S. Avery, Sr. (1923-2011)
I worked in Washington, D.C. during the years 2009-2011, and lost touch with James S. (Jim) Avery, Sr.  I later found out that he passed away at the end of that period, in May 2011.

So now belatedly I am posting this as a tribute to his life and extend my sympathy to Joan (Showers) Avery and the Avery family.

Jim had a remarkable life story. He studied engineering at Columbia University and played for its football team.

He was an early African-American executive of a Fortune 500 company, Exxon, and headed two national organizations. He was a leader in local education in Union County, NJ with a focus on getting more disadvantaged youngsters to seek high education and find their place in it.

Jim's life story (2006).
Available here.
He and I worked together on The Book of American City Rankings when he was still at Exxon. He was on the Exxon Loaned Executive Program and worked with me from 1980 to 1983 for the Council on Municipal Performance.

The purpose of the Council was to generate better measures of performance of state and local government to permit greater fiscal accountability and management efficiency.

The book we wrote together, published by 
Facts on File.
As part of that mission, we wrote a book together that was published by Facts on File called The Book of American City Rankings. The book benefited greatly from his diligence and persistence.

I benefited also from our many conversations about American business and governments, American history, his family, and my family.

When Alice and I went to Japan with our two children under the auspices of the Japan Society, he arranged with a friend for the use of what they call in Tokyo a gaijin palace - an American-sized apartment in a city where people are used to living in half the space.

Jim was clear-eyed about everything he did and read. He was an inspiration to me as well as to so many others.

2008 CRISIS | Fed Couldn't Save Lehman, Says Bernanke

Bernanke Says Now That Fed Was Helpless.
In DealBook today, in the New York Times (p. B1) Andrew Ross Sorkin says:
Mr. Bernanke, in perhaps the most candid explanation of Lehman’s 2008 collapse, writes that he and Henry M. Paulson, then the treasury secretary, purposely obfuscated when asked about Lehman’s demise early on, allowing a narrative to develop that the government had purposely let the firm fail.
 Sorkin quotes from Bernanke's new book:
In congressional testimony immediately after Lehman’s collapse, Paulson and I were deliberately quite vague when discussing whether we could have saved Lehman. But we had agreed in advance to be vague because we were intensely concerned that acknowledging our inability to save Lehman would hurt market confidence and increase pressure on other vulnerable firms.
Pam and Russ Martens conclude that Bernanke is trying to "rewrite the financial crisis".

Friday, October 2, 2015

CITYECONOMIST | Oct. 2, 2015– 200K Pageviews - Pac-Man Most Read

CityEconomist passes 200K Pageviews.

Total Pageviews for all my blogs passes 800K.

Thank you for visiting this site!

PacMan Post #1 in September.
Pac-Man Puts Woodin Atop Giant ACF (Updated Sep...
Apr 23, 2015
NYC More Catholic, Jewish, Muslim
Feb 15, 2008
Does the NYPD Need an Inspector General?
Oct 25, 2012
Thanks for Predicting China's Crash, Mase Gaffney
Jul 12, 2015
The Asymmetry of "Moral Hazard" and 2008
Sep 23, 2015
FDR and Will Woodin - Last Correspondence
Sep 10, 2015
Louis XIV's First Finance Minister, Nicolas Fouque...
Oct 1, 2015
How "Terrifying" Should Junk Bonds Be? Notes for F...
Oct 1, 2015
NYC Tech Industry Tops Inc. 5000 List
Sep 1, 2014
Job Numbers Flat: FOMC Alert (Updated)
Oct 2, 2015

FOMC | Job Numbers Flat (Updated Dec. 10, 2015)

Job numbers for September were close to August, after
a sharp downward revision - disappointing. 
Nonfarm payroll jobs rose 142,000 in September.  The unemployment rate remained at 5.1 percent, which is historically low. Jobs grew in health care and information, while mining employment fell along with oil prices.

The September job numbers are flat relative to August, even after (as the BLS also reported this morning) August jobs were revised sharply lower to show only 136,000 jobs added.

Both August and September job-increase numbers are down from prior months.

So far in 2015, payroll job growth has averaged 198,000 per month, below the average monthly gain of 260,000 in 2014.

ADP on Wednesday had indicated job growth of 200,000, up from 180,000 in August, so the job numbers are disappointing for those who were relying on ADP to anticipate a bullish BLS report.

Wages also fell in September.

This raises a question about whether the U.S. economy is ready for a rate hike by the end of 2015. Another way of putting it is that the job numbers could be used (legitimately) as a reason for not raising rates.

The report today was important because the FOMC meets on October 27-28 to decide whether to start a climb back to normal interest rate levels, which have been at the "zero bound" (between zero and 0.25 percent) since the financial meltdown of 2008.

The Fed has been sidelined since 2008 because it has used up its main weapon for encouraging job growth, namely the Federal funds rate. It can't start putting the the interest rate back up to a normal level without risking higher unemployment. Both the Fed and the financial markets are out of shape and the first increase in rates is worrisome.

Thursday, October 1, 2015

LOUIS XIV | Finance Minister Fouquet's Folly (Updated Dec. 10, 2015)

Lion loves lioness at Vaux-le-Vicomte. I love them both. The lion
 surely stands for Fouquet, whose self-esteem then was high. On the
opposite side are two lionesses looking on enviously... nice touch.
Photo by Alice Tepper Marlin.
Last month Alice and I visited the village of Cély-en-Bière in Seine-et-Marne, France, which is about ten miles south of Melun (famed for its pioneering habitability act of 1851), through which one drives to get to the castle at Vaux-le-Vicomte.

Anyone who has been to the castle and gardens remembers it forever.

The gorgeous château is the primary physical legacy of Nicolas Fouquet, the first Minister of Finance, then called Superintendent of Finances, under Louis (Roi Soleil) XIV.

Vaux inspired Versailles, which was bigger but not better.

We stayed in Cély-en-Bière, which is just above Fleury-en-
Bière, to the west of Barbizon. Vaux-le-Vicomte is at upper
right, via Melun - easy to get to and easy to leave. Vaux-le-
Vicomte is painful to leave, a marvel of surprising design.
Fouquet's life is simultaneously an inspiring study of someone who excelled in château-design and of someone (one of many) who excelled at financial manipulation but had a blind spot relative to the risks he was taking of irritating His Majesty.

Serendipitously, at the East Hampton Library Authors Fair a few weeks ago I purchased Ina Caro's book on her travels with her husband Robert Caro in France, The Road from the Past. It includes the story of the Château de Vaux-le-Vicomte and its inspired owner and designer Fouquet.

Ina Caro spares nothing in her description of the dubious methods by which he enriched himself as Cardinal Mazarin's agent and then young Louis XIV's finance minister.

But later, after Fouquet's construction of Vaux-le-Vicomte leads to his downfall, she is sad that a man of his talents ended up languishing in prison.

Ina Caro at the East Hampton Library Authors
Night, August 2015, with the book she signed
for Alice and me.
Caro vividly describes his career as one of steady accumulation of money and power, and Fouquet's use of the money and power to pursue artistic talent, beautiful homes and gardens, and women.

Fouquet's French biographers - based on a skimming of several books about him - seem to avert their eyes from the acquisition phase of Fouquet's rise to power. Ina Caro, having spent many years of her life researching the ascent to power of Robert Moses and Lyndon B. Johnson - as Robert Caro's much-appreciated research team of one, relishes this part of the story, Fouquet's ascendance to near-royal power.

On the other hand, Caro is distressed at his last decade of disgrace and imprisonment because Fouquet deserved better than, say, Boss Tweed, who also ended his life is poverty and disgrace but did not have any major social contributions to show for his plunder of the public purse, unless the Tweed Courthouse, paid for several times over, counts.

The most-sold biography of Fouquet at
Vaux-le-Vicomte, by Jean Christian
Fouquet was no Tweed, as Ina Caro clearly shows when her keen eye tears over at the sight of Fouquet in Pignerol prison - offering to help with the design of the prison gardens, and noting to his keeper that there was a time when people eagerly sought his views on such matters.

Nicolas Fouquet was born to a family of aristocratic lawyers in Paris. He was prepared for a career in law by - natch! - studying with Jesuit priests until he was 13. Then he became an apprentice lawyer, admitted as avocat at the Parlement de Paris. He rose to assume several posts and at 20 years old he (or his family) purchased the position of maître des requêtes for 150,000 livres. In 1640 he married a wealthy woman, Louise Fourché, who died a year later.

From his youth, he was destined to be a wealthy man - he started life with a hefty fortune that was used in part to buy his first job, and he added to it with dowries from his first and second marriages.

Georges Bordonove's bio raises the
question Ina Caro seeks to answer -
how best remember Fou[c]quet?
We in the United States in 2015 may feel superior to the age of Louis XIV, when public posts were openly bought and sold. But access to many public positions depend on connections that outsiders can only obtain through large campaign contributions. The two systems are not so different.

In the United States, the patronage route to higher office is supplemented by the parallel career path, ouverte aux talents in Napoleon's words, via the civil service. Such a route also existed in Fouquet's day, as is evident from the story below of the team that built his masterpiece, the château at Vaux-le-Vicomte.

Fouquet's life has been the subject of many dramatizations, most famously as the employer in Pignerol prison of Eustache Dauger, "the Man in the Iron Mask", whose name was never spoken or written. Dauger served as one of Fouquet's valets, as described in Alexandre Dumas' novel, The Man in the Iron Mask. Dauger is identified by different researchers as the true king, or identical twin brother or biological father of Louis XIV, or other people.  Fouquet is variously portrayed as a hero or villain:
  • He is a hero in Alexandre Dumas' novel The Vicomte de Bragelonne, where he is depicted sympathetically. Aramis, an ally of Fouquet, tries to seize power by replacing Louis XIV with his identical twin brother. Fouquet, loyal to the crown, foils Aramis' plot and saves Louis, but is nonetheless punished by Louis.
  • He is a villain in James Whale's film The Man in the Iron Mask (1939), adapted from Dumas' novel, in which Fouquet tries to keep secret the existence of the King's twin brother. Fouquet, played by Joseph Schildkraut, is made to die when his coach drives over a  cliff. The film was remade many times.
  • He is variously portrayed by Robert Lindsay in Nick Dear's play Power, in the historical novel Imprimatur by Rita Monaldi and Francesco Sorti, and in Roberto Rossellini's The Taking of Power (1966).
The facts are that in the 1642-1650 period, Fouquet held various posts in the provinces, and then with the army, under the chief minister (to Louis XIII and then Anne of Austria as regent until Louis XIV was crowned) Cardinal Jules Mazarin. As Mazarin's officer, Fouquet in 1650 was able to buy the important position of procureur général to the Parlement de Paris. When Mazarin was in exile because of the rebellion of the Fronde, Fouquet remained loyal to him, protecting his property and keeping him well informed.

Upon Mazarin's return, Fouquet was given - at his request - the office of Superintendent of Finances (1653), which meant that he negotiated with the financiers who lent money to the king. Fouquet's wealth was greatly increased by a dowry of 160,000 Livres from his marriage in 1651 to Marie de Castille, from a family of wealthy Spanish lawyers, and by Fouquet's financial dealings for Mazarin.

Fouquet's own credit and self-confidence strengthened the credit of the government, while his high position at the Parlement (where he remained procureur général) meant he could settle investigations with lump-sum payments. As Minister of Finance, he was in a position to obtain money for Mazarin to pay for his wars and greedy courtiers.

Fouquet sometimes met the demands upon him by borrowing money for Mazarin on his own credit. As often happens, the intermingling of funds - begun as a generous impulse to assist his boss - turned out to offer opportunities to Fouquet that he quickly learned to utilize.

The word "Fouquet" means squirrel (Fouquet's family coat of arms showed a squirrel with the motto Quo non ascendet? "What heights will he not scale?") and this symbol can be found in many decorations at Vaux-le-Vicomte. Nicolas Fouquet gathered his nuggets from the royal purse in order to pursue some ideas of his own, one of which was to have the ability to lend again when needed. In this environment it would have been hard to detect fraud if anyone had wanted to, but in this case financiers had no such wish - Fouquet kept his friends happy with favors and with support when family emergencies arose. Fouquet's fortune soon surpassed Mazarin's. Fouquet's close friend, and maybe mistress, was Suzanne de Rougé, the Marquise du Plessis-Bellière.

When Mazarin died in 1661, Fouquet expected to be made head of the new government, but Louis XIV surprised his courtiers with his determination to be his own man. He made the well-known statement that he intended to be his own chief minister. He was to rule for 72 years, the longest reign of any European monarch.

Colbert, perhaps already seeking to succeed Fouquet, worried the king with reports on the French deficit, and prompted the king with stories about Fouquet's squirreling away for himself of royal money. When Fouquet made the mistake of showing extravagance in his personal life, his fate was sealed.

Fouquet bought the port of Belle-Île-en-Mer - and was given the title of Marquise de Belle-Île. He then strengthened the fortifications to defend himself should his fortunes turn.

The coup de grâce was Fouquet's enormous spending on his château at Vaux-le-Vicomte. It was and is a true work of art and it was the inspiration for Versailles. Fouquet brought together an outstanding team to execute his plan - the architect Louis Le Vau, the painter Charles Le Brun, and the garden designer André le Nôtre.

The king later used the same three men later to build Versailles, which is widely viewed as a lesser artistic success although much grander.

Fouquet also gathered rare manuscripts, paintings, jewels and antiques and was a patron of Molière, Corneille and la Fontaine.

On August 17, 1661, Louis XIV, already bent on Fouquet's destruction, was entertained at Vaux with a fête rivaled in magnificence by only one or two in French history. Molière's Les Fâcheux was produced for the first time, and Molière personally met the guests. François Vatel (c.1631-1671) was Fouquet's Swiss-born maître d’hôtel (majordomo) and was in charge of the fête at Vaux.

(After Fouquet was imprisoned, Vatel got a new job working for prince Louis II de Bourbon-Condé. In April 1671 he was put in charge of a banquet for 2,000 people in honor of Louis XIV at the château de Chantilly. Madame de Sévigné reports that Vatel was so distraught about the lateness of the seafood delivery and other failures that he fell on his sword. His story was the basis of the 2000 film Vatel, with Gérard Depardieu playing the title role. In the movie, Vatel is portrayed as committing suicide when he comes to the realization that after all his dedication he was still nothing more than property in the eyes of his titled employers.)

When Louis XIV decided Fouquet had to go, he was just 22 years old although he had reigned for 18 years. He was nervous about acting openly against so powerful a minister as Fouquet, who was among other things head of the powerful tax farmers. So Louis first tricked Fouquet into selling his office of procureur général, thereby losing the protection of its privileges.

Then Louis had Fouquet arrested by d'Artagnan, lieutenant of the king's musketeers, and subjected Fouquet to a trial that lasted nearly three years, with numerous violations of judicial procedures. Louis was said to be acting throughout "as though he were conducting a campaign", fearing that Fouquet might play the part of a rebellious Richelieu.

During the trial, French public sympathy was on the side of Fouquet. La Fontaine and Madame de Sévigné and others wrote on his behalf. When Fouquet was sentenced to banishment, the king, disappointed, "commuted" the sentence to imprisonment for life. In December 1664, Fouquet was taken to the fortress/prison of Pignerol (Pinerolo in Italian), near Turin.  His wife was not allowed to write to him until 1672 and allowed to visit him only once, in 1679. Fouquet wrote several translations and prayers in prison.

Fouquet died in Pignerol on March 23, 1680. A year after his death his remains were moved from Pignerol to the family crypt in the Église Sainte-Marie-des-Anges in Paris.

JUNK BONDS | How "Terrifying" Should They Be? Notes for FOMC Meeting

Bears to be released from their
cages at the end of October?
On the one hand, some calm voices are reassuring us that the recent downturn in the stock market is historically followed by a recovery. Usually.

On the other, we hear concerns that the sky above the financial markets is about to fall. Junk bonds are viewed as "terrifying" because they have grown so fast in an environment of zero-bound Federal Reserve interest-rate policies.

The fear is that the second rates do start to go up catastrophe may be waiting. Although the expected increase has been continually postponed because the time is not ripe, we have been told that it is likely to happen before the end of 2015.
A zero-interest FOMC diet for bulls
is like spinach for Popeye.

What worries me is that so many people with money are focused intently on the coming rise in interest rates. It has been such a long, long time on Easy Street, when the market bears confined by the assurance provided by a zero-interest bank environment. The possible global market reaction to higher (i.e., positive real) Fed fund rates is scary.

Better a finger tip than an arm.
The Fed, which has been largely sidelined since 2008 by its need to provide liquidity to the panicked financial markets, will feel powerful again when it starts its next upward climb in interest rates.

I hope that, if the upward march of interest rates starts at the next FOMC meeting on October 27-28, the Fed begins with the smallest possible increase. Better a finger tip bitten off than a whole arm.