The US Banks Were Bailed Out in the Past, But Uncle Sam Wasn’t The Savior September 22, 2010

Banks Have Been Bailed Out Many Times in US History

Dow Jones Since 1900

On This Date in History In 1906, San Francisco had a great earthquake. The effects of that quake led to a financial trouble spot that turned into a full-blown economic crisis. At that time, there was no central bank or Federal Reserve. With the system stretched by the stress of the San Francisco quake, some doofus tried to corner the copper market and when that failed, all of the banks who made loans to back the scheme were in trouble so they started calling other loans and the Panic of 1907 was created. People lost confidence in the system and several banks  failed. A bailout was needed. President Theodore Roosevelt was claiming that everything was fundamentally in great shape and threatened a federal takeover of all trusts if the bankers and financial gurus couldn’t get thier houses in order. Who came to the rescue? None other than J. Pierpont Morgan was the savior; the same JP Morgan who had bailed out the system in 1871 and 1895 and the same JP Morgan that is related to JP Morgan Chase who bailed out Bear Stearns in 2008.   To fend off the threats from Teddy Roosevelt, Morgan huddled with his banking brethren and convinced them that they needed to work together to salvage the system in order to save all of their hides and the future of the banking system.   He also convinced the Secretary of the Treasury to pony up $25 million to the effort. The recession did not turn into a depression and the 1907 Panic led directly to the eventual establishment of the Federal Reserve in 1913.

JP Morgan May Have Looked Like a Wild Old Man But He Saved Uncle Sam Bailed Out the Nation Several Times

While the numbers are not as large…not the $700 billion to $800 Biillion that the banking bailout became in 2008-09, the other numbers are not as large either. The Dow Jones Industrial Average fell 39% in 1907. On this date in 2008, the market had lost and gained about two percent over the previous month and politicians ran around making comparisons to the Great Depression when a comparison to 1907 might have been a better barometer . In order to equal the fall of the 1907 panic, the Dow that was around 11,015 on September 22, 2008 would have had to fall to 7000 and it was on this date in 2008 that the Dow fell some 300 points and arguably didn’t stop falling until March 9, 2009 when the Dow Jones Industrial Average bottomed out at 6547.   So, while it was, and in some measure still is, an extremely difficult and precarious situation, it was not totally unprecedented and it wasn’t necessarily a good match with the Great Depression. It’s just the depression of the 1930′s is all the general public, politicians and most people in the media know about.  Several times in the past,  it was JP Morgan engineering a bailout with some government help and this time it was the Federal Reserve and Uncle Sam engineering a bailout with some other private help. When you hear also of rumors that today’s problem was a plot by those who stand to profit, keep in mind that in 1907 it was rumored that the banks had caused the whole panic just to line their pockets.   Aside from the Great Depression, there were a bunch of “panics” in financial circles and the resultant recessions or depressions  that came fairly regularly…perhaps too regularly. The Dow is currently in a trading range between about 9900 and 10,70o and, in recent days, there has been a declaration that the recession is over. 

Year	Unemployment rate
1923-1929	3.3
1930	8.9
1931	15.9
1932	23.6
1933	24.9
1934	21.7
1935	20.1
1936	17.0
1937	14.3
1938	19.0
1939	17.2
1940	14.6
1941	9.9
1942	4.7

With unemployment still hovering near 10%, the rebound of the stock market and the claim that the recession is over are by no means a guarantee that the market and economy won’t go back in the tank.  Nevertheless, both are, and especially the Dow Jones, are certainly at a different place than anyone in March 2009 could have foreseen.   If something happens that causes a big drop in stock prices again, then maybe we can start to refer to the Great Depression as it relates to the stock market, which is but one indicator.   Unemployment is pretty bad but its more like the late 1970s and early 1980′s, not the 1930′s.

No Hoovervilles Today Like in 1930

The big thing about the Great Depression is that its depths were so far reaching that it led to new regulation by the government into financial markets than had ever been contemplated by the founders or anyone else in an effort to try to control the economy such that these setbacks wouldn’t be so deep or so frequent. To a large degree, it has worked pretty well but to expect these things to never happen or think its some sinister plot just is to not accept reality.

Sometimes, news people say they need to give commentary to “give perspective” or a particular news event. Dan Rather used to defend journalists providing analysis instead of just reporting for that specific reason. Yet, it helps if those giving “analysis and perspective” had some perspective in the first place. It’s probably hyperbole and just outright ignorance that media types or politicians trot out the Great Depression comparison.  I remember when President Clinton was running for his first term against George H. W. Bush, they said then that it was the worst economy since the Great Depression.  It certainly wasn’t even close to the economy of the Great Depression then and it’s arguably not the same now.   It’s probably best to leave that moniker on the shelf until its truly warranted.   Let’s hope it can stay on the shelf and we can call this the great recovery. Some of us need a job, not panic.

Weather Bottom Line:  We will continue with this mid to upper 90′s nonsense through Friday.  A front will be approaching then and will pass through.  As it does so, our rain chances will go up. Trouble is that we are so dry there may not be enough moisture for this guy to give us as much rain as one might ordinarly expect from a strong front.  But, it’s a chance.  The good thing is that it will knock the mercury down to the upper 70′s to low 80′s for the weekend and it may be the sign of a pattern change.  Some models are showing a big ol’ storm dropping down into the central plains and the Ohio Valley by the middle of next week.

JP Morgan Rejects GM’s Pleas, the Company Thrives; Morgan Bails Out GM, The Founder Lost His Job September 16, 2010

Nice Guess

On this Date in History: I read an article from the Wall Street Journal from January of 2008. It read that oil prices were around $90 a barrel and were expected to remain around that level. It had a quote from a learned man who said, at that time,  that he expected the price of oil  to drop to about $67 a barrel.   While he didn’t put a time qualifier on the statement,  about 6 months after this artcle came out the price of oil was over $140 a barrel.  I related this story to one of my classes and one student said that it sounded like someone sucks at their job. The point is we often hear these great ideas and pontifications from “experts” that turn out to be wrong by a long shot, if not completely opposite of reality.

Durant Was No Quitter

At the dawn of the 20th Century,  animal power remained much of the energy that drove the economy, though certainly not as much as at the turn of the 19th Century.  Aside from the railroads, animal power was particularly necessary for transportation and for agricultural interests. A United States Senator, Chauncey Depew, said with full confidence that “nothing has come along to beat the horse.”  He suggested to those who might invest in alternative forms of transportation to “keep your money.” Now, one who is looked up to as one who had a great financial mind and who was quite savvy in investing was J. P. Morgan. Well, Morgan had a chance to get into the automobile business in 1908 when he was approached by William Crapo Durant for a loan. Durant and Benjamin Briscoe wanted financing for the proposed merger of their two fledgling automobile companies, Buick and Maxwell-Briscoe. Durant told Morgan that automobile sales would reach a half million per year. Upon hearing Durant’s prediction, one of Morgan’s partners sniffed, “If he has any sense, he’ll keep such notions to himself.”

Depew Left Holding the Horse Shovel

Well, the deal didn’t go through and Briscoe is left to the asheep of history. But Durant soldiered on without any backing of financiers and formed a holding company on this date in 1908 with $2000 and without J.P. Morgan. Instead, he sold shares of stock and raised about $12 million in a couple of weeks. He called it General Motors. He acquired Olds Motor Works later that year, then subsequently bought Cadillac, Pontiac (originally known as Oakland), Cartercar, Ewing and Elmore. But, in 1910, Durant was in a tight financial situation and he turned to competitors of Morgan for help. Durant apparently used the financing to continue to acquire other companies. That led to more problems but, by then,  automobiles were getting popular enough that I suppose JP Morgan had changed his mind.   Around 1920, General Motors found itself with $30 million in debt and huge obstacles ahead. Durant went back to Morgan and Pierre du Pont who were two giants of the financial world. The financiers saved the company but effectively finished off Durant at GM. See, part of the deal was that Durant was out and du Pont took over as President. But, don’t feel too bad for Durant. He’s one of those guys who never quit, following the advice of the old gridiron sage, Granville Hambright who often told his Junior High football players that “a winner never quits and a quitter never wins.”    Durant went on to found a new company. You might have heard of it…Chevrolet.

Sloan: Father of Modern Corporation?

Dupont served as President of GM until 1923 when he turned the reigns over the Alfred P. Sloan who focused his attention on managing the company more effectively. Ever wonder why there are new models to cars every year? It was Sloan’s idea. How about the different pricing structure of different brands in the company? That was Sloan too. By the late 1920′s, GM passed Ford as the leader in automobile sales.  For his company,  Henry Ford  focused his attention on more efficient manufacturing instead of management, marketing and finance. Later in the 20th century, GM became the largest corporation in the world…a title it later lost and did so in quite a spectacular fashion.

Ford Legacy: Don't Give Up Control

Some interesting aspects of this story. First off, it took the geniuses like Morgan a dozen years to figure out that a visionary like Durant was right all along. Durant had the vision but he didn’t have the know-how regarding making his dream come to fruition. What is interesting is that Henry Ford rebuffed the attempts of outside financiers to take over Ford Motor Company when things turned tough in the Depression. Yet, General Motors has an early history of near disaster before they got it right.

At the first part of the 20th century, General Motors needed help and so they went to private financial institutions for that help. When they were denied, founder Durant figured out a way to move ahead while some of his competitors went by the wayside. Then additional help came in the form of the previously reluctant Morgan. Ford probably worked with Morgan on a number of deals, but none with the expressed intent of saving the company. In fact, in the early 1920′s when Ford faced potential bankruptcy, Henry Ford turned down financing from big investment houses who required that Ford turn over control of the company, like Durant did. In the early 21st century, it’s deja vu. But, this time, General Motors turned to the Federal Government (taxpayers) to get saved and private investors (stock holders, bond holders) ended up with the short end of the stick. Instead of financiers like du Pont taking control of the company, the government fired the head of GM. Meanwhile, Ford did not take government money and continues to move forward and maintain control of the company, in the same tradition of the company’s founder, Henry Ford.   While Ford Motor Company in late 2010 still had about $27 Billion in debt, it had reduced its debt by $4 Billion, had positive cash flow and the outlook for Ford looks bright in some circles with some analysts project Ford having more cash than debt by 2012.  But, be careful, those are just “expert” opinions and remember, Morgan’s experts thought that the automobile was a loser investment 100 years earlier.  What a difference a century makes. In some ways, not one bit. In other ways, a huge difference.

Weather Bottom Line:  We got the light rain in the morning but it doesn’t look like it will help advance the notion of rain, let alone thunderstorms on Thursday evening or afternoon.  It’s just too stable an atmosphere and that’s too bad because we need the rain.  This was our big chance and it wasn’t too good to begin with.  Look for a pleasant Friday with a return to hot, but relatively dry, conditions for the weekend into early next week.

First Big Deal For The Big Apple May 6, 2010

Manhattan Indians Would Be Wealthier Than The Entire United States If They Invested Wisely

Dutch "Buy" Manhattan...But Who Got Snookered?

On This Date In History:  In the Algonquian language, it was known as Manahatin which meant “Hill Island.”   Manahatin or “Mannahatta”  was a rich land teeming with wildlife and game like beaver, deer, bison and bear. The river had sturgeon and oyster beds were common on its shores. The northern 2/3 part of the island was occupied by an Indian tribe called the Weckquasgeeks which were a subdivision of the Wappinger Indians. The smaller remaining southern portion was where the Canarsees or Canarsie called home.

Trump Would Have Loved This Real Estate Deal

On May 4, 1626 the director-general of a new Dutch colony arrived on the shores of the island with instructions from home that, if the land was occupied by Indians, they were not to be forced off. Instead, they be persuaded by giving them something or with kind words. Well, the folks that occupied the island never claimed to own the land as they didn’t have the sense of ownership in their culture like the Europeans. And if they did, the Canarsees would have less claim than the Weckquasgeeks. Well, the Dutch didn’t know all of this and, on this date in 1626, gave the Canarsees what amounted to 24 American dollars in exchange for an island they didn’t own.

Loved the "FBI Guys"

It must be noted that there are several sources that put the purchase on a different date in May and at least one that claims it was in November. Still, another source claims there is no proof that the purchase ever took place, Nevertheless, assuming the veracity of the story, I’ve always figured that the Canarsee chief must have been like Frank Pentangeli (Michael V Gazzo) in The Godfather Part II when he says “the FBI guys, they offered me a deal and I said, sure…why not?”

So, the Canarasees took the money and the Dutch thought they had a good deal. But, of course, the Dutch certainly didn’t hold on to the Island long enough to see the Hudson River polluted so that there are no more sturgeon and no more oysters. They never saw the hills flattened and the rich soil covered in concrete nor the disappearance of the bison, deer, beaver and bear. Nope…the Dutch paid $24 for an Island to people who didn’t even own it and then didn’t stick around to see it become all that it would become.

Adjusted Price of Microsoft at IPO Was $0.0955 and peaked at Just Over $58

Meanwhile, the Indians…if they had taken that $24 and invested it at 6% interest compounded annually they’d be sitting on $35 Billion by 1988. If they continued that return on investment, it would be nearly $70 Billion by 2000. Now, if they had been really smart, then they would have put that $35 Billion (or perhaps a bit less) in 1986 at the initial public offering in a then-new company called Microsoft. If they had sold it at its peak just prior to 2000, they would have nearly $21.4 Trillion. Then, if they had invested it at 6% interest compounded annually for four years they would have just over $27 Trillion. If they took that money and invested it in 2004 in Google and then sold it at its peak in 2008, then they could have lived quite nicely on $189 Trillion. That is more than 14 times the entire US economy…I’m not sure if the government could tax that money since Indian Nations are considered to be sovereign nations, which is why they are allowed to have Casinos in states where they are otherwise prohibitited. Not bad for some guys from Brooklyn.

SPC Slight Risk Severe Weather Friday Night

Weather Bottom Line:  This little front that came through made for a nice Thursday.  Snow White and I rode around with the top down and then walked along the river which was  high but below flood stage.  When we were there it was about 21.4 feet and the flood stage is 23 feet.  The boys at the NWS seem to think that its about crested.  I’ve found that hydrology regarding river forecasting is not quite to the level that we’d like it to be because there are so many variables.  It may not be perfect but they have improved quite a bit, perhaps as good as it’s going to get.  In any event, they are usually not way off the mark so if they say it’s crested and it hasn’t it probably doesn’t have much more to go.  Now, it may not fall off real fast because there will be a fair amount of rain falling in the watershed to our North and that will make its way downstream and that will slow the descent; but fall it will.  It always does, eventually.

SPC Severe Probability for Saturday

This little front not only brought us good weather but dried out the atmosphere.  On the “against” side of the severe threat for our area, I think that moisture will be limited and also the main source of energy will be to our North.  On the “for” side, after a brief cooldown, we’ll be pushing into the mid to upper 80′s on Friday afternoon and the temperature contrast between the warm and cool air will be pretty significant.  Typically when you get a temperature gradient such that your highs from one day to the next fall some 20-25 degrees, then the strong storm threat is enhanced.  But..there’s the moisture factor.  Both the GFS and NAM advertise tremendous dynamics BUT….they come well before precipitation.  The timing of this for our area just doesn’t look quite right.  At this point, the data suggests rain chances go up for late Friday night….like around midnight.  So, the heating aspect gets lost a bit. And, by the time that comes around the strong dynamics are gone.  In fact, the rain data is not very impressive either.  Let’s put this in a possible but not probable category.  There may be an isolated strong storm still around with the biggest threats for the extreme northern part of the region. I would think  that Cincinnati and Columbus would have more to worry about than we do.  Keep in mind that we’ll have a nice weekend but highs for the Mother’s Day weekend will be in the 60′s.

Could Donald Trump Lose His Name? March 1, 2010

Trump May Have to Fire His Name!

Surely Dad Won't Have To Kiss Ivanka Goodbye with his Name?

What’s In a Name?  Donald Trump and his casino arm, Trump Entertainment, filed for bankruptcy for a third time in February 2009.  This third bankruptcy filing is not too big of an indictment on Trump given that the economy has hurt the gaming industry nationwide.  Trump tried to flip a deal in which he would buy out the bondholders but those who owned the bonds didn’t go for it but it was announced in November 2009 that Trump and his daughter Ivanka would retain a stake in the company and take it out of bankruptcy in a new deal.  But there was a fly in the ointment.  That fly was none other than Carl Icahn who is a very prominent investor.  Seems Ichan bought a bunch of the bonds and Icahn announced a rival plan to take over the Trump casinos.

Carl Icahn Has A great Name for Investing...but a Casino?

So, now the two titans face off in bankruptcy court and the most interesting charges flying have to do with the “Trump” name.  Icahn want’s to buy the casinos and keep the name without Donald or Ivanka.  Some say that the Trump image has been tarnished by a number of financial battles in which The Apprentice star finds himself.  In fact, Icahn lawyers in court filings said that, “The Trump name may no longer be ‘synonymous with business acumen, high quality and style, a luxury lifestyle and enormous success’ as Mr. Trump asserts.”   Say what you want about Donald’s hair but there is no way that Mr. Trump would allow an attack on the family name to go unanswered.  He implied under crossexamination that Mr. Icahn’s name has been associated with some less-than-successful deals of his own saying,  ”Well, Mr. Icahn has led companies into many, many bankruptcies.”

"Con" Works with Extermination Products

So the fight goes on.  Trump is arguing that Icahn does not have the right to take his name if he takes the casinos.  Icahn says that he does.  But, there’s the kicker and perhaps the ultimate insult.  A Wall Street Journal article says that the main reason Mr. Icahn wants to retain the Trump name is that it would cost $15 to $20 million to change the signs.  He says that, otherwise, the name has nothing to do with the future success of the properties.  Ouch!   In court, Trump says that Icahn should not be able to to take over the casinos at all, painting an unflattering picture of a quick buck artist, perhaps not unlike Gordon Gekko.  Trump doesn’t say that Icahn won’t spend money to rebuild the casinos and the brand name, the New York Post reported that he says Icahn is a “cheapskate” who wouldn’t spend three dollars.  Mr. Trump says, “If Carl spends $3, I’d be shocked.” 

"Con" Worked for a Movie But Not Sure if it Fits Casino

Now, who knows how this whole thing will come out in the wash.  But, the fact that anyone is saying that the only reason he wants to keep the Trump name on the buildings is becuase he doesn’t want to spend the money to change the name is amazing.  It may support Trump’s assertion about Icahn or it may be Mr. Icahn’s way of sticking it to a rival.  Either way, it seems rather odd for someone to be able to lose his name if he loses his business. I suppose it has happened before but still…a Trump named casino without a Trump?  I guess it’s better than an alternative like “Icahn Casino” which is pronounced Eye Con.  Somehow I think that there may be a bit of a difficulty in the marketing department with attracting customers to I Con Casino.  It workd for ConAir which was a ficticious movie starring Nicolas Cage and it works with bug killer..D-Con…but I’m just not certain about a Casino.  Maybe the Trump name is worth more than Icahn is letting on.

By Wed AM, all critical thickness or freezing lines are well south

GFS claims a little moisture in our area with East Coast Storm Early Wed AM

Weather Bottom Line: We did get to 41 but largely, the day was just like Sunday which was still cold and not feeling like much of a warm up.  A system is running along the Gulf Coast and will take a turn across Georgia and then off the North Carolina Coast and up the eastern seaboard.  Look for more snow stories from the Northeast this week but not as dramatic as the last couple of storms.  The bulk of this guy should stay far enough offshore as to not affect more than coastal regions with snow, but it still may be significant in some areas.  As the low passes us to the South, the long wave pattern will again adjust with the base of the trof to our South.  A couple of flurries will be possible Tuesday night or early Wednesday but the moisture will more or less be cut off by the Appalacians so it doesn’t look like a big deal.  I still think that we don’t get out of the 30′s on Tuesday or Wednesday and maybe even Thursday.  We get some sun on Friday and  move to the low 40′s before getting into the average range for Saturday…which is about 51. So don’t break out the tanning butter.  But, if we can’t have snow, I say go to 70.  This Houston-type of winter weather in the 40′s and clouds stinks.  If its gonna be cold, then lets have some exciting snow. If not, then let spring hurry up and get here and let me plant my sunflowers.  A little rain Sunday or Monday won’t be out of the question as the long wave pattern may be breaking after about 2 months of it being stuck.

Recent Bank Bailout Just One of Many-Uncle Sam Doing Work That JP Morgan Did September 22, 2009

Banks Have Been Bailed Out Many Times in US History

Dow Jones Since 1900

On This Date in History  In 1906, San Francisco had a great earthquake.  The effects of that quake led to a financial trouble spot that turned into a full-blown economic crisis.  At that time, there was no central bank or Federal Reserve. With the system stretched by the stress of the San Francisco quake, some doofus tried to corner the copper market and when that failed, all of the banks who made loans to back the scheme were in trouble.  started calling other loans.  People lost confidence in the banks as several failed. A bailout was needed.   President Theodore Roosevelt was claiming that everything was in great shape and was threatening a federal takeover of all trusts if the bankers and financial gurus couldn’t get thier houses in order. Who comes to the rescue?  None other than  J. Pierpont Morgan was the savior the same JP Morgan who had bailed out the system in 1871 and 1895 and the same JP Morgan that is related to JP Morgan Chase who bailed out Bear Stearns last year. He got together with his banking brethren and convinced them that they needed to work together to salvage the system in order to save all of their hides and the future of the nation. He also convinced the Secretary of the Treasury to pony up $25 million to the effort. The recession did not turn into a depression and the 1907 Panic led directly to the eventual establishment of the Federal Reserve in 1913.

JP Morgan May Have Looked Like a Wild Old Man But He Saved Uncle Sam Bailed Out the Nation Several Times

While the numbers are not as large…not the $700 billion to $800 Biillion that the banking bailout became in 2008-09, the other numbers are not as large either. The Dow Jones Industrial Average fell 39% in 1907.   On this date in 2008, the market had  lost and gained about two  percent  over the previous month and politicians ran around making comparisons to the Great Depression when a comparison to 1907 might have been a better barometer . In order to equal the fall of the 1907 panic, then a Dow that was around 11,015 on September 22, 2008 would have had to fall to 7000 and it was on this date in 2008 that the Dow fell some 300 points and arguably didn’t stop falling until  March 9, 2009, the Dow Jones Industrial Average was down to 6547.   So, while it was, and in some measure still is, an extremely difficult and potentially catostrophic situation, it was not totally unprecedented and it wasn’t necessarily a good match with the Great Depression.  It’s just that’s all the general public and certainly most people in the media know about.  Before it was JP Morgan engineering a bailout with some government help and this time its the Federal Reserve and Uncle Sam engineering a bailout with some other private help. When you hear also of rumors that today’s problem was a plot by those who stand to profit, keep in mind that in 1907 it was rumored that the banks had caused the whole panic just to line their pockets.   Aside from the Great Depression, there were a bunch of “panics” in financial circles and the resultant recessions or depressions came fairly regularly…in fact to regularly.  The Dow is now knocking back at the 10,00o door and while it is by no means a guarantee that it won’t go back down, it’s certainly at a different place than anyone in March could have foreseen.  If something happens that causes a big drop again, then maybe we can start to refer to the Great Depression as it relates to the stock market, which is but one indicator.  Unemployment is bad but its more like the late 1970s and early 1980′s, not the 1930′s. 

No Hoovervilles Today Like in 1930

The big thing about the Great Depression is that its depths were so far reaching that it led to new regulation by the government into financial markets than had ever been contemplated by the founders or anyone else in an effort to try to control the economy such that these setbacks wouldn’t be so deep or so frequent.  To a large degree, it has worked pretty well but to expect these things to never happen or think its some sinister plot just is to not accept reality.

Sometimes, news people say they need to give commentary to “give perspective” or a particular news event. Dan Rather used to defend journalists providing analysis instead of just reporting for that specific reason. Yet, it helps if those giving “analysis and perspective” had some perspective in the first place.  It’s probably hyperbole and just outright ignorance that media types or politicians trot out the Great Depression comparison.  It’s probably best to leave that moniker on the shelf until its truly warranted. Let’s hope it can stay on the shelf and we can call this the great recovery.  Some of us need a job, not panic.

Pattern Conducive for Heavy Rain Threat in SE US

Weather Bottom Line: The pattern has set up as expected.  That is with almost a cutoff low in the west as part of a big trof that dug out in the west.  The long wave pattern is such that with the low to our west and a surface high in the extreme southeast, there is a very strong southerly flow into the Southeastern quadrant of the country.  That has resulted in the expected influx of deep Gulf moisture.  With the trof situated as it is, little disturbances rotate around anywhere from going through the Ohio Valley to going through the Dixie states.  With abundant deep moisture, this sets the stage for potential flooding events anywhere in the region.  It was our turn on Sunday and then parts of Georgia took a hit on Monday.  This pattern will remain in place for the rest of the week.  The result for us will be muggy nights with fog potential each morning.  We will be cloudy quite often than not with any sunshine that comes about to create convection in the afternoons producing at least scattered t’storms.  Afternoon highs should be held in the lower 80′s by the time of year, cloud cover, rain and the moisture content.  Rain chances will remain in the picture through the week with the potential of any situation that develops to produce very heavy rain.  The pattern will shift over the weekend.  The trof out west will move east and lift somewhat with a push of colder air behind.  I would think that any strong storms would be most likely on Sunday or Saturday night with the front.  The expected cooler weather will get here for next week.

Once Upon a Time, General Motors Didn’t Get a Bailout September 16, 2009

Nice Guess

On this Date in History:  I just read an article from the Wall Street Journal from January of 2008.  It read that oil prices were around $90 a share and were expected to remain around that level.  It had a quote from a learned man who said that he expected the price of oil at that time to drop to about $67 a barrel.  Now, he didn’t put a time qualifier on the statement but just about 6 months after this artcle came out, the price of oil was over $140 a barrel.  My student said that it sounded like someone sucks at their job.  The point is we often hear these great ideas and pontifications from “experts” that turn out to be wrong by a long shot, if not completely opposite of reality.

Durant Was No Quitter

At the dawn of the 20th Century, animal power remained a large part of the energy that drove the economy.  Particularly when that involved transportation.  A United States Senator, Chauncey Depew, said with full confidence that “nothing has come along to beat the horse.”   He suggested to those who might invest in alternative forms of transportation to “keep your money.”  Now, one who is looked up to as a great financial mind who was quite savvy in investing was J. P. Morgan.  Well, Morgan had a chance to get into the automobile business in 1908 when he was approached by William Crapo Durant for a loan.  Durant and Benjamin Briscoe wanted financing for the proposed merger of their two fledgling automobile companies, Buick and Maxwell-Briscoe.  Durant told Morgan that automobile sales would reach a half million per year.  Upon hearing Durant’s prediction, one of Morgan’s partners sniffed, “If he has any sense, he’ll keep such notions to himself.”

Depew Left Holding the Horse Shovel

Well, the deal didn’t go through and Briscoe is left to the asheep of history.  But Durant soldiered on without any backing of financiers  and formed a holding company on this date in 1908 with $2000 and without J.P. Morgan.  Instead, he sold shares of stock and raised about $12 million in a couple of weeks.   He called it General Motors.  He acquired Olds Motor Works later that year, then subsequently bought Cadillac, Pontiac (originally known as Oakland), Cartercar, Ewing and Elmore.  But, in 1910, Durant was in a tight financial situation and he turned to competitors of Morgan for help.  Durant apparently used the financing to continue to acquire other companies.  That led to more problems but  I suppose that automobiles were getting  popular enough that JP Morgan changed his mind.  Around 1920, General Motors found itself in $30 million in debt and huge problems ahead.  Durant went back to Morgan and Pierre du Pont, two giants of the financial world.  The financiers saved the company but effectively finished off Durant at GM.  See, part of the deal was that Durant was out and du Pont took over as President.   But, don’t feel too bad for Durant.  He’s one of those guys who never quit, following the advice of the old gridiron sage, Granville Hambright.  He went on an founded a new company.  You might have heard of it…Chevrolet.

Sloan: Father of Modern Corporation?

  Dupont served as President of GM until 1923 when he turned the reigns over the Alfred P. Sloan who focused his attention on managing the company more effectively.   Ever wonder why there are new models to cars every year?  It was Sloan’s idea.  How about the different pricing structure of different brands in the company? That was Sloan too.  By the late 1920′s, GM passed Ford as the leader in automobile sales and Henry Ford had focused his attention on more efficient manufacturing instead of management, marketing and finance.  Later in the 20th century, GM became the largest corporation in the world…a title it later lost and did so in quite a spectacular fashion. 

Ford Legacy: Don't Give Up Control

Some interesting aspects of this story.  First off, it took the geniuses like Morgan a dozen years to figure out that a visionary like Durant was right all along.  Durant had the vision but he didn’t have the know-how regarding making his dream come to fruition.  What is interesting is that Henry Ford rebuffed the attempts of outside financiers to take over Ford Motor Company when things turned tough in the Depression.  Yet, General Motors has an early history of near disaster before they got it right. 

At the first part of the 20th century, General Motors needed help and so they went to private financial institutions for that help.  When they were denied, founder Durant figured out a way to move ahead while some of his competitors went by the wayside.  Then additional help came in the form of the previously reluctant Morgan.  Ford probably worked with Morgan on a number of deals, but none with the expressed intent of saving the company.  In fact, in the early 1920′s when Ford faced potential bankruptcy, Henry Ford turned down financing from big investment houses who required that Ford turn over control of the company, like Durant did.  In the early 21st century, it’s deja vu.  But, this time, General Motors turned to the Federal Government (taxpayers)  to get saved and private investors (stock holders, bond holders) ended up with the short end of the stick.  Instead of financiers like du Pont taking control of the company, the government fired the head  of GM.   Meanwhile, Ford did not take government money and continues  to move forward and maintain control of the company,  in the same tradition of the company’s founder, Henry Ford. 

What a difference a century makes.  In some ways, not one bit.  In other ways, a huge difference.

Rain Mainly South Thu Evening

Weather Bottom Line:  The other day I told you about the inverted trof to the south and the front to the north and I opened up the possibility that the front might sag farther south and, if it did, our rain chances would not be so good.  Well, that’s the story.  While we may have a errant shower or two, particularly to the south, rain chances probably won’t get to anything worthwhile until the second half of the weekend when a storm system from the southwest may lift at least toward our way.  Hey, it’s September….one of the driest months in Louisville annually.