Saturday, March 23, 2019

Program Note for The Lehman Trilogy

The Lehman Trilogy opened in New York last night. I urge everyone who can to check it out, and quickly, because the run at the Park Avenue Armory last only about a month. Check here for details: http://www.armoryonpark.org/programs_events/detail/lehman

Two program notes were not run due to a miscommunication between the various parties involved. Like a Lannister, however, the Armory honored its commitment to pay me for the piece, which I see no reason to allow to lay dormant, unread, on my hard drive. So here is what I submitted:

Imprisoned by ideology and conceptual confusion, economic growth and development today mystify. Henry Lehman and his contemporaries labored under no such constraints, correctly equating America with abundant economic opportunity.
The Constitution consorted with Alexander Hamilton’s policies, which included anchoring the dollar to silver, funding the national debt, and establishing the Bank of the United States, to produce a national government energetic enough to protect Americans from foes foreign and domestic, but insufficiently powerful to threaten Americans’ liberties. Before Hamilton left Treasury, privately-owned stock exchanges, banks, and insurers formed to provide the financial infrastructure needed to increase agricultural yields, build the nation’s transportation infrastructure (toll bridges, canals, and turnpikes, followed in the 1830s by railroads), and jumpstart America’s industrial evolution.
Expecting to reap as they sowed, Euroamerican males, as well as non-trivial numbers of women and free people of color, worked harder and smarter than ever before to accumulate more assets than liabilities, i.e., to build net worth or “capital.” De jure barriers to enterprise were few, so competition ruled. Many contented themselves with the small but steady profits of the average artisan, farmer, or retailer by keeping pace with innovations others developed. Some strove for more, a few by cajoling favors from government, but most by developing new goods or producing existing ones more efficiently.
Most Americans abhorred, if not slavery, then the fact that the South was ruled by, and for, slaveholders. Many native-born, slave and free, left if they could, as it was no place for aspirants or those interested in their own health. The South’s disease environment, worsened by infectious slaves circulating in the infernal internal slave trade, destroyed many lives. The Lehman brothers were lucky to sit shiva only once in Alabama.
The surviving brothers belatedly fled to Manhattan, which only recently had overtaken Philadelphia as America’s financial and commercial capital. Success in Gotham, though, was not guaranteed, as the city remained subject to epidemics, riots, and conflagrations. Moreover, the economy experienced troubling reversals, like those following financial panics in 1819 and 1837. Another panic, in 1857, initiated the sequence of events that led to the Civil War, which in four years destroyed the South’s economy and proved cotton no monarch.
Rooted in brutal exploitation of land and labor, the South’s agricultural and industrial sectors could not match the dexterity of Northern enterprise, which quickly adapted to wartime conditions. By switching from retailing cloth and agricultural implements to brokering cotton, coffee, and other commodities, the Lehmans proved themselves more Billy Yanks than Johnny Rebs. After Emancipation, the South continued to exploit its laborers via systems described as “worse than slavery” and “slavery by another name” -- convict labor, debt peonage, and Jim Crow. Even with the aid of Lehman and other Northern capital, its economy would not catch up to that of the North for over a century.
Under Philip, the Lehman brothers’ partnership became a full-blown investment bank, an intermediary that resold to investors the stocks and bonds that corporations issued to fund their expansion. Newly-issued securities were safely underwritten by packs of banks, called syndicates, that exposed to loss only a portion of the Lehman’s own capital and the deposits of wealthy individuals and institutions. (Small businesses and poorer individuals banked with building and loan societies, mutual savings banks, and, a little later, credit unions.) Scale, volume, and time, not excessive risk, created and safeguarded the Lehman fortune.
After the Great War, entertainment investments proved shrewd. As Americans’ incomes continued to climb, so too did demand for leisure goods, like films, radios, and eventually televisions. When Depression struck, the still piddling federal government feared bailing out investment banks. The Federal Reserve, the nation’s putative lender-of-last-resort, did not even bail out the 9,000 commercial banks that failed during the 1930s! Nonetheless, FDR pinned blame for the unprecedented economic downturn not on government policies but on investment banks, which survived the stock market crash to the extent that they were just middlemen. After the economy rebounded, investment banks thrived again because they managed to write New Deal regulations that limited underwriting competition from commercial banks.
Postwar, investment banking profoundly transformed. As family dynasties like Lehman’s weakened, partnerships conceded to publicly-traded corporations, dramatically altering bankers’ incentives. To steward resources for ensuing generations, partners nurtured long-term client relationships. Hirelings, by contrast, sought enormous bonuses based on short-term performance, which created macho corporate cultures that demeaned women, extolled the exploitation of clients, and encouraged risky international expansion and speculative trading.
Due to the unpredictability of markets and the number and size of the risky bets taken, eventual failure was assured. But big bonuses and bailout expectations bested prudence. In 2008, the federal government, grown powerful continuously fighting hot and cold wars, bailed out almost everyone, except Lehman.

No comments: