Back in 1907 the financial services industry was under the control of one man: financier J. P. Morgan. When the president of the Knickerbocker Bank and Trust got into trouble by using bank assets to speculate in copper shares, Morgan engineered a run on the Knickerbocker and was able to take it over — and cause a worldwide financial panic in the process.
The scandal forced Congress to refocus on the need for fundamental financial reform, something that had been shelved following the Panic of 1893 when William Jennings Bryan's presidential campaign of 1896 and the Boy Orator's "Cross of Gold" speech diverted attention away from financial reform by emphasizing the "Silver Question." The end of the Great Depression of 1893-1898 seemed to quell the need for reform.
The result was the Federal Reserve Act of 1913, and the planned replacement of the "inelastic" National Bank Note currency of 1863 to 1913 backed by government debt, with an "elastic" Federal Reserve Note currency backed by the present value of private sector hard assets.
Unfortunately, the federal government figured out a way around the checks and balances built into the system designed to prevent the government from using the central bank to monetize its deficits, with the result that today the financial system is even more badly in need of reform than it was in 1907 — as demonstrated by the news this week that JPMorgan lost billions of dollars in "bad trades," to say nothing of the gigantic debt and Great Depression III. Fortunately, there is some good news on the horizon:
• The big news this week is the CESJ presence at the 35th Annual ESOP Association Conference in Washington, DC. We reconnected with some old friends, and were updated on some developments in one of the major institutions within the expanded ownership movement.
• The "buzz" at the ESOP Association Conference that seemed to be of most concern to attendees is the widespread misunderstanding of the benefits of worker ownership among both political parties. While the ESOP enjoys some strong support among a number of Representatives and Senators, the inability of either party to come up with an effective program (such as Capital Homesteading) that will deal with the deficit and the need to stimulate growth at the same time has led to targeting the ESOP as "corporate welfare." Since most Americans lack any significant direct ownership of corporate stock, targeting the ESOP seems like an easy way to score some points with voters while undermining what may be the most productive sector of the American economy.
• We spoke with some of the presenters about the need to rebuild an ownership culture in America. Our comments were well received. The financial professionals especially expressed interest in the effort to orient the financing of economic growth away from past savings funded by reducing consumption, and toward future savings funded by increasing production — what Louis Kelso called "A Proposal to Free Economic Growth from the Slavery of [Past] Savings."
• In the session on "ESOP Sustainability," our point about viewing the ESOP as an ownership vehicle similar to a partnership instead of a retirement plan expense to help in dealing with the repurchase obligation was positively received. The change in orientation is from treating it as an expense to be minimized, to regarding it as the value of a worker's partnership stake that reflects ownership to be secured and protected.
• As of this morning, we have had visitors from 62 different countries and 54 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, India, and Australia. People in Mexico, the Philippines, France, the United States and South Africa spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Keynesian Cargo Cult: Rot Bilong Keynes," News from the Network from April 20, 2012, and "The Keynesian Cargo Cult: Overview."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
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