I was assigned a paper on the Shanxi Banks in the late Qing dynasty in China, and how they became the banking centre of their time. You can read the paper here, but I think it is worth flagging why they were so effective in preventing fraud. From the abstract:
The remote inland province of Shanxi was late Qing dynasty China’s paramount banking center. Its remoteness and China’s almost complete isolation from foreign influence at the time lead historians to posit a Chinese invention of modern banking. However, Shanxi merchants ran a tea trade north into Siberia, travelled to Moscow and St. Petersburg, and may well have observed Western banking there. Nonetheless, the Shanxi banks were unique. Their dual class shares let owners vote only on insiders’ retention and compensation every three or four years. Insiders shares had the same dividend plus votes in meetings advising the general manager on lending or other business decisions, and were swapped upon death or retirement for a third inheritable non-voting equity class, dead shares, with a fixed expiry date. Augmented by contracts permitting the enslavement of insiders’ wives and children, and their relative’s services as hostages, these governance mechanisms prevented insider fraud and propelled the banks to empire-wide dominance.
Skin in the game? Let’s continue…
Modern civil libertarians might question some of these governance innovations, but others provide lessons to modern corporations, regulators, and lawmakers.
Well, maybe some of the enforcement…
Reading through papers and books of economic history of early financial innovations, I came across this nice little setup.
The year was 1899. Henry Rogers and William Rockefeller wanted to buy Anaconda Copper Company without the expenditure of a single dollar. Here’s how to do that:
- Rogers and Rockefeller gave a check for $39 million to Marcus Daly for the Anaconda properties, on the condition that he would deposit it in the National City Bank and leave it untouched for a specified period.
- They then set up a paper organization known as Amalgamated Copper Company, with their own clerks as dummy directors, and caused Amalgamated to buy Anaconda — not for cash, but for $75 million in Amalgamated stock which was conveniently printed for the purpose.
- From the National City Bank, Rogers and Rockefeller now borrowed $39 million to cover the check they had given to Marcus Daly, and as collateral for this loan they used the $75 million in Amalgamated stock.
- They now sold the Amalgamated stock on the market (first haven touted it through their brokers) for $75 million.
- With the proceeds, they retired the $39-million loan from National City Bank, and pocketed $36 million as their own profit on the deal.
Simplicity itself, albeit with a fair amount of “staggeringly dishonesty,” as Robert L. Heilbroner writes. This story is from his excellent book, the Worldly Philosophers.
Much has been written
today on the deal from last night, and I don’t have anything to add, except to say that the deposit tax on small depositors is a very, very dangerous route to take… Here are the best links to explain why:
Will update. Links in ~chronological order. In pictures [hat tips Mark Dow and Aurelija Augulyte]:
I didn’t know this was a thing, but it is awesome. Today is Pi day in the US (3.14) and Europe will have it’s Pi day on July 22 (22/7). It’s also Albert Einstein’s birthday today. Here’s Climateer with more:
We first used this on March 14, 2009:
Also known as Talk Like a Physicist Day. A reader emails:
Much more here:
March 14: It’s Albert Einstein’s Birthday! (it’s also Pi day) — Climateer
Climateer posted a wheninfinance gif from last year, noting market-on-close commentary. Wheninfinance’s original title in bold below. That happened at work last year. Bravo, indeed.
When someone decides to email every person employed at the bank:
In today’s NY Times, there’s an op-ed based on a recent paper.
The researchers did an experiment where two groups of people were exposed to the same news story, but with one reading comments in a civil tone, and the other group reading very rude comments. The substance was the same, but the tone was different.
They found that the group exposed to rude comments found the story itself much more polarising. This is definitely a subject worth considering in this world of blogs, twitter, facebook, and interaction.
Here’s the abstact from the paper:
Uncivil discourse is a growing concern in American rhetoric, and this trend has expanded beyond traditional media to online sources, such as audience comments. Using an experiment given to a sample representative of the U.S. population, we examine the effects online incivility on perceptions toward a particular issue—namely, an emerging technology, nanotechnology. We found that exposure to uncivil blog comments can polarize risk perceptions of nanotechnology along the lines of religiosity and issue support.
The rise and fall of Nikola Tesla and his tower, from the Smithsonian Past Imperfect blog. A remarkable life, both in accomplishment and sadness. Here’s the end:
Nikola Tesla would go on to make news from time to time while living on the 33rd floor of the New Yorker Hotel. In 1931 he made the cover of Time magazine, which featured his inventions on his 75th birthday. And in 1934, the New York Times reported that Tesla was working on a “Death Beam” capable of knocking 10,000 enemy airplanes out of the sky. He hoped to fund a prototypical defensive weapon in the interest of world peace, but his appeals to J.P. Morgan Jr. and British Prime Minister Neville Chamberlain went nowhere. Tesla did, however, receive a $25,000 check from the Soviet Union, but the project languished. He died in 1943, in debt, although Westinghouse had been paying his room and board at the hotel for years.
A good read, and yes — I know him mostly from Red Alert, too. Hat tip to Climateer.
… it should be this comment piece by Will Hutton in the Guardian:
Davos man thrives while the rest of us pay for his excesses
Hat tip to Charlie.
From NPR (with a hat tip to AV FR), which passes on a story in the Guardian:
A bunch of investment managers invested in the best stocks they could find, while a cat named Orlando randomly chose stocks from a list. The cat won.
You want to hire or interview the cat? Too bad:
A spokeswoman for Orlando said he was not available to give an interview because of a claws in his contract.
Some longer pieces that I plan to read tomorrow.