Although the women of the United States are confined within the narrow circle of domestic life, and their situation is, in some respects, one of extreme dependence, I have nowhere seen woman occupying a loftier position; and if I were asked... in which I have spoken of so many important things done by Americans, to what the singular prosperity and growing strength of that people ought mainly to be attributed, I should reply, To the superiority of their women.

--Alexis de Tocqueville, Democracy in America

Friday, November 25, 2011

Wall Street and FDR: Chapter 2

"Bonding" with Politics

In early 1921 Franklin D. Roosevelt became vice president of the Fidelity & Deposit Company of Maryland and resident director of the company's New York office at 120 Broadway. Fidelity & Deposit of Maryland was an established insurance company specializing in the bonding and surety policies required on government and corporate contracts and a range of individual employments ranging from secretary of a trade union to employees of stock brokerage houses. In fact, a potential for bonding business exists wherever a contractor or employee can violate a fiduciary trust or fail to complete a contract, as in construction projects. In brief, bonding is a specialized field of insurance covering the risk of noncompliance. In 1921 Fidelity & Deposit was the fourth largest such bonding house in the United States, but not to be confused with the Fidelity and Casualty Company of New York, another insurance company, which incidentally had W. Emlen Roosevelt, FDR's cousin, on its board of directors.
The question is why was FDR hired as vice president of this important New York office, despite not having any experience? Answer: his last name is Roosevelt and the bonding business is politically dependent. He was hired  by Van-lear Black, who also owned the Baltimore Sun, and paid FDR a handsome salary of $25,000 per year, quite a princely sum in 1920s money. What happened here was he used his family connections, as there were a whole lot of Roosevelts working the Street, and is basically how he got bond business traffic to flow to Fidelity.

The labor unions were a real gravy train:

Trade unions were a special FDR target for business; as each union local secretary and treasurer is required to have a bond, this was a lucrative field. On December 13, 1921 general secretary treasurer E. C. Davison of the International Association of Machinists wrote FDR:

We are now carrying the bulk of our bonding business with your company, which we were influenced to do in a great measure by the fact of your connection with this concern.

Then on January 26, 1922 Joseph F. Valentine, president of the International Molder's Union of North America, wrote to FDR that he was most appreciative of all FDR's efforts for the union while acting as Assistant Secretary of the Navy and

I have a desire to give the Fidelity and Deposit Company of Maryland as much of our business as possible ... as soon as our existing bonds have lapsed, it will be a personal pleasure to have your Company handle our business in the future.

Union officials in Washington and elsewhere were prompt to request their locals to divert business to their old friend FDR and away from other bonding companies. In turn, local union officials were prompt to report on their diverting actions, information in turn promptly conveyed to FDR. For example, the president of the International Association of Boilermakers wrote to Secretary Berres of the Metal Trades Department, A. F. of L., in Washington, D.C.:

. . . You may rest assured that anything that I can do to be of service to Mr. Roosevelt in his new position will be a pleasure on my part, and I am today writing Mr. Roosevelt.
FDR also peddles his "wares" with Congressmen:
Dear Congressman Maher,
Howe [Louis Howe, FDR's right-hand man] told me of his conversation over the telephone with you and I am inclosing a more formal letter for exhibition purposes. This is a little friendly note lest you think I have suddenly grown formal since I have adopted Wall Street as my business address.Do come over and see me. I know it will do your soul good to hear the language which Brother Berres and various others connected with the Labor Bureau, are using in regard to the present administration in general and Congressmen in particular. If the Missus happens to be out of hearing when you arrive I will repeat some of the more quotable extracts.
This was the friendly letter, the real letter to show at the office was as follows:

I am going to take advantage of our old friendship and ask you if you can help me out any in an effort to get fidelity and contract bonds from the powers that be in Brooklyn. There are a large number of bonds needed in connection with the city government work, besides the personal bonds which every city official has to give, and I am in hopes that some of my old friends will be willing to remember me. Unfortunately, I cannot take this matter up with them myself at the present time, but as all my friends are your friends I feel that if you have the time and inclination, you can be of real help to me. I assure you the favor will not soon be forgotten.
Looks like us deep-down reality diggers aren't the only ones to use the TPTB moniker. FDR earns a reputation for being the go-to guy at Fidelity to get some political influence. Polticization of the bond business was not just limited to the big municpalities, but went Federal:

Politicization of the surety business, so obvious in Chicago and New York, extended also to the Federal government contract arena in Washington D.C. On May 5, 1926 F & D second vice president F. A. Bach in Baltimore wrote FDR about a $11/4; million Veterans Bureau building projected for construction that spring:
Dear Franklin,Among other projects of the Veterans Bureau this spring is one involving approximately a million and a quarter dollars at Bedford, Mass., and I am secretly hoping that through influence such as knowing Mrs. Rogers, Representative of Massachusetts, that we might have some chance of getting a piece of that business although, of course, the biggest project will be at North Port, Long Island.
Similarly, to a contact in a "firm holding Navy contracts" FDR wrote:
A casual reference in a letter from one of my old friends in the Navy Department to the award of some 8-inch gun forgings to your company, brought to my mind the very pleasant relations we held during my term as Assistant Secretary of the Navy, and I wondered if you would feel like letting my company write some of the contract bonds that you are obliged to give the government from time to time. I would like very much to have one of our representatives call.
In case you don't remember, FDR was Assistant Secretary of the Navy. From what I've learned, the people you ought to watch are these 2nd and 3rd tier cabinet people, as they seem to be the ones really pushing the government envelope. And here is the money quote from this chapter that explains what is wrong with our country and explains why when conservatives clamor "free market", they beclown themselves, as we haven't had a truly free market in a long time, because of this endemic corruption:

These political methods of doing business are, of course, a long way from the competitive market place of the college textbooks. It would be na├»ve to think that political preference and personal friendship have no role, or only a minor role, in business relationships. In reviewing FDR's bond business, however, it is difficult to visualize another business in which politics plays such an all-encompassing role as it did in the bonding and surety business in the 1920s. The morality of kickbacks and of the use of political office to generate personal business is questionable, and the legality is definitely doubtful. Much less obvious is the consequent loss of economic efficiency and loss to society as a whole. If purchase and sale of such bonds is determined by price and past performance—and personal acquaintance can be a legitimate factor in judging past performance—then the market place will yield maximum economic benefits and efficiency for society. In a politicized business atmosphere these impartial competitive factors are eliminated, economic efficiency is foregone, and benefits are reduced. We have, in effect; a microcosm of a socialist economy in which all decisions are politicized to the detriment of society as a whole. In brief, FDR's bonding operations were to some degree antisocial.

When FDR finds out that state architect Sullivan Jones has a plan to outlaw the bond business in New York and the Governor Al Smith is favorable, he moves swiftly to put the kibosh on it. He writes to his man Towner that "I hope to see the Governor in the next couple of weeks and will then talk to him like a Dutch uncle about Jones' plan." Needless to say, they killed the Jones plan. FDR's employer, F & D blew off the Better Business Bureau and any other consumer groups stating that they had no use for them.

What this chapter tells you is that FDR honed his skills in wheeling and dealing, merging business and politics seamlessly as a microcosm of a socialist state.  You'll notice that "going political" is extremely profitable:

Surety Company Bonds in the State of New York
Jan. 1, 1923
Jan. 1, 1924
Fidelity & Deposit Co.
$ 7,033,100
National Surety Co.
+ 684,550
Fidelity & Casualty Co. Surety Co. of New York
$ 3,211,900
$ 3,215,150
+ 3,250
Aetna Casualty & Surety Co.
$ 5,517,200
- 717,700
U.S. Fidelity & Casualty Co.
$ 8,064,500
$ 6,817,000
- 1,247,500
American Surety Co.
- 1,125,725

It's important to note that there was nothing "free market" whatsoever in how FDR did business. This is a point that many conservatives fail to grasp. They here the word business and in Pavlovian-form think "good", and when a liberal points out that there is injustice in business, the conservative thinks, 'oh boy, here we go..." This keeps the two diverse groups from seeing a bigger picture. There are businesses with an inside track to regulation, tax structure and law, the extent of which the average conservative voter is completely ignorant of. The talk radio circuit and talking heads never reveal what is going on behind the scenes of this quasi-socialist America because they work for companies that are all tied up in the politics of preserving the status quo. Food for thought.

Wall Street and FDR may be read in its entirety at Reformation Theology.

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