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Thomas Edison, Henry Ford, John Burroughs, and Harvey Firestone.
”Beyond the pleasure it brought to the men themselves, the Edison-Ford frie
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Thomas Edison, Henry Ford, John Burroughs, and Harvey Firestone.
”Beyond the pleasure it brought to the men themselves, the Edison-Ford friendship also thrilled ordinary Americans, whose lives were radically changed, to great extent blessed, by the two men’s inventions and innovations. Later in 1914 the outbreak of war in Europe, and America’s potential entry into the conflict, began dominating the news. That made it even more refreshing to read about Edison and Ford in newspapers and magazines--they were among the country’s most prominent celebrities, after all--and entertaining to wonder what future advancements the unique pair of friends would deliver. Only a generation or so earlier, electric lights in homes, phonographs, movies, affordable horseless carriages, substantial factory wages, and shorter workweeks would have been beyond public imagination. As individuals, Edison and Ford had already extended the boundaries of the possible. Now their genius was joined, and more miracles were certain.”
From 1914 to 1924, Henry Ford, John Burroughs, until his death in 1921, Thomas Edison, and Harvey Firestone would attempt to go on a motoring/camping vacation together every year. They were not always successful because one or the other had pressing concerns that would not allow them to go, but when they did all manage to go, it was a newspaper sensation. At the time, there were no more prominent Americans than Ford and Edison. One had innovated the car, and the other had brought light to all corners of America. When on these excursions, the press would follow them like the paparazzi follow movie stars, pop stars, and politicians.
Besides friendship, and I do believe these men really liked each other and enjoyed spending time together, they also appreciated the publicity that these trips produced for the products their livelihoods were tied to. Burroughs sold more books. Ford sold more cars, which meant Firestone sold more tires, and Edison sold more light bulbs and other sundry things that were made by his laboratories. These trips were one big social media hashtag.
The trips themselves were not really of much interest to me. After all, they were the early days of reality TV. Fake reality is about the lowest form of entertainment I can think of. George R. Holmes of Hearst Newspapers did write a very poignant paragraph about their campsite. ”Out of the inky blackness that hangs like a shroud over the Adirondacks these nights, there blooms nightly along some quiet mountain stream a ghost-like tented village...Eight tents, almost transparent with the incandescent lamps inside them, stood out last night like so many jewels against the velvet blackness of the forest on all sides. In the center of the tiny village a campfire burned, for it is nippy in the mountains these nights.” They were quite comfortable on these trips. The idea that these older men could be roughing it wouldn’t really make any sense. They’d all be in the hospital with pneumonia by the end of their travels.
President Warren G. Harding joined them briefly during one of their trips. It was an attempt to beef up Harding’s image as an everyday man. His administration was rocked by scandal, and the constant rumors of his flagrant infidelities were hurting his chances at reelection. So how does a guy like this get elected? Beware the American public who wants radical presidential change.
”Most major newspapers savaged Harding editorially, noting his complete lack of legislative accomplishment as a senator and describing him as one of the most unqualified presidential candidates in the nation’s history. But Americans wanted a change, and there were strong sentiments. Harding and Coolidge won in a landslide.”
President Warren G. Harding joined them for a brief amount of time on one of their trips. I won’t say much about this meeting between the four friends and this bizarre choice for president, but Henry Ford was so horrified by his impression of this man that he knew, for the good of the country, that he would have to run against him for president. Ford was at the height of his popularity at this time and would, most likely have become the 30th president. Fortunately for Ford and for the country, Harding died in office in 1923, and Ford was so impressed with his replacement Calvin Coolidge that he dropped all thoughts of running for president.
Jeff Guinn revealed several disturbing things about Henry Ford which changed my impressions of the man. I’d always praised him for paying his workers a liveable wage and being an advocate of the 40 hour workweek, but it turned out that those thoughts actually came from his general manager, James J Couzens. By paying a good wage, turnover was reduced, which cut the cost of training new people. Cutting the workweek encouraged people to buy Model Ts because they would have time to use them for pleasure drives. Investing in people is always a boon to the economy and to the companies that support their workers. Couzens later went on to be mayor of Detroit and a senator. He was defeated in the 1936 Senate race because he was a Republican supporting the New Deal programs. Mentally, I must strike those innovations from the positive column for Ford and start thinking of Couzens as the man we should all be admiring.
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Senator James J. Couzens, a man of principle.
Ford also was an antisemetic, even producing a paper that advocated his beliefs. He was also contemptuous of the importance of history and those people who read books. ”Henry Ford was mostly disdainful of books and those who loved them. In his opinion, people ‘read to escape thinking’. So far as Ford was concerned, being literary-minded was symptomatic of an escalating national softness, with far too many people content to lounge poring over pages instead of getting on their feet and doing something. ‘Book sickness is a modern ailment.’”
GASP!
Wouldn’t it be great if we were a nation suffering from book sickness? Alas, that is simply not the case. The majority of Americans agree with Henry Ford. Reading for them is considered a waste of time.
This book might be based around the trips these four famous men took, but the real meat of the story was exploring their personalities. Firestone was the least known of the four men, but he was the mediator that helped these larger than life men get along. He was a very successful businessman in his own right, but not as good at self-promotion as the other men. This book brought to light new information and reminded me of some things I’d forgotten.
It was also strangely relaxing to wander the byways and soon to be highways of America before we started drifting away from the very things that made us great in the first place. We used to make things here, and the manufacturing jobs that made it possible for so many generations to go to college are now supporting families in China. I believe that if any company wants to sell any product in the United States that at least 51% of that product should be made in America. We are entrenched in too much greed. American business is more worried about making as much money as it can now, even if it bankrupts its future. They want us to buy their products, but they don’t want to invest in us. James Couzens, over a century ago, understood that the future is determined by how you treat people today.
”Leon hadn’t understood, and he’d given Alkaitis his retirement savings anyway. He didn’t insist on a detailed explanation. One of our signature flaws”Leon hadn’t understood, and he’d given Alkaitis his retirement savings anyway. He didn’t insist on a detailed explanation. One of our signature flaws as a species: we will risk almost anything to avoid looking stupid. The strategy had seemed to adhere to a certain logic, even if the precise mechanics--puts, calls, options, holds, conversions--swam just outside of his grasp. ‘Look,’ Alkaitis had said, at his warmest and most accommodating, ‘I could break it all down for you, but I think you understand the gist of it, and at the end of the day the returns speak for themselves.’”
It is the perfect time to be reading this book as I watch the stock market plummet over fears of what the coronavirus will do to the ebb and flow of money. I pulled my money out years ago to invest in real estate, so I’m really rather a disinterested observer as the panic begins to gain momentum. What makes this downturn interesting is, if there are any Madoffesque Ponzi schemes operating out there, they will be exposed. As long as the markets are good Ponzi schemes work like clockwork. When markets start to get shaky is when too many calls come in too quickly for a scheming ponzi criminal to cover.
The party at that point is over.
The 2008 crash is what exposed Jonathan Alkaitis’s indiscretions. Rarely do investors hang with you when they start to see the market begin to free fall. They don’t care how many great returns you’ve given them in the past. They want their money back, and they want it back now. Remember the run on the bank in It’s a Wonderful Life? Well, that is exactly what happened to Alkaitis in 2008. There was no money to give them because there were no fresh investors giving Alkaitis an infusion of new cash. The whole scheme spiralled down the toilet.
The primary thing that drives a Ponzi scheme is greed. Frankly, I don’t care if some smooth talking, immoral Alkaitis type character takes rich, greedy people for all their money because they should know better. What really irritates me is when guys like Alkaitis take regular people for their small nest eggs and retirement funds. That’s when what he does goes from being a snake oil swindler to being a devastator of lives.
Emily St. James Mandel does a great job of laying out exactly what a Ponzi scheme is, but if you have fears that this book is all about schemes and money, don’t worry. Mandel has always been wonderful at building the emotion and authenticity of her characters’ lives.
So the way a Ponzi scheme works is that a slick talking operator with some trading experience convinces a few of his rich buddies to invest some money with him, guaranteeing them a certain rate of return. Sometimes those buddies are in on the scheme, and sometimes they are clueless, but they all feel absolutely brilliant when they start getting checks, reflecting astronomical returns. Some math would tell them that these rates of return are impossible, but that isn’t really a thought as long as the checks keep coming. Those initial investors then tell their friends and acquaintances about these fabulously large checks they have been “earning” and recruit more investors to the scheme. So Alkaitis is really just a salesman, a closer who convinces these people he is a brilliant investor, but what these investors don’t know is that he never invests their money. Their money is being used to pay the big returns to the initial investors and to support his lavish lifestyle. As long as the market is a bull market, attracting more investors is no problem, and everything works great. When the stock market tumbles, he doesn’t have the cash to pay out to the numerous, nervous investors wanting their money back.
That’s when people with handcuffs make a visit.
There is a mystery threaded through the plot as to what really happened to the woman who fell off the boat in the opening chapter of the book. She has an unusual name. She was named for the poet Edna St. Vincent Millay (can’t help noticing how closely that name reflects the author’s name), and few people forget a beautiful woman named Vincent. She becomes the trophy “wife” of Alkaitis. She is not stupid, but she sees money as a mysterious agent that seems to materalize, like magic in her new life. ”Everything in the shop was gorgeous, but the yellow gloves shone with a special light. She tried them on and bought them without looking at the price tag, because in the age of money her credit card was a magical, weightless thing.”
She was a bartender before she met Alkaitis and will be one again.
This is an effortless read. I blew through it on a flight from Denver to Charlotte. Mandel’s writing style is smooth and elegant. She is one of my favorite young writers, and I certainly look forward to her next book. If you haven’t read her work before, I would suggest starting with her book Station Eleven, which could very well prove to be her grand opus. If you like post-apocalyptic novels, you will enjoy her unique and poignant view of a possible future. If you think money is boring, which it is, but regardless you should still understand it, especially if your beloved Uncle Ted leaves you a nice packet, this book will give you some perspective and, hopefully, help you keep from falling into the honey laced traps of conmen. The sage advice, if it is too good to be true then it is really too good to be true, should always be remembered.
So you might wonder to yourself, how do venture capitalists make so much money?
”We take as much equity as we can get for the initial investment, we wSo you might wonder to yourself, how do venture capitalists make so much money?
”We take as much equity as we can get for the initial investment, we write ourselves favorable terms in the event of acquisition or bankruptcy, and we diluted the equity of the founders even further with additional rounds of financing--sometimes to the point where they actually have no remaining stake in the company.”
So I have had my own unpleasant experience with venture capitalism. In my case, we had a finance company come in to purchase the company I worked at, and basically they acquired/supplied the financing to enable some of the managers, including myself, to own a piece of the property with the eventual understanding that we would own the whole thing. Everything would have been fine. The venture capitalist would have skimmed off a healthy profit, and we would have eventually ended up with a profitable company that would pay for a healthy retirement. We, unfortunately, had a downturn in the economy at the wrong, critical time. The venture capitalist compounded the problem by elevating a person to CEO who was completely unqualified for the position, who alienated and ranoff the talent pool. (It was such a poor pick you would almost think it was done on purpose to insure a quick dissolution of the company.) The situation quickly spiralled out of control. The managers lost all they had invested, while the venture capitalist walked away with a hefty profit.
He wrote the terms to insure that he would be fine, no matter what happened. His risk, zero. Ours 100%. I understood the risk, but what I didn’t understand was the potential for undermining the company to allow the venture capitalist to pop the ripcord on his golden parachute sooner rather than having to wait until later. The lies came fast and furious as I continued to ask for clarification on what was really going on. I was a minority owner at 7% and found out very quickly that 7% is the same as having zero ownership.
So why would I want to read a mystery based around a venture/vulture capitalist investment? Well, first of all, even though I knew this was going to involve venture capitalism, this is listed as an August Riordan mystery, and I loved the first book in the series titled The Immortal Game. Riordan is a jazz playing, private eye, who navigates the underbelly of San Francisco, almost as well as he plays a measure of improv. Riordan doesn’t show up in Vulture Capital until about page 100. He is a minor character until the final few pages of the book. I was kind of amused at the feeling of being baited and switched, but that kind of goes with the whole theme of Vulture Capitalism.
Fortunately, I became caught up in the mystery of the disappearance of Warren Niebuhr, the Chief Technical Officer of NeuroStimix, a biotech firm that is working on technology that will allow people suffering from spinal cord injuries to gain mobility. The company is Ted Valmont’s baby. He has bought and broke up so many companies that he has sort of reached the point in his life where he has that Richard Gere (remember Edward) moment in Pretty Woman where he wants to stop buying companies to destroy them, but begin buying companies with the intention of building things. Ted is even more invested in NeuroStimix, beyond the financial gain or loss. His twin brother is paralized from a spinal cord injury, and NeuroStimix’s research is his brother’s best chance to walk again.
Ted soon discovers there are nefarious elements behind the disappearance of his CTO. Another group of investors want to appropriate the technology from NeuroStimix and turn it to other, more profitable, uses, such as prostitution, slave labor, and even terrorism. ”You see, Niebuhr has figured out a way to record and later replay the nerve impulses associated with movements in people who are not paralized. With the right filtering, he can even make records from one person and play them on another. For instance, if you wanted to teach a beginning golfer to swing as well as a pro, you could record the pro’s swing and then replay it on the student.”
Or let's say you wanted to teach someone to swing a hammer more efficiently and effectively to increase their productivity. More profit for the owner, but the same shit wage for the worker.
Think of all the work that would save people of means from having to actually put in the time to learn how to be good at something. So you wake up one morning and want to be a concert pianist, why go through all the pain of years and years of practice when someone else has already done that for you? Of course, without the work to achieve it, there would be no satisfaction in having the ability.
These are actually pretty scary application ideas for this technology, but of course, there are only so many people needing to walk again. The profit is in developing the technology to potentially entice every person on the planet with a large enough bank account to take advantage of the technology. Let’s just continue to make that divide between the have nots and the haves even larger.
This is certainly a critical look at the post dot.com world of Silicon Valley. The mystery is interesting, verging on the fantastical, but then one fiction writer’s vision in one decade becomes the reality of the next. Candy from Strangers is the next “August Riordan” which is focusing on the very real hazards of social media and how it is brings pervs and teenagers together in equally exploitative ways. Mark Coggins has proven to me that he is a thoughtful, compelling writer so I’m looking forward to getting his take on my nemesis/close acquaintance...social media.
I often wonder to myself what happened to all those expensive ergonomic chairs that were sitting in empty offices all across the Valley in the wake of the dot.com bust? I could really use one.
”The ability of Wall Street traders to see themselves in their success and their management in their failure would later be echoed, when their firms, ”The ability of Wall Street traders to see themselves in their success and their management in their failure would later be echoed, when their firms, which disdained the need for government regulation in good times, insisted on being rescued by government in bad times. Success was an individual achievement; failure was a social problem.”
The real estate market in the United States after several years of frantic growth peaked in 2004, which was the year I decided to start buying properties. I was able to secure 6% interest on about any property I wanted to buy with no money down. I had an 800+ credit score, which had bankers salivating when I walked in the door. I put everything on 30 year notes to give me more cash flow.
The first time I bought a property, the banker wrote it up as an ARM (adjustable rate mortgage). He showed me how much lower my payment would be. Of course, what he didn’t explain was what the payment would look like when the interest rate went up. (I’m the offspring of a farmer and had the opportunity to watch my father negotiate several mortgage notes. My father always said to never trust a banker and, furthermore, never trust that a banker knows what he is doing.) When I told the banker I wanted a fixed mortgage, he looked shocked for a moment. He said, “I haven’t written a fixed note in so long that I’ll have to look up how to do it.”
Warning bells were going off in my head.
My friends and acquaintances from all over the country were buying properties. Many were buying properties they could not afford and knew it, but they were hoping to ride the positive wave of escalating property values which would allow them to keep tapping their equity to pay their bills. Many of them fell into the category of subprime mortgages. ”A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result of their deficient credit ratings, would not be able to qualify for conventional mortgages.”
Michael Lewis talks about ”thin file FICO scores,” which are people with short credit histories, but have good credit. One example that Lewis uses is a Mexican strawberry picker making $14,000, who qualified for a loan for $750,000 all because he hadn’t proved he couldn’t pay.
Anyone with any sense, you don’t need business acumen for this one, can look at that situation and KNOW with certainty that strawberry picker will not be able to make his payments. The whole lending system, from the big boys on Wall Street down to the loan officer in your local bank, was making and encouraging too many loans destined to fail. It was ok though because they were going to bundle them together with a bunch of other notes and sell them to someone else.
Unfortunately, and I blame the car industry for this, Americans are much more interested in a lower payment than they are in how long it will take to pay off a note or how much interest they will end up paying. What is the first thing a car salesman asks a car buying prospect? How big a monthly payment can you pay? It doesn’t matter what type of car or how expensive that vehicle is; what is important is what they are capable of paying per month. Car loans used to be three years in length. Now, most people take seven years to pay off their car. They have no idea how much they will have paid for that vehicle at the end of seven years. I recently bought a new Jeep Cherokee, and when they brought the paperwork, I realized that they hadn’t even asked me if I wanted a five year or a seven year note. They automatically wrote it up for seven. I had them change it to five.
So that same mentality transferred over to mortgages. It was easy to talk Americans into ARMs because of the lower payment offer (interest only) compared to a fixed rate. In most cases, I can guarantee they were never offered or shown a fixed rate. ”Interest only ARM mortgages were only 5.85% of the pool in early 2004, but by late 2004 they were 17.48% of the pool, and by late summer 2005 25.34% of the pool. To say that everything was getting out of balance was an understatement. We were being set up for a disaster. If the real estate dipped or remained flat, the whole, forgive the pun, house of cards, was going to come down. Home owners had to keep gaining equity to stay afloat.
2009 was the year that I decided to refinance all my properties. The interest rate was unbelievably low, and one of my fears was that the paradigm would shift and interest rates would begin to climb. I was on a fixed rate of 6%, which historically that was a great rate for home mortgages, but the interest rate I was about to get was going to blow my mind.
4.25% (now you can probably write a primary loan for less).
Not only did they give me that rate on my primary home, but also across the board on all my rental properties. My main goal for refinancing was to lower the interest, but also to take my 30 year mortgages and put them on 15 years.
The banker said some interesting things to me. One was that they were willing to waive the fees if I’d write new 30 year mortgage notes. He showed me how much lower my monthly payments (ahh yes that old stratagem) would be compared to the 15 year notes. He said that if I wanted to pay them off in fifteen years, all I would have to do is make bigger principle payments. This is extremely bad advice. Most people never make an extra payment on their car or house or with some, totally insane consumers, even their credit cards. They pay the minimum they have to pay.
One of the problems with most loan officers is that they really don’t understand the loans they are writing. I had one property that had a house with a trailer house on the same lot. I could almost hear the pop in the banker’s head when he realized there was a trailer house involved. They don’t finance trailer houses. I explained that the trailer house needed to be considered personal property; I had plenty of equity in the house to meet the criteria for the loan. I had to go up the chain of the bank until finally I was talking to some guy in Milwaukee who got what I was saying and approved the loan. I don’t like the fact that the person who makes the decision about any loan I make is not the person sitting in front of me, but that is the banking system we work with now.
The crises of 2008 should have never happened. Regulations on banks and Wall Street had been relaxed. Without regulations they went crazy. They lost their minds. ”There were more morons than crooks, but the crooks were higher up.”
This book focuses on the handful of brokers who could see the crash coming and decided to bet against homeowners being able to make their payments. It was dicey because if the government stepped in and shored up those home loans, they would lose their bet.
They won, and they won big.
At the time, I supported President Bush’s administration stepping in with a bailout for Wall Street. I was wrong to do so. I was afraid of a further collapse that would bring even those of us who were solvent down with the ones already under water. (I do believe that the bailout of the auto industry was an astute decision that ended up saving that industry and thousands of blue collar jobs.)
I have only a few thousand in the stock market these days. I took my money out and bought a business. I wish more Americans would invest in something tangible, like a business or real estate. I’d rather that when Wall Street goes crazy with greed again, and they will, that they don’t have the retirements of middle class Americans to lose on some greedy short term gain venture.
My advice to everyone is to really KNOW your finances. Don’t assume that a banker or accountant knows what is best for you. Don’t put your future in someone else’s hands. Use their expertise to educate yourself. Don’t over leverage yourself under the assumption that you will make more money in the future. Buy at a price you can afford now, not what you think you will be able to afford later. If you are thinking about buying a home, the concept of buy low and sell high should apply. If possible, wait for a buyer’s market. Buy below market if you can so that you have some ready made equity already in your home. (The quicker you can get enough equity, usually 20%, in your home to avoid PMI payments the better. Private Mortgage Insurance protects the lender if you default on your loan though THEY benefit you pay the premium.) Don’t fall in love with a house until you own it. Don’t ever risk money you can’t afford to lose.
This is a painful book to read from the standpoint of the recklessness, the greed, the foolishness that all contributed to the 2008 subprime mortgage crises. I wasn’t shocked to learn that the “experts” didn’t even know what they were selling or buying most of the time. They didn’t understand their own acronyms. Like, what the fxxk is a CDO (collateralized debt obligation), and what the hell are tranches? It’s okay for me not to know, but these people at Bear Stearns, Merrill Lynch, Lehman Brothers, UBS, Goldman Sachs, and Morgan Stanley didn’t really understand what they were either. These supposedly best and brightest were blinded by greed. They couldn’t see that the track in front of their roaring train loaded with subprime mortgages...had disappeared and the gorge they fell into was... deep.
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