Origins of the Modern Thieving State

June 13, 2011

 

In an earlier post, I mentioned that Putin’s brutal tactics against his billionaire political opponents (he throws them in jail and convicts them of trumped-up charges) rang a bell in my head.  The trial of Nicolas Fouquet, Finance Minister to Louis XIV came to mind.  This got me started on the whole notion of what Krugman called today, Rule by Rentiers, and the tremendous and parasitical hold over our society of the financial élite…and whence it came to be.

Fouquet has interested me for a long time, not least because he built one of Europe’s great architectural gems, the estate at Vaux-le-Vicomte.  The gardens were designed by André Le Nôtre, who went on to design the overwhelmingly magnificent landscapes at Louis XIV’s palace at Versailles.  Fouquet also came to my attention early in life because in high school, I read some letters by Madame de Sévigné, including a famous one describing the fate of Vatel, formerly cook to Fouquet.  During a grand banquet for the Prince (the Great) Conde, the fish course was threatened – the fish had not been delivered!  Vatel was so humiliated by this failure, that he threw himself on his sword.  His death was treated as a national tragedy.  But Fouquet and his ilk are the story here.

Fouquet is not mentioned much these days – all attention goes to his destroyer, Le Roi Soleil, Louis XIV.  But Fouquet was Louis’ faithful servant during a time when the king was young, and just getting a firm grip on power.  (The childhood of Louis was during the civil war called The Fronde.)  He always served the interests of the king and the French state (no difference between the two!), and along the way, he enriched himself.  Well, so did everyone else, and most didn’t do such a good job as he did.  Nor were they as handsome, intelligent, charming, cultured, and imaginative.  Richelieu, Mazarin, and Colbert are not on any historian’s list of fun people.

The job of Nicolas Fouquet was to ensure that the royal treasury was full so it could pursue its endless war against the Spanish Hapsburg Empire.  The state of national finance at the time was so chaotic and desperate that it makes American budget issues look like textbook examples of perfect accounting practice.  Books were duplicated, or secret.  Huge ‘loans’ to government figures were standard.  It was not illegal to rake off a substantial sum from tax collections or financing from the merchant élite, it was how the system worked!  There was no separation of the personal interest from the state interest at the level on which these high ministers worked.  After all, if they did not have the cash to present a good front, what financier would lend to the state they represented?  Opulent show was all part of the process.

The crime of Fouquet was simply to do his job far better than anyone else, thus exciting the envy and hostility of Colbert, and to be neglectful or unaware, to a shocking degree, of how his activities might be interpreted by the young king.  Three weeks after hosting the king at a vast banquet in his brand new palace, Vaux-le-Vicomte, he was enlightened:  Louis had him arrested on charges of embezzlement and treason.  The charges were totally trumped-up, and Louis probably did not believe them a bit:  he simply wanted to get rid of a too-independent servant.

The trial was a milestone in the history of political show trials, but Fouquet did not play the docile, self-incriminating defendant that students of the USSR might expect.  He was cool, calm, and collected, and even managed to smuggle out some letters that were the basis of quickly printed pamphlets that generated tremendous popular support for him.  Louis XIV did not have the resources of the total terror-state, but he did his best.  He hanged a few people who helped Fouquet communicate with the outside world from prison, but it is a measure of the not-yet-established nature of his absolutist rule that many elements of the trial were not under his control.  He learned, and acted differently in the future.

Convicted, but not sentenced to death, the verdict of eternal banishment did not please the king.  He did not get his wish, and did not feel strong enough to impose execution, but he did change the verdict to life in prison.   Fouquet languished in a fortress in the remote alpine Piedmont region of France.

The details of the trial are recounted in some of Madame de Sévigné’s letters, which are always very readable.  This popular biographical treatment is also quite good:

A side note:  When Fouquet and his wife lost a very young daughter to disease, they were advised by a cleric “to learn to love death.”  What a tremendous gulf this reveals between our world and theirs!  Death was all around, and the death of one, or many children, was a common occurrence.  To accept and love death was the only salvation.  No “youth culture” for them!

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Money!

January 12, 2010

L’argent (Money), the 18th in Zola’s massive chronicle of France under the Second  Empire, finds Saccard scrambling to get back in the game, trying to put behind him the disasters that came after The Kill.  His is a world of financial chicanery – let’s say outright fraud – practiced on a colosal scale, pretty much in the open and with the benevolent neglect of Napoleon III’s ministers, of which Saccard’s brother is one.  As with Sebastian Melmotte and Bernard Madoff, the intent is to generate enthusiasm for a stock issue, hysteria if possible, rake in the cash, and put it away before the great crash comes.  Sound familiar..?

Saccard waxes grandiloquent as he allays the moral scruples of the adorable sister of the engineer whose great plans for the East he wishes to employ as the basis for his giant house of cards.  She is upset that he isn’t following the financial code to the letter.  She fears for the “little people” who will be crushed by his scheme, but after all, you can’t make an omelette without breaking some eggs, right?  In the passage below – no English version on the web – he gives vent to his empassioned devotion to the cause of money, as opposed to the Old Economy of landed wealth. 

«Mais, madame, personne ne vit plus de la terre…. L’ancienne fortune domaniale est une forme caduque de la richesse, qui a cessé d’avoir sa raison d’être. Elle était la stagnation même de l’argent, dont nous avons décuplé la valeur, en le jetant dans la circulation, et par le papier-monnaie, et par les titres de toutes sortes, commerciaux et financiers. C’est ainsi que le monde va être renouvelé, car rien n’était possible sans l’argent, l’argent liquide qui coule, qui pénètre partout, ni les applications de la science, ni la paix finale, universelle…. Oh! la fortune domaniale! elle est allée rejoindre les pataches. On meurt avec un million de terres, on vit avec le quart de ce capital placé dans de bonnes affaires, à quinze, vingt et même trente pour cent.»  L’argent

My inexpert translation here:

But, Madame, nobody lives on land anymore!…The ancient estates are an obsolete form of wealth that have lost their reason for being.  They just let wealth stagnate, the weath which we throw into circulation with paper money and with all those commercial bits of paper that financiers create.  This is how the world will be renewed, but it isn’t possible without money, liquid money that flows about and penetrates everywhere – not the application of science nor universal peace!  Oh, those old landed estates!  They’ve gone the way of stagecoaches.  A person dies with a million in land, but with just a quarter of that, placed to good use, at fifteen or twenty-five percent, he lives!

Saccard is also a jew-hater.  Zola treats us to an internal monologue in which he retails all the usual negative stereotypes of Jewish money-men that rattle around Saccard’s brain.  It’s an amusing irony because those qualities are precisely the ones that define Saccard himself, while the successful Jews he meets, and resents, are portrayed, at least in the beginning, as gentle and reasonable people.


Hey, Bernie!

December 20, 2008

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Am I alone if finding the Madoff  affair a bit, well…humorous?  C’mon, lots of rich people who still don’t have enough and are seduced by something too good to be true.  A modern retelling of the Goose & the Golden Egg fairy tale?  There’s a reason they’re called fairy tales!

What a character!  So low-key.  As one friend said, he’d rather spend time on the Riviera than going to society parties.  Well, so would I!  Just a nice Jewish boy who did well by doing good.  Did really well.  The New York Times has so many references to the “clubby world of Jewish philanthrophy” it might make even a Jew-hater feel sorry for those rich Hebrews who were taken!

Let’s revisit some old stereotypes:  the smart Jew – he’s smart.  What about those rich Jews he fleeced – weren’t they smart too?  And is everyone else so dumb?  Those French investigators from a major bank spent three days with Bernie’s crew and concluded that something was rotten in Madoff land – they didn’t bite!  The greedy Jew – guess he was greedy too, but who isn’t on Wall Street?  Isn’t that the biggest lie of all, that Wall Street “wizards” are smart, not just plain avaricious?  The smart, virtuous Jewish immigrant who works his way up the American ladder to fame and fortune?  Well, he was raised on Long Island, but still…

And reverberating through all the stories in the press is the unspoken refrain, “Hey Bernie, we hardly knew ya!”  How long was he doing this?  He must have started off legit or he’d never have gotten his foot in the door of those country clubs.  I guess part of the appeal of this is the story of a regular guy who made good, but was an impostor!  Don’t we all dream of faking our way to riches and fame, at least once in a while?  He did it!  A bizarre and dark twist on the old assimilation-outsider-immigrant American dream too.

And the humor?  Well, to me, a Ponzi scheme has its own intrinisic comedy.  Shovel out the money as the new money comes in, but the pile grows bigger.  It’s like the Sorcerer’s Apprentice, can’t you see it?  Marx Brothers finance!  And then it tumbles down and everyone asks, “How could it happen?”  It’s classic.

Well, maybe it’s just schadenfreude, but I can’t suppress a chuckle.  That Bernie!  What a character, oy!


Isaac Newton – Granddaddy of the Quants*

October 11, 2008

Today, in the NYTimes, Joe Nocera reflects on the history, psychology, and inevitability of bubbles.  That is, as long as there is some freedom to speculate.  He begins with a melancholy quotation from the great Newton, the original “master of the universe.”

I can calculate the motions of heavenly bodies, but not the madness of people.” — Isaac Newton, 1721, after the South Sea bubble burst.

Poor Izzie lost big time, but he was comfortably off with several government sinecures, nevertheless.  This contemporary economic magus quoted by JN wasn’t so lucky:

On Friday, Mr. Shiller [an economist] told me of a conversation he had with an economist friend of his. The man had spent his entire career advocating the efficient market hypothesis, which posits that all known information about a stock is already priced into it. But with the market in collapse, the economist sold all his stocks. “I feel like a Christian Scientist who has come down with appendicitis,” he told Mr. Shiller.

I wonder where Nocera had his money!  Did he see it coming?

Well, if you’re not having enough fun yet, delve into the history of the South Sea and Mississippi Bubbles, and the Ur-Panic of them all, the Tulipomania by skimming through this Victorian classic:

That’s Extraordinary Popular Delusions & the Madness of Crowds, which you can buy for pennies in used book stores on the Net.  Or you can buy this antique edition…might be a good investment!  That’s John Law on the cover.  He’s the subject of a popular biography, Millionaire, that tells of his ill fated inteventions with the French economy a generation or so before the Revolution.  Seems he was fond of risky securities.  The plot of the novel, Manon Lescaut – adopted for opera, plays, television? – is connected with the John Law schemes:  it is the device by which the star crossed (numbskull) lovers are united in the New World, temporarily free from the oppression of class society and debt.

Gleeson seems to have a preoccupation with financial alchemy:  She has another book, The Arcanum, that describes an early case of industrial espionage regarding the secret of turning dirt into  retail gold, procelaine, that is.

Are we having fun yet?

*For those of you not in the know, “quants,” short for “quantitative analysis,” is the nickname given to Wall Street nerds doing computer model predictions of the market’s behavior.

 


Schadenfreude Anyone?

March 21, 2008

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It’s hard to restrain oneself from chuckling with glee at the ci devant masters of the universe at Bear Stearns as they contemplate their fortunes turned to dust in the twinkling of an eye. Surely the ghost of J. P. Morgan is heaving his paunch and laughing heartily somewhere, up there? down below? jpmorgan.jpg Still, at the banking firm of Bear Stearns – should we just call it BS? – where the culture was to buy the stock of the padrone, quite a few of very ordinary folks will go down with the ship. Secretaries, mail-room workers, lower level admin and research staff, etc. In terms of percent of the people affected, they will be the majority, and they are royally screwed.

In a crisis, they say, you see what people are made of, and so too, a system. Without trust, there can be no business, and trust is dwindling a bit these days. “Come to think of it, just how were those people making all that money?” Why, when you examine the entire business, it does seem a little like a shell game, a Ponzi scheme, don’t it?

It’s all fine as long as the stock is going up. If you aren’t getting rich, it’s your fault, your genes, your backbone, your sorry moral state. The elect and the masters are chosen by The Market, and the words of the Lord are written in the annual reports (doctored, it’s true, but every deity needs an interpretor, a prophet). Now, once again, we hear the words of Captain Renault from the film, Casablanca: “I’m shocked, shocked to find that gambling is going on in here!”

Oh well, damn the torpedoes, full speed ahead and socialize the risk, privatize the profits! See the recent NY Times editorial on this that sums it up well.

Meanwhile, consider this snippet from a day or so ago in an article about the collapse of Bear:

“In this room are people who have built this firm and lost a lot, our fortunes,” one Bear executive said to Mr. Dimon with anger in his voice. “What will you do to make us whole?”

Why the hell should anyone care about making this troglodyte “whole?”