The Bankers
Grant, James
Book Review/James Grant The Unbankers • The banker traditionally has led a vicarious life. Even while serving business, he has somehow stood above it. Since the Renaissance, of course, bankers...
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...Finally, though we may debate the source of their perversity, we must remember that their enthusiasms are destructive in the extreme...
...Brezhnev's craftiest Americanologists could guess what crazy George might do...
...What I suggest is that if those Americans who seem so intent on destroying America gain much more influence, the Bolsheviki and their Chinese cousins may join forces with the American Legion...
...Could it be that Mayer mentioned sources simply to thank them for help...
...Everyone by now knows that Moscow was as interested in McGoo's 1972 defeat as the Committee to Re-Elect the President...
...Late last year (the year of the demise of Franklin National and U.S...
...There are things in life that it is better not to know...
...Eidelberg now teaches at Claremont Men's College...
...Adventure is the life of commerce, but caution, I almost said timidity, is the life of banking," Walter Bagehot wrote a hundred years ago...
...Admittedly this is a startling new perspective on world politics...
...Martin Mayer's excellent and exhaustive study, The Bankers, is an account of this metamorphosis...
...He got my check...
...Yet a banker's risk is endured from afar...
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...the headline read...
...The facts and descriptive narrative roll on, taxing the patience, one is certain, of everyone but the author's immediate family...
...it is the borrower's job to manage, the lender's lot to wait...
...Vast changes have occurred in banking law and practice, he writes—the widespread use of short-term, volatile borrowings to finance longer-term loans, the seemingly limitless diversification of banking companies, the maze of regulatory responsibility...
...The volume of lending, and therefore the quantity of real investment, is determined, not by the levels of savings, but, rather irrelevantly, by bank liquidity—the existing balance between loans and reserves...
...Long before the age of holding companies, the "Austrian School" saw in the fractional-reserve banking system an unfailing engine of instability...
...Tradition, the banker's inherent distrust of financial vogue, still reigns—though not without rivals—in Baltimore, and perhaps in other cities like it...
...The Bankers, of course, is not a treatise on the theory of money and banking...
...And profits...
...No longer...
...It is better not to know, for example, that Walter Denbeck, a driver for the American Purolator Company, drove his own car (a station wagon) while delivering checks on the night of December 5, 1973...
...The book, at 566 pages, is far too long, and this is its major weakness...
...Burns might well have drawn his speech from the proofs of Mayer's as yet unpublished book, or from a Barron's article—published in April 1974—that questioned the financing and management of many bank holding companies...
...Savings banks serve a useful purpose, he writes, one that commercial banks, preoccupied with the glamour of "management," might well shun in their absence...
...Here, one imagines, the sound was heard of scraping chairs and coughing bankers...
...Sagacity overcame wisdom...
...To him the change is revolutionary, and it threatens the very roots of American finance...
...What if some lunatic subscriber to the New York Review of Books became President and decided the only way to really reform the world would be through worldwide nuclear holocaust...
...Surely such premonitory musings are not new to the Kremlin...
...The vicarious strain of the banking life has fallen out of fashion...
...one did one's best for the stockholders, of course, but profit followed duty...
...Not long ago, the Bank of America, largest of the nation's 14,000 banks, announced it is slowing its rate of growth...
...It is important to remember, moreover, that not all bankers have joined the revolt from convention...
...Beautiful Balloon...
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...A man of conservative judgment, Mayer has joined sound instincts with reading and observation...
...Especially recommended is an inside account of how a rickety loan to Iotron, a small 24 The Alternative: An American Spectator October 1975 Boston electronics company, was finally righted...
...and fifth, increased exposure of the larger banks to risks entailed in foreign exchange transactions...
...And yet, he went on, the very pace of innovation had fostered disturbing The Bankers by Martin Mayer Weybright and Talley $15.00 trends...
...Even as housewives have refused to live their lives through their children, go bankers have sought firsthand (not, as before, through their customers) the risks and rewards of commerce...
...Bank holding companies embark on frantic expansion...
...they are borrowing "hot" money in order to lend it out again—convinced, evidently, that they can borrow short-term indefinitely...
...He was correct, of course...
...Deposit instruments have been tailored to meet the special needs of customers," he told the annual convention of the American Bankers Association in Honolulu...
...Despite the recent failure of two major banks, he noted, not a cent in depositors' money had been lost...
...third, heavy loan commitments in relation to resources [more scraping...
...Bankers' talk turned increasingly to the price of their own stock, to acquisitions and "five-year compound earnings growth...
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...Its decision evidently came at the prodding of the Federal Reserve System...
...Flailing one's way through passages like this one, it is hard to recall that Mayer is writing about a revolution...
...New types of lending arrangements to serve business and institutional borrowers have proliferated...
...ERRATUM In our August/September review of Paul Eidelberg's A Discourse on Statesmanship, Dr...
...The argument is provocative, though weaker for the author's apparent lack of familiarity with the work of Friedrich A. Hayek and Ludwig von Mises...
...One should take him as seriously as one takes the local Ford salesman...
...In The Poetics Aristotle adjudged hubris a terrible flaw...
...Nothing would stand against his zeal, and in no time Moscow, Peking, and Washington would be turned into cinders...
...Actually it seems to me that Moscow, Peking, and the Third World are also in deep trouble because of these ruinous enthusiasms...
...The destructiveness of these enthusiasms may appear, on first glance, to place the United States in grave peril, and it has become very fashionable to bewail America's dismal prospects...
...Eidelberg was incorrectly identified as Research Professor of Political Science at the University of Dallas...
...Even the average Ivan snoring away in the Politburo must realize that the same vanities that lead Senator Frank Church to disregard the security of America might lead him to disregard the safety of the whole world...
...not even Mr...
...What of the banking system itself...
...There are signs that moderation has won a new following...
...And one cannot help but wish, with Martin Mayer, that bankers would become a bit more like bankers...
...The change, indeed, has been no less sweeping than this: banks have become businesses, and bankers businessmen...
...Personally, of all my hypotheses explaining the abominable and illogical enthusiasms of the left cognoscenti I find hubris most fetching...
...Bank stocks were too thinly traded, too narrowly held to interest Wall Street...
...The most significant of these trends are: first, the attenuation of the banking system's base of equity capital...
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...Their obvious destructiveness is what allows him to show his defiance for society, a defiance that is a direct function of his hubris...
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...EDITORIAL (continued from page 4) one take this tireless socialist, his eye forever on the infinite of egalitarianism even while his body soaks in the luxurious ambience of Gstaad and glides down the slopes with the world's most trivial and boring people, the beautiful people...
...There is a terrible arrogance in their line on Israel, a destructive insolence in their animus against business and the conditions of liberty, and a downright suicidal passion in their vehemence against intelligence operations, defense spending, and, in brief, the very survival of democratic institutions...
...Certainly, the economy itself will have much to say about the strength of American banking...
...Indeed, his diligence is sometimes blinding...
...Pay big premiums to diversify, push leverage to the hilt, lend with a ready hand...
...Old Brezhnev realizes that hubris knows no bounds...
...Banking, like publishing, was an occupation for gentlemen...
...foreign currency trading, real estate management, and leasing became legal, even voguish, banking activities...
...All the while, he concludes, banking has become less stable: "The banking structure that is now building can collapse...
...For the better part of thirty pages, for example, he describes the odyssey of a single check as it wends its way through the banking system: "In November 1973," he begins, "I purchased 42.7 gallons of gasoline and 33.6 gallons of fuel oil from Piccozzi's Service Station on Route 114 in Shelter Island, N.Y., and on December 1, promptly, Jake Piccozzi sent me a bill for $27.33...
...Moreover, they are lending to unstable borrowers and speculating in foreign currency...
...Burns found much in this change to applaud...
...the longer the regulatory apparatus permits it to grow, the more catastrophic the collapse will be...
...In other words, bankers are trying to do too much with too little money...
...He suggests, correctly, that banks have had much to do with inflation...
...Banking has grown sleeker, more inured to risk, less bankerly in recent years...
...second, greater reliance on funds of a potentially volatile character...
...The Bankers, however, goes beyond the mere listing of our present troubles...
...It is precisely because these economic prescriptions are so malefic that he roars for them...
...Bankers lent too much or too little, rarely what the supply of savings, balanced against the demand for investment, should have dictated...
...Banks, after all, create money through the very act of lending it, and herein lies the significance of the bankers' revolution: banks not only husband society's stock of capital...
...The era of bank holding companies dawned with the sixties...
...and in America today many of those who urge us to the certain destruction that would follow were we to abscond from our responsibilities are people crippled by the terrible flaw of hubris...
...The book is filled with people, which makes it at once lengthy and readable...
...Somber men in three-piece woolens took to double-knits...
...Who was to suggest otherwise...
...It is a scenario to contemplate...
...The markets for Eurodollars and Federal Funds, the Federal Reserve System, the mechanics of making loans—these and other financial arcana Mayer consistently illuminates...
...But at the hands of commercial bankers, the two sides of the equation have become estranged...
...National Bank of San Diego), the Chairman of the Federal Re-serve Board, Arthur Burns, declared that "commercial banking- has been undergoing a profound change for well over a decade...
...On the other hand, The Bankers boasts pages of intriguing detail...
...Mayer is unrelenting...
...Fortunately for us all, Mayer is not alone in these concerns...
...Technology has pressed forward, blurring the lines between savings and checking balances, speeding the velocity of money...
...Indeed they are encouraged...
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...American bankers, until quite recently, have pursued them with a circumspection rare in other callings...
...The result, at any rate, is a very thorough, and, at least according to Citibank, which is quoted throughout, a very accurate book...
...they manufacture much of it, hastening or slowing the pace of business, stimulating or depressing prices...
...Since the Renaissance, of course, bankers have known risk and coveted profit...
...Investment must equal savings over the long run, Mayer reminds us...
...those who would destroy America might also, if given the chance, incinerate the whole globe...
...Anyone with the economic intelligence of an orangutan realizes that Galbraith's economic nostrums would actually increase inequality while leading us to economic catastrophe, but I submit that if his economic nostrums would lead to anything other than catastrophe he would not be thumping his podium for them...
...John J. Balles, president of the San Francisco Fed, was quoted at the same time as saying that "the cult of performance" must be put aside: "Now is the time to look primarily at the soundness of earnings and the quality of earnings...
...Mayer is suspicious of proposals, such as those put forward by the Treasury Department in 1973, to dissolve the legal barriers that separate thrift institutions from commercial banks...
...fourth, some deterioration of assets...
...It is, in the best sense of the word, a journalist's book and its first aim is description...
Vol. 9 • October 1975 • No. 1
