Monday, June 18, 2012

Financier and the Good Subway II (Man o' War)

In his New York Times obituary in 1924, August Belmont, Jr. is quoted, from a speech he gave in 1907, defending his role in financing the construction of that city's original subway (which had opened for business only three years earlier, but was already recognized as a financial and engineering success):
...the abuse and censure which pursue every public man connected with the conduct of public service corporations are not calculated to make for the best interests of the public.
He goes on to say that such treatment is bound to discourage men from participating in those activities that are necessary to promote progress (in transportation systems and other public services) that, though they be a source of private gain, nonetheless really benefit the public much higher in the aggregate.

He illustrates his point by mentioning that he, as a boy, had to ride, as a 'straphanger',  the crude, uncomfortable, slow Omnibus available on the city streets in the 19th century, at a fare of ten cents.  Now (1907) the city's residents enjoyed much faster and enjoyable subway rides beneath the streets for a mere $.05.

In the 21st century, the Belmont name may be only hazily remembered because of a famous horse race (the most recent being won only a week ago by Union Rags) at Belmont Park outside NYC.  Probably few know that one of the greatest thoroughbreds ever, was originally named My Man o' War by Eleanor Belmont for her husband, who was at the time in Europe representing Woodrow Wilson's AEF in The Great War.

But, alive and well, in the 21st century is the inchoate anger for finance and its practitioners.  Nowhere so prominently than in the New York Times itself.  Where municipalities that had used interest rate swaps to protect themselves from potential rises in future rates are portrayed as victims of predators who sold them the protection.

In hindsight, the governments should have also protected themselves from declining interest rates, but that would have cost money that, for whatever reasons, was not thought to be worth it.  The reasoning being, (the interest rate) heads up we win, heads down; you're a predator for not protecting us with derivatives!

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