A Different World
BALTIMORE – We left the fantasy island of modern finance today. We had to take our pick-up truck in for repairs. The dealers all seem to be in East Baltimore… or east of Baltimore… so we drove out of Mulberry Street to Pulaski Highway and finally over to Merritt Boulevard.
Just three blocks east of our office, in the Mt. Vernon district, a different world begins. The first indication of it is the old stone prison at the bottom of the hill, first commissioned in 1801. For more than 200 years, Baltimore’s jail has been a disgrace to the city and its correctional efforts. Overcrowded. Filthy. Degenerate.
The forbidding Baltimore detention center
Photo credit: Lloyd Fox / MCT / Landov
The critical reports go back almost to the day it was built. Back then, as many as half the prisoners were there for failing to pay their debts. (Today, a similar percentage is there for drug crimes. How times have changed! Now, you can stiff your creditors all you want. But watch out. Don’t take drugs. IT’S THE LAW.) But the most recent scandal must top them all…
Looking into the Baltimore Jail’s courtyard from above …
Photo credit: Weyman Swagger / Baltimore Sun
In the 1970s, Baltimore began employing women to police the men in the prison. Then, in 2013, the U.S. Attorney’s Office indicted 44 people, including 27 employees of the prison… and some inmates, too… on charges including racketeering, conspiracy, drugs, and money laundering. But the crème de la crème of the indictment concerned Mr. Tavon White, prisoner and ringleader of the Black Guerrilla Family.
First, he earned, while a prisoner, as much as $16,000 a month from drugs and contraband. Second, it turns out that, since 2009, he had also fathered five children with four of the female guards – two of whom had his name tattooed on their bodies. Mr. White was convicted and sentenced to another 15 years in the can.
Gang leader Tavon White fathered five children with four female guards in the Baltimore City Jail …
Image via miseeharris.com
We will continue with a description of our drive across Baltimore in a moment. First, a bit of news.
A Curious Issuance
On Wednesday, investors drove the Dow up 258 points – more than 1.5%. But the most interesting financial news concerned tech darling Apple. The company said it will not cooperate with the feds’ effort to break into an iPhone.
Apple’s new smartphone came equipped with a certain level of security, Apple executives argued. Giving the feds a passkey would be undermining the privacy its customers paid for. Several Republican candidates have already sided with the feds. “Who do they think they are?” asked Donald Trump.
Also, the company announced a $12 billion bond sale. It’s not hard to see why Apple management would want to borrow. It doesn’t need the money; it has plenty of cash on its books already. It doesn’t even say what it will do with it, describing the use as “general corporate purposes… including repurchasing of our common stock… and paying dividends…”
In effect, management is borrowing money from one set investors and giving it to another set of investors. The company gets a loan from bond buyers to give a bonus to equity buyers. Both sides of the trade think they are coming out ahead; most likely, neither will.
Apple is regarded as a good credit risk, so it can borrow inexpensively. And interest rates are at historic lows. Borrowing may be a good deal for the company.
What puzzles us is why anyone would lend. There are two questions to ask yourself before you make a loan: How much will you get back? And will you get your money back at all? (The return on your investment and the return of your investment.)
The bonds Apple is peddling carry various terms, some as much as 30 years. But 30 years is a long time to lend to a tech company. New technology is always replaced by newer technology. By the time the last coupon is ready to be clipped, Apple’s products could be as out-of-date as an eight-track tape, and debt payments might have long ago ceased.
Not that we’re predicting anything of the sort. But Apple is one of the world’s richest and most successful corporations – ever. That is such a remarkable achievement; it seems like we’re asking too much if we expect it to be still healthy and prosperous in 2046.
But back to our drive through Charm City …
Once past the prison, we found blocks of public housing – three-story brick buildings with air conditioners sticking out of windows and trash blowing down the alleys. A boarded-up brick house. A boarded-up stucco house. A boarded-up slipform-stone house. The Pillar of Truth Apostolic Church. Ray’s Liquors. Jane’s Liquors. Pam’s Wine and Spirits. Johns Hopkins Hospital. Bail Bonds 24 Hours. More boarded-up houses.
Boarded-up row houses in East Baltimore – there are an estimated 16,000 abandoned houses in the city
Photo credit: Eric Parker
Convenience Mart. Sister Beth’s Palm Reading. Heating Repairs. Mufflers. A Moslem community center. More boarded-up houses. Sally’s Show Bar. Everyday Painting Company (in a house that badly needed painting). Blacks. Hispanics. Burger King. McDonald’s. Kentucky Fried Chicken. Dot’s Sandwiches and Subs. Kae Won Fu Asia Carry Out. Used cars… no credit… bad credit… no problem; $795 Down and You Have a Ride.
Whiskey River, apparently closed. Discount Shades and Blinds. Sudsville, 24-hour laundry. Pompeiian Olive Oil. Tombstones and monuments. “Pray for Baltimore,” said a billboard. “Vote for Catherine Pugh,” said a large sign. “Where will your next meal come from? Call 211…” More boarded-up row houses, these with porches.
Boarded-up shop fronts in Baltimore…
Photo credit: Edwin J. Torres
We took the road toward Dundalk. More auto dealers. Rundown bars. White men in pick-up trucks. The Poplar Restaurant. Central Masonry Supplies. A liquor store with a purple door. Subs. A huge lot full of white delivery vans. Trucking companies. Strip malls. Auto painting. Bay Concrete. Plumbing Distributor. Chesapeake Pets. Dundalk Liquors.
Now the brick-and-form stone disappeared. There were individual houses, wood frame with siding or shingles. White. Boxy. Built in the 1940 or 1950s. Thousands of them. The cars in the driveways are recent, but the houses are the same as when they were built. Cheap. Simple. Small.
Another Baltimore ghetto view …
Photo credit: PurpleHaze1100
These suburbs were built when Baltimore’s industries were running hot. The GM assembly plant. Beth Steel’s Sparrow’s Point furnace. Domino Sugar. McCormick Spice. Ordinary working stiffs earned decent wages and lived well.
But here we are a half a century later… and ordinary working stiffs are in the same houses… earning the same wages (roughly) as they did in the 1970s. Judging from the polls and presidential primary results, they’re not too happy about it.
A city official visiting the recently closed squalid detention center
Photo credit: Baltimore Sun’s The Darkroom
Chart by: StockCharts
Chart and image captions by PT
The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- A Striking Chart
The Economy and the Stock Market As long time readers know, we are always paying close attention to the manufacturing sector, which is far more important to the US economy than is generally believed. In terms of gross output it is the largest sector of the economy, and it should of course be obvious that saving, investment and production are the only ways to create wealth. What's left of the Brooklyn Domino Sugar Refinery. Photo credit: Paul Raphaelson Contrary...
- Trump and Putin Narrowly Escape Assassination Attempt
The Gloves are Coming Off First a little bit of recent history. Readers are probably aware that some questions about the occasionally malfunctioning Deep State android... no, wait, we'll start again. Questions have recently been raised about the health of presidential candidate Hillary Clinton by various “alt-right” tinfoil hat-wearing conspiracy theorists, such as this one. The monsters are normally hiding under Hillary's bed, but lately they have come out into the open...
- US Economy - Curious Pattern in ISM Readings
Head Fake Theory Confirmed? This is a brief update on our last overview of economic data. Although we briefly discussed employment as well, the overview was as usual mainly focused on manufacturing, which is the largest sector of the economy by gross output. Pepsi factory in Baltimore, 1956 Photo via pinterest.com Readers may recall that we have pointed out for some time that there was quite a large gap between the data reported in regional Fed manufacturing...
- A Convocation of Interventionists, Part 2
Pleas for More Deficit Spending We continue with our Jackson Hole post mortem – including remarks that were made by economists and monetary bureaucrats shortly before and after the pow-wow and seem to be connected to the discussions there. Assembled central planners (we're not sure if this picture was taken at the conference, but most of the people in it were there). Photo credit: Getty Images We should preface the following with a Mises quote, as the...
- Why the Fed Destroyed the Market Economy
What Have You Done for Me Lately? Swing voters are a fickle bunch. One election they vote Democrat. The next they vote Republican. For they have no particular ideology or political philosophy to base their judgment upon. The primacy of the wallet. They don’t give a rip about questions of small government or big government. Nor do they have any druthers about the welfare or warfare state. In effect, they really don’t care. What’s important to the...
- How is Real Wealth Created?
An Abrupt Drop Let’s turn back to our regular beat: the U.S. economy and its capital markets. We’ve been warning that the Fed would never make any substantial increase to interest rates. Not willingly, at least. Groping in the dark, Yellen-style Each time Fed chief Janet Yellen opens her mouth, out comes a hint that more rate hikes might be coming. But each time, it turns out that the economy is not as robust as she had believed... and that a rate hike isn’t...
- Janet Yellen’s Shame
Playing Politics In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price. You may get a little wild and crazy from time to time, but you are always called to order by your customers. In the market economy, consumers reign supreme. There is no such thing as a “lost” vote in the marketplace; every penny spent affects production. Mises noted: “Consumers...
- Get Ready for a New Crisis – in Corporate Debt
Imposter Dollar OUZILLY, France – We’re going back to basics here at the Diary. We’re getting everyone on the same page... learning together... connecting the dots... trying to figure out what is going on. The new three dollar bill issued by the Apprehensive States of America. We made a breakthrough when we identified the source of so many of today’s bizarre and grotesque trends. It’s the money – the new post-1971 dollar. This new dollar is green. You...
- A Convocation of Interventionists – Part 1
Modern Economics - It's All About Central Planning We are hereby delivering a somewhat belated comment on the meeting of monetary central planners and their courtier economists at Jackson Hole. Luckily timing is not really an issue in this context. Central bank headquarters: the Fed's Eccles building, the ECB's hideously expensive new tower in Frankfurt, and the BOJ's Tokyo HQ (judging from the people in the foreground, it may be a source of noxious fumes). When...
- Hanjin Marooning in San Pedro Bay
Global Trade Reversal Expansions and contractions in global trade have played out over long secular trends for thousands of years. The Silk Road, for example, was established by the Han Dynasty of China in 130 BC, and allowed for continuous trade between East and West for nearly 1,600 years. In addition to economic trade, the Silk Road was also a conduit for culture and knowledge among its network of civilizations. A map of the main ancient Silk Road - click to...
- The Economy, the Stock Market and the Fed
John Hussman on Recent Developments We always look forward to John Hussman's weekly missive on the markets. Some people say that he is a “permabear”, but we don't think that is a fair characterization. He is rightly wary of the stock market's historically extremely high valuation and the loose monetary policy driving the surge in asset prices. The S&P 500 Index and the NYSE advance-decline line. Most market internals weakened steadily until early February 2016, but...
- John Maynard Keynes’ General Theory Eighty Years Later
The “Scientific” Fig Leaf for Statism and Interventionism To the economic and political detriment of the Western world and those economies beyond which have adopted its precepts, 2016 marks the eightieth anniversary of the publication of one of, if not, the most influential economics books ever penned, John Maynard Keynes’ The General Theory of Employment, Interest and Money. The mere fact that the book is lauded by TIME magazine on the cover should give everyone...