The Kirtland Bank

[wenglund]

Isn't it possible that the bank failure was just a run-of-the-mill bank failure with multiple causes? My understanding is that the bank was set up to purchase property for the gathering of the Saints, and thus, as has been said, when land prices collapsed preceding the panic of 1837, the bank failed as a matter of course.

I agree John that there were multiple causes, though I believe White was correct in asserting that the KSS failure was, in part, due to the enemies of the Church conspiring to affect a collapse, and were behind the subsequent vexatious litigation. I believe there is sufficient documentation to make this case.

I am not so sure about the accusation against Parrish. Paul Sampson, in his study of the KSS Stock Ledger, suggests that there wasn't any indication of dishonesty on anyone's part. (D. Paul Sampson and Larry T. Wimmer, BYU Studies, Vol. 12, No. 4, p.434, 436). The accusations against Parrish, then, are unsubstantiated rumor, and inconsistent with extant evidence. So, I for one, prefer to presume innocence until proven otherwise.

However, I do think Parrish did play a part in making matters worse by continuing to operate the Society after there were strong signs that it was about to fail and the prophet had warned members against further involvement, and even kept the business operation after the KSS had effectively failed.

But, in all my reading, I don't recall any of the economists or historians attributing the failure to decline in land prices, though some historians attribute it to land speculation causing the rising price of land during that period. Marvin Hill and other economists, however, suggest that "changes in the price of land in Kirtland were the result of natural market forces rather than a speculative bubble." (Marvin S. Hill, C. Keith Rooker, Larry T. Wimmer, BYU Studies, Vol. 17, No. 4, p.396,404,414,431-432) Who knows?

They also go on to suggest, contrary to White, that "It is our judgment that the primary reason for the failure of the bank was its lack of a corporate charter. The lack of a charter created enormous handicaps, bad publicity, and great personal risks deserving of far more weight than has been given by earlier writers. Whether or not the bank could have succeeded had it possessed a charter is difficult to say. Certainly it was poorly capitalized; however, it may have been able to find more capital with a charter since it possessed unusual loyalty from the members of its immediate community. In any case, it did not have a charter and because of that its management faced an impossible task....Had they been able to secure a charter, it is likely that the demand on their bank would not have become excessive and thus the institution might have become a successful business enterprise."

Thanks, -Wade Englund-

[wenglund]

But it is a lot more fun and easy just to say JS was a fraud involved in fraudulent fraudery, wade.

Ah, yes...the advantages of being a "critic".

And, it is made all the more fun and easy when, as you suggest, there is little effort to familiarize themselves with, let alone engage, the scholarship.

Our job, I suppose, is to make it a little less fun and easy for them to do so?

P.S. Good to see you at the FAIR Conference. I regret, though, that time didn't permit more than just a brief "hello".

Thanks, -Wade Englund-

[Daniel Peterson]

I'm surprised at all the commenting that doesn't even interact with the original posted paper.

So am I. But we shouldn't be. It's pretty much standard operating procedure in certain quarters. And yet . . . and yet, one sometimes fantasizes that maybe someday things might improve a bit.

[Analytics]

But it is a lot more fun and easy just to say JS was a fraud involved in fraudulent fraudery, wade.

But not quite as fun and easy as it is to say that the anti-bank was well-capitalized and run in a prudent manner by well-qualified professionals, and only fell because of a coordinated attack by Church enemies, and fraud by an apostate.

[Analytics]

I am not so sure about the accusation against Parrish. Paul Sampson, in his study of the KSS Stock Ledger, suggests that there wasn't any indication of dishonesty on anyone's part. (D. Paul Sampson and Larry T. Wimmer, BYU Studies, Vol. 12, No. 4, p.434, 436). The accusations against Parrish, then, are unsubstantiated rumor, and inconsistent with extant evidence. So, I for one, prefer to presume innocence until proven otherwise.

I appreciate you pointing out that the accusation that the apostate Parrish stole the bank's capital lacks evidence. I'm surprised that reputable people would laud a presentation that blames everything related to this event on the apostates sans evidence, in a mirror-image of how certain critics would blame everything on Joseph Smith, sans evidence.

McKay White's paper isn't a serious attempt to explain the truth of what really happened. It's just a hollow attempt to placate people who really, really, want to blame everything on Joseph Smith's enemies.

[wenglund]

Even with all its extant reserves, the KSS did not have sufficient assets to cover its notes. The inability to cover one's obligations when called will inevitably devalue the paper on which they are written - and in many cases to the point of becoming worthless. The very foundations of the KSS, established with the help of JS, enabled this outcome - it being understood that they weren't sitting with a crystal to know that it would happen before they had time or opportunity to beef up their reserves.

White calculated the KSS reserves to be about 21%, as compared with today's reserve rates for banks of around 3%. He acknowledged that: "banks today are very different than banks in 1837. A 3% reserve ratio would not have been feasible in 1837. But 21% was very reasonable." So, the reserves were already reasonably "beefy".

Part of the problem with the KSS reserves was that they were capitalized, in part, by land (more so towards the end of the KSS's existence than at the start). What the KSS officers didn't anticipate was the consipracy by the Church's enemies to gather up as many of the notes as they could, and redeem them for species, rather than using them as legal tender as expected. This threatened to drastrically reduce the liquide portion of the reserves below what was viable, thus forcing the officers to suspend species payment, which caused a drastic devaluation of the notes.

Attepts were made to bolster the reserves using the sell of KSS subscriptions and land and loans from other banks. However, in the end, it was too little too late, and the Society failed, and the notes then became worthless.

Would the KSS have survived had there not been a run on the bank? It is impossible to tell for certain, but it is unlikely given the dicey economic conditions beyond the the bankers control at the time, where nearly half the banks in existence failed for similar reasons as the KSS (particularly banks in small metropalitain areas).

Thanks, -Wade Englund-

[wenglund]

I appreciate you pointing out that the accusation that the apostate Parrish stole the bank's capital lacks evidence. I'm surprised that reputable people would laud a presentation that blames everything related to this event on the apostates sans evidence, in a mirror-image of how certain critics would blame everything on Joseph Smith, sans evidence.

Actually, there is the word of several reputable people as evidence. It just isn't substantiated by emprical evidence.

McKay White's paper isn't a serious attempt to explain the truth of what really happened. It's just a hollow attempt to placate people who really, really, want to blame everything on Joseph Smith's enemies.

What isn't serious is your sweeping dismissal of White's scholarship without seriously engaging but superficially a minor portion of it, and this while pretending to mind-read his motives ironically "sans evidence." Bravo for such brazen and shameless hypocracy.

Thanks, -Wade Englund-

[AndyOne]

White calculated the KSS reserves to be about 21%, as compared with today's reserve rates for banks of around 3%. He acknowledged that: "banks today are very different than banks in 1837. A 3% reserve ratio would not have been feasible in 1837. But 21% was very reasonable." So, the reserves were already reasonably "beefy".

Part of the problem with the KSS reserves was that they were capitalized, in part, by land (more so towards the end of the KSS's existence than at the start). What the KSS officers didn't anticipate was the consipracy by the Church's enemies to gather up as many of the notes as they could, and redeem them for species, rather than using them as legal tender as expected. This threatened to drastrically reduce the liquide portion of the reserves below what was viable, thus forcing the officers to suspend species payment, which caused a drastic devaluation of the notes.

Attepts were made to bolster the reserves using the sell of KSS subscriptions and land and loans from other banks. However, in the end, it was too little too late, and the Society failed, and the notes then became worthless.

Would the KSS have survived had there not been a run on the bank? It is impossible to tell for certain, but it is unlikely given the dicey economic conditions beyond the the bankers control at the time, where nearly half the banks in existence failed for similar reasons as the KSS (particularly banks in small metropalitain areas).

Thanks, -Wade Englund-

Absent an understanding of how commercial banks function, and the protections developed over the past century + to protect the integrity of worldwide banking systems, a comparison of the KSS to Royal Bank of Canada in terms of reserves is really apples and oranges, or apples and rocks. I would like to know where the 3% comes from - seems low, but doesn't really matter. There are some general similarities in the general way in which lending institutions function, but the use of the Royal Bank example does not suggest that the reserves of the KSS were "beefy" at all. Bank panics can be averted or lessened by protections in place - a more apt comparison might be CDS and failed or troubled investment banks and insurance companies.

Are the "enemies of the church" that bought up notes and tried to redeem them identifiable? Do we know what the expected return on those notes was at the time of purchase? What about the purchase price? Had the KSS stopped honoring notes when these enemies showed up? I will have a look at this, but wonder, from a purely practical perspective, just how vindictive one would have to be to purchase high-risk paper if the reasonable expectation was that it would decrease in value.

I believe that many of the posts on this board have been right on point as relates to the original posted paper. That the KSS was otherwise sound but for Parrish and the "enemies of the church" is not something that many of us are buying. That said, I think the use of the KSS as some kind of proof that JS was not a prophet is silly. I have no expectation that a prophet is entitled to revelation on future market conditions at the time he enters into a business venture.

[Bunny]

Thanks for pointing out the article, Daniel Peterson. Especially helpful was the short discussion on banking history in the early-mid nineteenth century. It's a short explanation for what the author believes is the real failure of the bank, and, even being sympathetic to the author's claims, I think the explanation is a little unconvincing.

[katherine the great]

So, to suggest that Joseph's fleeing was about the KSS, would be to grossly oversimplify things and give it the same false color of legal process that Joseph intimated.

Thanks, -Wade Englund-

Thanks for taking the time to explain the time line in more detail.

[wenglund]

Absent an understanding of how commercial banks function, and the protections developed over the past century + to protect the integrity of worldwide banking systems, a comparison of the KSS to Royal Bank of Canada in terms of reserves is really apples and oranges, or apples and rocks. I would like to know where the 3% comes from - seems low, but doesn't really matter. There are some general similarities in the general way in which lending institutions function, but the use of the Royal Bank example does not suggest that the reserves of the KSS were "beefy" at all. Bank panics can be averted or lessened by protections in place - a more apt comparison might be CDS and failed or troubled investment banks and insurance companies.

Apparently you missed the part where I quoted White as explicitly acknowledging that "banks today are very different than banks in 1837". As for where he gets his figures on the Royal Bank of Canada, he doesn't exactly say in his FAIR Conference presentation. But, as noted at the begining of his presentation, he intends to post a more comprehensive paper on the FAIR web site. If your questions aren't answered there, I trust the McKay is open to responding to email quiries. As a doctoral candidate in economics in Canada, he should be able more than adequately address your concerns.

By the way, what reason do you have to believe that 21% reserves weren't in line with the conventional levels of the day?

Are the "enemies of the church" that bought up notes and tried to redeem them identifiable? Do we know what the expected return on those notes was at the time of purchase? What about the purchase price? Had the KSS stopped honoring notes when these enemies showed up? I will have a look at this, but wonder, from a purely practical perspective, just how vindictive one would have to be to purchase high-risk paper if the reasonable expectation was that it would decrease in value.

There is good reason to believe that Grandison Newell, a farmer and businessman in nearby Mentor, and long-time antagonist against the Church, was heavily involved, if not the primary conspirator and instigator. He, along with several Campbelite parrishoners, help organize and fund the affidavite-harvesting trip of Philastus Hurlbut in 1833 (see HERE ), he was instramental in blocking the KSS first request for a bank charter (see HERE also: Hill, Rooker, and Wimmer, p. 441), and was known to have conspired to thwart the KSS both through litigation and other means (see the witness testimonies in the trial in the spring of 1837 where Newell accused Joseph of conspiring to murder him HERE, the case was dismissed for lack of evidence).

I believe that many of the posts on this board have been right on point as relates to the original posted paper. That the KSS was otherwise sound but for Parrish and the "enemies of the church" is not something that many of us are buying. That said, I think the use of the KSS as some kind of proof that JS was not a prophet is silly. I have no expectation that a prophet is entitled to revelation on future market conditions at the time he enters into a business venture.

While I think a good case can be made for the "enemies of the church" impacting the falure of the KSS, I agree with you that the whole affiar is entirely irrelevant to the verity of the restored gospel and the prophetic calling of Joseph Smith.

Thanks, -Wade Englund-

[AndyOne]

Apparently you missed the part where I quoted White as explicitly acknowledging that "banks today are very different than banks in 1837". As for where he gets his figures on the Royal Bank of Canada, he doesn't exactly say in his FAIR Conference presentation. But, as noted at the begining of his presentation, he intends to post a more comprehensive paper on the FAIR web site. If your questions aren't answered there, I trust the McKay is open to responding to email quiries. As a doctoral candidate in economics in Canada, he should be able more than adequately address your concerns.

By the way, what reason do you have to believe that 21% reserves weren't in line with the conventional levels of the day?

There is good reason to believe that Grandison Newell, a farmer and businessman in nearby Mentor, and long-time antagonist against the Church, was heavily involved, if not the primary conspirator and instigator. He, along with several Campbelite parrishoners, help organize and fund the affidavite-harvesting trip of Philastus Hurlbut in 1833 (see HERE ), he was instramental in blocking the KSS first request for a bank charter (see HERE also: Hill, Rooker, and Wimmer, p. 441), and was known to have conspired to thwart the KSS both through litigation and other means (see the witness testimonies in the trial in the spring of 1837 where Newell accused Joseph of conspiring to murder him HERE, the case was dismissed for lack of evidence).

While I think a good case can be made for the "enemies of the church" impacting the falure of the KSS, I agree with you that the whole affiar is entirely irrelevant to the verity of the restored gospel and the prophetic calling of Joseph Smith.

Thanks, -Wade Englund-

I'm happy to await his more comprehensive paper - rather than further engage here on issues that are understood by some only by reference to his shorter piece. I don't have an issue with the failure of the KSS, nor do I think it was some unique, isolated event - by any stretch - nor a big blight on JS's legacy. I've said my piece for whatever it was or wasn't worth.

[Analytics]

There is good reason to believe that Grandison Newell, a farmer and businessman in nearby Mentor, and long-time antagonist against the Church, was heavily involved, if not the primary conspirator and instigator. He, along with several Campbelite parrishoners, help organize and fund the affidavite-harvesting trip of Philastus Hurlbut in 1833 (see HERE ), he was instramental in blocking the KSS first request for a bank charter (see HERE also: Hill, Rooker, and Wimmer, p. 441), and was known to have conspired to thwart the KSS both through litigation and other means (see the witness testimonies in the trial in the spring of 1837 where Newell accused Joseph of conspiring to murder him HERE, the case was dismissed for lack of evidence).

You've supported the assertion that Grandison Newell wasn't a fan of the bank, but does that really give us good reason to believe that he and his alleged coconspirators used tens of thousands of dollars of their own money to purchase KSS notes for the express purpose of making the notes they purchased worthless? Can you conceive of a more expensive and irrational way to attack Joseph Smith, the Church, and/or the anti-bank?

This alleged conspiracy sounds extraordinarily far-fetched.

[ERayR]

To get a summary of the bank failures of 1837 here is a couple of short articles you should read.

http://mises.org/journals/scholar/trask1.pdf

http://answers.yahoo.com/question/index?qid=20071012002628AAKBxSC

Note in the first article it reserve ratios at 15.2% at the state of the panic. So it seems that with a 23% reserve ratio the KSS was very solid.

[wenglund]

If anyone here has a digital copy of Dale W. Adam's article: "GRANDISON NEWELL'S OBSESSION", I would appreciate it if you would forward it to me. I can't seem to locate it online.

Thanks, -Wade Englund-

[ERayR]

If anyone here has a digital copy of Dale W. Adam's article: "GRANDISON NEWELL'S OBSESSION", I would appreciate it if you would forward it to me. I can't seem to locate it online.

Thanks, -Wade Englund-

Wade try here: http://content.lib.utah.edu/cdm4/document.php?CISOROOT=/jmh&CISOPTR=18518&REC=2 I would link to it if I knew how. I am going to have to get someone to explain how to imbed those links. Hope it works. It is at the J. Willard Marriot Library at the University of Utah.

[Confidential Informant]

This alleged conspiracy sounds extraordinarily far-fetched.

And yet, somehow, you seem fine w/ the conspiracy theory that Joseph Smith in concert with other conspirators -- both known and unknown -- wrote the Book of Mormon, fabricated a religion to surround it, duped thousands and yet not one of the conspirators ever admitted anything.

C.I.

[wenglund]

Note in the first article it reserve ratios at 15.2% at the state of the panic. So it seems that with a 23% reserve ratio the KSS was very solid.

I appreciate you finding and linking to this. Actually, it looks like the reserve rates started out at 18% in 1830, then fell to 15.2% in 1833, and then from 1833 to 1837 it dropped to 13.7%, well below the 21% reserves for the KSS in 1837.

Thanks, -Wade Englund-

[AndyOne]

I appreciate you finding and linking to this. Actually, it looks like the reserve rates started out at 18% in 1830, then fell to 15.2% in 1833, and then from 1833 to 1837 it dropped to 13.7%, well below the 21% reserves for the KSS in 1837.

Thanks, -Wade Englund-

I guess I'm a little lost as to the significance of this - just that others didn't have adequate (and in some cases less) reserves to deal with the crisis that followed? KSS was part of a number of institutions formed and managed in a manner ill-equipped to deal with the impending crisis. ML was in better shape than Lehman's - neither was in great shape when the proverbial manure hit the fan. The point I was making above is that comparisons to reserves at Western commercial banks today are not very useful because the systems are fundamentally different - starting with the fact that there is now legitimately a system. I'll leave it to others to deal with whether the claimed reserves versus what they actually had. Now back off thread.

[Analytics]

And yet, somehow, you seem fine w/ the conspiracy theory that Joseph Smith in concert with other conspirators -- both known and unknown -- wrote the Book of Mormon, fabricated a religion to surround it, duped thousands and yet not one of the conspirators ever admitted anything.

C.I.

Letâ??s be fair and compare the respective conspiracies to their competing claims.

Regarding the Book of Mormon, we can either believe that the Book and the subsequent religious movement are man-made just like any other book and religion, or we can believe that despite the numerous problems, it is actually an accurate translation of an ancient Mesoamerican manuscript that was written on golden plates in Reformed Egyptian and buried in upstate New York. Both of those scenarios might seem quite unlikely when analyzed in isolation, but one of them has to be true. Arguing about which is less unlikely than the other is the topic for another thread.

In this thread, the question is whether the KSS failed for similar reasons that hundreds of other banks of that time and place failed, or whether it failed because Joseph Smithâ??s enemies deliberately decided to wipe out their own personal fortunes in order to take down the anti-bank.

When there is a natural, common-place explanation for an event, there is no need to turn to conspiracy theories.

[ERayR]

I guess I'm a little lost as to the significance of this - just that others didn't have adequate (and in some cases less) reserves to deal with the crisis that followed? KSS was part of a number of institutions formed and managed in a manner ill-equipped to deal with the impending crisis. ML was in better shape than Lehman's - neither was in great shape when the proverbial manure hit the fan. The point I was making above is that comparisons to reserves at Western commercial banks today are not very useful because the systems are fundamentally different - starting with the fact that there is now legitimately a system. I'll leave it to others to deal with whether the claimed reserves versus what they actually had. Now back off thread.

It is not anything about adequacy of reserves it is that 15% reserves was normal. In todays banking world it is much lower. I have not kept up with it the last few years but it was 10%. This means that a bank can make loans for 10 dollars for every dollar they hold in reserve. In essence a bank creates money everytime a depositor deposits 1 dollar they issue a loan for 10 dollars.

Just looked it up and it looks like it is still 10%. This is the requirement but often in a period of speculation when money is in demand a bank will lend beyond the 10% reserve limit. In such a time it would not be unusual to find a bank loaned down to less than 5%.

The system we have today is the same except there is FDIC insurance banks are required to maintain and a central lending bank from which member banks borrow to cover their shortfall in reserves.

[Analytics]

It is not anything about adequacy of reserves it is that 15% reserves was normal. In todays banking world it is much lower. I have not kept up with it the last few years but it was 10%. This means that a bank can make loans for 10 dollars for every dollar they hold in reserve. In essence a bank creates money everytime a depositor deposits 1 dollar they issue a loan for 10 dollars.

This stuff is confusing, and I'm going to try to explain it. If somebody deposits $1.00 in the bank and the bank has a 10% reserve requirement, then the bank can only lend out $0.90 (ninety cents), holding the dime (10%) as reserves. When it lends out the 0.90, money is created in the sense that the person who deposited the $1.00 still has a dollar (in the sense that the $1.00 he deposited is his), but the person who borrowed the $0.90 also has ninety cents in the form of the cash he took from the bank when he borrowed it.

If the $0.90 is then deposited, the bank could then issue a loan for $0.81 (10% of $0.90), etc., so that it eventually $10.00 exists, but at that point the bank would have $10.00 in assets, one of which is the original $1.00 that was deposited. However, at that point it would have lent out $9.00.

[wenglund]

Wade try here: http://content.lib.utah.edu/cdm4/document.php?CISOROOT=/jmh&CISOPTR=18518&REC=2 I would link to it if I knew how. I am going to have to get someone to explain how to imbed those links. Hope it works. It is at the J. Willard Marriot Library at the University of Utah.

Once again I very much appreciate this. Adams' article on Grandison Newell's Obsession is an exellent read, and I would commend it to any and all who may have questions about whether there was anti-Mormonism behind the failure of the KSS and subsequent lawsuits, and whether Joseph had a strong case for appealing the one judgement that Newell was successful in bringing against him. Of most interest to me is where Adams points out how Newell's lawsuits were, themself, illegal (see pages 184 and 185), and also quite hypocritical (Newell was a major stock holder in a railroad companing that around the time of the KSS issued hundreds of thousands of dollars in bank notes without a charter, which notes also ended up worthless--see p. 185. And, "he defaulted on state debt at the same time he sanctimoniously castigated the inability of Joseph Smith and Later-day Saints to meet their financial obligations." see p. 187)

Thanks, -Wade Englund-

[wenglund]

I guess I'm a little lost as to the significance of this - just that others didn't have adequate (and in some cases less) reserves to deal with the crisis that followed? KSS was part of a number of institutions formed and managed in a manner ill-equipped to deal with the impending crisis. ML was in better shape than Lehman's - neither was in great shape when the proverbial manure hit the fan. The point I was making above is that comparisons to reserves at Western commercial banks today are not very useful because the systems are fundamentally different - starting with the fact that there is now legitimately a system. I'll leave it to others to deal with whether the claimed reserves versus what they actually had. Now back off thread.

I suppose that were the officers of the KSS and their non-LDS legal counsel to have the benefit going in of your current hindsight, then you may have a point. They didn't, and so you don't. Rather, they had but the conventional wisdom of the day regarding reserves, which they exceeded by nearly 8%. Is it any wonder that the significance is a little lost on you? It would be lost on anyone suffering from a serious case of Monday quarterbacking.

Thanks, -Wade Englund-

[wenglund]

This stuff is confusing, and I'm going to try to explain it. If somebody deposits $1.00 in the bank and the bank has a 10% reserve requirement, then the bank can only lend out $0.90 (ninety cents), holding the dime (10%) as reserves. When it lends out the 0.90, money is created in the sense that the person who deposited the $1.00 still has a dollar (in the sense that the $1.00 he deposited is his), but the person who borrowed the $0.90 also has ninety cents in the form of the cash he took from the bank when he borrowed it.

If the $0.90 is then deposited, the bank could then issue a loan for $0.81 (10% of $0.90), etc., so that it eventually $10.00 exists, but at that point the bank would have $10.00 in assets, one of which is the original $1.00 that was deposited. However, at that point it would have lent out $9.00.

What you are describing is leverage, not reserves. It is easy to confuse the two.

Thanks, -Wade Englund-