America's Greatest Scandals
By Hardly Waite
At this writing, Groundhog Day of 2002, the Enron scandal is just starting to roll. It promises to be one or America's biggest.
We tend to forget that financial chicanery has been as much a part of America as baseball used to be. Below, to remind us of the richness of our history, is a brief overview of some of our greatest financial scandals. The list was prepared by History News Network intern Yii-Ann Christine Chen.
You'll note right off that it only took Americans about 20 years from the Declaration to create a really major financial boondoggle, the great Yazoo Land Scandal of 1795. You'll also note a couple of common threads that run through all the great scandals. First, there is always government involvement. It would be impossible to carry out a heist of massive national proportion without some help from government officials. The second thing you'll notice is that the scoundrels usually get off with a handslap. This is in the great tradition of American justice: steal a bag of potato chips or smoke a reefer and you'll be locked up for a dozen years; steal $80,000,000 through a clever stock manipulation scam and they fine you $60,000 and hire you as a consultant.
Here's Yi-Ann Christine Chen's greatest scandals list.
YAZOO LAND SCANDAL (1795)
In 1795 the state of Georgia sold 35 million acres of western land in an area known as Yazoo to four companies for half a million dollars, about a penny and a half an acre. It was the most corrupt deal in American history. Every member of the Georgia legislature but one accepted a bribe in return for their vote. At the next election the voters tossed out the thieves. The contract with the four land companies was burned. In 1802 the state sold the land to the federal government for $1,250,000. A few years later the Supreme Court ruled that the original deal, flawed as it was, was legal and had to be honored. In 1814 Congress awarded the claimants over $4,000,000.
CIVIL WAR PROFITEERING
During the tenure of Secretary of War Simon Cameron, a conniving machine politician from Pennsylvania, corruption flourished during the Civil War. As a result of his sloppy practices, the federal government paid top dollar for shoddy blankets, tainted pork and beef, knapsacks that came unglued in the rain, uniforms that fell apart, and guns that blew the thumbs off the soldiers firing them. President Lincoln replaced Cameron after the secretary repeatedly issued supply contracts without competitive bidding, in violation of Lincoln's express orders.
CREDIT MOBILIER (1860s)
Credit Mobilier was a dummy construction company formed by the directors of the Union Pacific Railroad so that they could pay themselves inflated prices for the work that was done. Because Congress paid the bills through generous subsidies worth millions of dollars, the directors made a fortune. The more the line cost, the more money they made. Politicians shared in the profits after Congressman Oakes Ames sold stock in Credit Mobilier at discounted prices to fellow members. Among those on the take was Schuyler Colfax, later vice president of the United States under U.S. Grant.
GOULD AND FISK (1869)
In 1869 Jay Gould and James Fisk attempted to corner the gold market. In furtherance of their scheme they persuaded President Grant to keep federal gold reserves out of circulation. Eventually, they wound up controlling enough of the available supply of gold in New York City to bid up the price to record levels. Once President Grant realized he'd been had, the federal government resumed the sale of gold, and the price crashed--and along with it the stock market.
PANIC OF 1873
Risky loans made by high-flying bankers to railroad operators and others contributed to the worst economic collapse of the nineteenth century, the Panic of 1873. Ten thousand businesses were forced to close in a depression that lasted until 1878.
WHISKEY RING (1875)
In 1875 a group of distillers and public officials conspired to defraud the federal government of liquor taxes. The ring included Grant's chief secretary, who along with hundreds of others was indicted. Many were convicted. Grant's secretary, however, was acquitted after the president wrote a letter on his behalf, which was read to the jury.
TEAPOT DOME (1920s)
Teapot Dome was the name of a U.S.-owned oil field in Wyoming. When he was secretary of the interior under Warren Harding, Albert Fall secretly leased the oil reserves to a businessman who gave Fall hundreds of thousands of dollars in no-interest loans. Fall always insisted he was innocent. He was indicted and convicted, becoming the first cabinet member ever to go to prison.
COLLAPSE OF THE EMPIRE OF SAMUEL INSULL (1932)
Once president of the Edison power company, Samuel Insull was by the 1930s the head of a giant utility holding company. It's collection of companies was said to be so vast and so complicated that not even Insull understood fully how much he was worth or how much of the industry he controlled.
In 1932 as the stock market sank and the banks he had borrowed money from demanded control of his companies, his empire collapsed. Investors are said to have lost 700 million dollars, the largest corporate failure in American history until the S & L scandal. Insull was indicted for mail fraud, bankruptcy and embezzlement but fled the country. Eventually, he returned and was put on trial and was acquitted. The courts ruled that a holding company could not be held responsible for the acts of the companies it controlled.
SAVINGS AND LOAN (1980s)
Thrifts had been established originally to help homeowners obtain mortgages. But in the 1970s inflation undermined the stability of the industry, sticking the thrifts with low-interest mortgages arranged years before when inflation was slight. To help the thrifts survive Congress deregulated the industry, lifting restrictions on the kinds of loans they could make. Swindlers immediately took over the industry. As the saying went, "why rob a bank if you can own one." By the end of the 1980s the thrifts were in danger of collapsing after approving billions in insider loans for worthless projects. Congress eventually bailed out the industry at taxpayer expense.
The list isn't complete by any means, but it serves as a background for the upcoming months of Enron news. Please watch the Pure Water Gazette for future developments.