Wednesday, January 6, 2010
Today's History Lesson
I was reading an “on this date in history” list and stumbled across something in 1873 that made me curious. Congress began investigating the Credit Mobilier scandal. Raise your hand if you know what that is. Nope, you wouldn’t see mine going up. Not a clue.
Originally known as the Pennsylvania Fiscal Agency, Credit Mobilier of America was a construction management company. It began as a loan and contract company in 1859. In 1864, George Train from PA Fiscal and Thomas Durant, a VP of the Union Pacific Railroad restructured the company into Credit Mobilier. Its primary purpose soon became to be the principal construction and construction management firm for the Union Pacific Railroad Project. Specifically, it existed to generate excess profits far exceeding the actual cost of building the railroad for a select few individuals who couldn’t wait for the operating railroad to generate sufficient income to make them rich.
Simply put, Union Pacific contracted Credit Mobilier to build the railroad. They were invoiced way above actual cost and happily paid. Credit Mobilier would then use the extra to purchase Union Pacific stock at a discounted cost only to turn around and resell it on the open market at a huge profit. The officers of Credit Mobilier, who happened to be the same officers of Union Pacific, earned over $43 million but only reported $23 million.
When Congress was asked to allot additional funds for the construction which was costing way over the initial estimate, they readily approved them. Why? Because many Congressmen were presented with Union Pacific stocks and would then earn a tidy sum of their own.
It all fell apart in 1872 when an associate of the Congressman Ames, an instigator in this scam, had a falling out with someone who leaked the sordid tale to the newspapers during the re-election campaign for President Grant. Nothing much more than a few slaps on the wrist ever came of the investigation however. There were over thirty representatives from both parties involved, including the current vice president at the time as well as future president Garfield.
There you have it. You know something of the Credit Mobilier scandal. Your life is now complete.