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Financial Scandals

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.

Thomas Fitzgerald - 2/2/2009

The list skips over what I consider to be the biggest and most damaging Financial scandal is US history, the creation of the Federal Reserve System in 1913. This laid down the foundations that are crumbling today. This has been a way for a select few to profit graetly while the vast majority of us keep losing money to inflation. As this whole current economic crisis continues, watch out for more banks having claim to more collateral, until the banks in effect own everything.

Arnold Shcherban - 1/8/2009

Let Chavez speak for himself:
"If the Venezuelan government, for example, approves a law to protect consumers, they say, ‘Take note, Chávez is a tyrant!' Or they say, ‘Chávez is regulating prices. He is violating the laws of the market.'
"How many times have they criticized me for nationalizing the telephone company? They say, ‘The state shouldn't get involved in that.' But now they don't criticize Bush for having nationalised... the biggest banks in the world!"
In driving home his point he added, "Comrade Bush, how are you?"
He then went on to say:
"Comrade Bush has had to take decisions which are more in the style of Lenin and now people are asking themselves, ‘is the US on the road to socialism?' (...) I have the answer: ‘Yes Sir!' (Sí señor) The United States one day will go towards socialism, I have no doubt about it."

"Comrade" and US capitalism made themselves clowns (though less than funny ones) in the eyes of international public.

Daniel Alef - 12/26/2008

The term "financial scandal" suggests the existence of one or more perpetrators engaged in improper and egregious conduct which results in substantial economic losses or even national financial decline. Credit Mobilier, like its Western counterpart Contract and Finance Corporation of the Central Pacific Railroad, the attempt of Jay Gould and James Fiske to corner the gold market in complicity with President Grant's brother-in-law, and Teapot Dome are excellent examples. The collapse of Samuel Insull's empire does not really fit the definition of a scandal, despite the government's best efforts to paint Insull and his utilities with that broad brush.
In 1928 Samuel Insull's industrial empire had 50,000 employees and the Insull group had a total market value well over $1 billion. He personally was worth more than $100 million, and was one of the richest and most respected men in the U.S. The Chicago Evening Post reported: "He provides us with light, heat, power, transportation, grand opera and United States senators."
Another powerful titan came into the picture in 1928: Cyrus Eaton, a major shareholder of many large corporations including United Light and Power, Sherwin-Williams, Goodyear and Firestone. Eaton sought control of Insull's utility empire and made no bones about it. To block Eaton, Insull set up Insull Utility Investments Inc., a holding company into which he placed his family holdings, then sold stock to the public to raise more money for his fight with Eaton. Insull also set up Corporation Securities and arranged for Insull Utility and Corporation to buy into each other, a complicated defensive scheme designed to further thwart Eaton's moves.
Unfortunately for Insull, the rush to buy shares of his utilities came at a bad time -- 1929. Stocks in general were already grossly inflated and the Eaton-Insull battle compounded the inflation in all utility shares. When the stock market crashed on Black Tuesday, Eaton ended his buying spree, but Insull saw the crash as a temporary setback and plunged ahead.
When the dust cleared and the market continued its downward spiral, Insull lost everything. His companies were so entangled and the financial mess so convoluted, no one could account for $750 million in stockholder losses. Clearly the money had not gone into Insull's pockets. He was insolvent, with debts exceeding assets by $16 million. To avoid bankruptcy, he turned over all his assets to creditors.
Chicago, Insull's lightly held kingdom, became a battle zone, with threatening letters and attempts on his life. At the same time, Illinois and the federal government began an intensive investigation and in February 1932, indicted him for using the mails to defraud investors.
O.J. Simpson's mad dash across Los Angeles freeways in the white Ford Bronco pales in comparison to what Insull did. He slipped away in June, sailing to Europe from Quebec with the authorities hard on his heels. From Paris, he went to Greece via Italy and Albania. In December 1933, he quietly slipped out of Greece on a leaky chartered vessel bound for Egypt. When the ship stopped in Instanbul for provisions, the Turks seized Insull and extradited him to the U.S. He had been on the lam for nearly two years and was a broken man.
Reporters swirled around him as he disembarked in New York. "I worked with all my energy to save those companies," Insull told them. "I made mistakes, but they were honest mistakes. They were errors in judgment but not dishonest manipulations."
His trial started in October 1934. It was a complicated case during which prosecutors drew intricate algebraic equations on a blackboard to support their arguments. After two withering months, the exhausted jury returned a not guilty verdict.
Insull left the U.S., never to return. Civil litigation hounded him until his death from a heart attack on the Paris Metro on July 16, 1938. He had 20 cents in his pocket. Only 12 people attended his funeral.
Was the Insull litigation the result of a financial scandal, or was Insull trapped by his own success and the market's ultimate failure? I suggest that Enron was a scandal; Insull a tragedy.

Daniel Alef

Arnold Shcherban - 12/15/2008

Comments are redundant.

Diogenes - 8/3/2002

The accounts of the earlier scandals included at least some of the names of the thieves responsible.
The description of the S&L scandal should have noted that this monumental rip-off of the American taxpayer
was aided and abetted by several crooked politicians who were being paid off by the swindlers; the
most prominent crook being Senator John McCain! He and hisslimly accomplices should have been tarred,
feathered, and run out of Washington on a rail. Instead we still have that mealy-mouthed son of a bitch
lecturing the nation on the importance of election funding reform!!!! I can't look at his lying, hypocritical
face without feeling an intense urge to vomit.

Diogenes - 8/3/2002

The accounts of the earlier scandals included at least some of the names of the thieves responsible.
The description of the S&L scandal should have noted that this monumental rip-off of the American taxpayer
was aided and abetted by several crooked politicians who were being paid off by the swindlers; the
most prominent crook being Senator John McCain! He and hisslimly accomplices should have been tarred,
feathered, and run out of Washington on a rail. Instead we still have that mealy-mouthed son of a bitch
lecturing the nation on the importance of election funding reform!!!! I can't look at his lying, hypocritical
face without feeling an intense urge to vomit.

Walter Sutton - 8/2/2002

What about Ponzi?