Wall Street History

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Wall Street History

09/07/2001

The Presidency of Ulysses Grant, Part I

By the end of the American Civil War, no man was more
admired, next to Abraham Lincoln, than Ulysses Grant. His
efforts on behalf of the Union made him so. And in the South,
they respected the magnanimous side of the war leader, for it was
Grant who told his men at Appomattox that there would be no
cheering after General Lee''s surrender. "The war is over - the
rebels are our countrymen again."

And so it was that in 1868, with zero prior political experience,
Republicans made him their choice to be president and Grant
won in convincing fashion in the electoral vote, 214-80, over the
Democrat Horatio Seymour.

The post-war era was known as the "Gilded Age" in America.
Business leaders certainly didn''t want the government meddling
in their affairs. Unless, of course, it was the building of the
railroads, whereupon the robber barons were more than willing
to receive federal grants of free public land.

To the moneyed folk, President Grant was like a "chairman of
the board," someone who would defer to them on matters of
business. For his part, Grant didn''t believe in an activist
presidency either. Let the peoples'' elected official pass the laws
and he''ll administer them.

An example of this laissez-faire attitude was contained in Grant''s
first annual message. "The appropriations estimated for river
and harbor improvements and for fortifications are
submitted.whatever amount Congress may deem appropriate
for these purposes will be expended."

Patronage was the name of the game back then (actually, it still is
today) and the practice would enmesh the Grant administration in
all manner of scandals, one of which was Credit Mobilier of
America. As historian Charles Morris notes, the name is the
bane of history students, for the company had nothing to do with
the French bank of the same name. And the story would get
more confusing when in 1867 the French Credit Mobilier
collapsed, meaning that for a time a "Credit Mobilier scandal"
was being investigated in both countries.

Back in 1859, businessman George Francis Train noticed that
there was a little Pennsylvania corporation called the
Pennsylvania Fiscal Agency, which wasn''t doing any business to
speak of yet offered something in its charter that Train and future
associates like the legendary Will Durant wanted; a provision
which limited liability for company stockholders. In other
words, investors would not be liable for the corporation''s debts
to the full extent of the individual''s personal worth. Instead,
owner liability would go only as far as each had invested. So in
March 1864, Train offered $25,000 for the charter, Will Durant
was named president and the name was changed to Credit
Mobilier of America.

Meanwhile, the Union Pacific Railroad had been formally
chartered by the federal government in 1865 to build out one of
the links in the transcontinental line. In return for constructing
the railroad, and the costs (and dangers) were huge, the
government would then grant the operators millions of acres
along the route, land that would become much more valuable
once it was accessible by the railroad.

The owners of Union Pacific then turned to Credit Mobilier to be
the construction company. Credit Mobilier even had an office
next to UP''s headquarters (not exactly legal). Credit Mobilier
then raised capital in its name to finance the railroad''s
construction, but charged exorbitant fees along the way, knowing
it would be repaid (with healthy interest, of course) from the loan
proceeds that Union Pacific received.

Through this scam, the stockholders of Credit Mobilier made
millions as a result of the wild overcharging, while Union Pacific
and its stockholders were bled dry.

And who were the Credit Mobilier stockholders who profited so
nicely? Many members of Congress, 13 to be exact, though it
took a number of years for the activity to be made public.

The ringleader was Congressman Oakes Ames. Since the
owners of Credit Mobilier had to make sure there was no
interference from Washington, they enlisted the help of Congress
as well as members of the Grant administration, who were then
given stock in Credit Mobilier. As for the Union Pacific
executives, they received sweetheart deals which enabled them to
buy CM stock, financing this through UP''s huge dividends.

Finally, in 1873 the scam began to unravel. While the list of CM
stockholders was to be kept confidential, Oakes released them.
13 congressmen, as well as Grant''s Vice President (and former
congressman), Schuyler Colfax, were implicated. Ames and one
other pled guilty to bribery, while the congressmen and Colfax
were innocent of receiving bribes, because, in the words of
Charles Morris, "they did not understand his nefarious purpose."
Morris goes on, "The notion that congressmen as a class were
entitled to a defense of diminished responsibility delighted the
nation''s editorial writers."

The news of the scandal was trumpeted as "the most damaging
exhibition of official and private villainy and corruption ever laid
bare to the gaze of the world." Two vice presidents (Colfax was
Grant''s first term veep, Henry Wilson the second), the Speaker
of the House, a future president (James Garfield) and almost
every important committee chairman were involved. As a
Philadelphia paper wrote, "All of them are proven, by irrefutable
evidence, to have been bribed." The correspondent then goes on
to say that "the public has long known, in a vague sort of way,
that the Union Pacific Railroad was a gigantic steal": the federal
bond subsidies had been enough to build and equip the road, he
said, but the public had been bilked when the Union Pacific was
allowed to issue first-mortgage bonds ahead of the
government''s.On top of that were the tens of millions of acres
of the public domain. [Source: David H. Bain]

While much of the activity took place before Ulysses Grant''s
election, and while he had no direct involvement whatsoever, it
certainly hurt him. Next week, the scandals hit closer to home.

Sources:

"A History of the American People," Paul Johnson
"America: A Narrative History," Tindall and Shi
"American Heritage: The Presidents," Michael Beschloss
"Money, Greed, and Risk," Charles Morris
"The Great Game," John Steele Gordon
"The Presidents," Henry Graff
"Empire Express," David H. Bain

Brian Trumbore

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