6 January 1873: Crédit Mobilier of America scandal

6 January 1639: Virginia orders the destruction of its tobacco crop This week in history: The panic of 1873

In the 1860s, the United States government directed the Union Pacific Railroad Company to build and run a railway across the country. The company's vice president, Thomas Durant, didn't see much profit in running the service, but he and Massachusetts congressman Oakes Ames did see opportunity elsewhere.

As work got underway, Crédit Mobilier began to invoice Union Pacific for far more than it was costing it to lay down the track. And of course, Union Pacific was only too happy to pay, taking on debt to cover its losses in the process. In turn, Union Pacific billed the taxpayer and went cap-in-hand to the government (or shareholders) for more money.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

With so much cash on its hands, Crédit Mobilier started to pay out massive dividends, and the value of the stock soared.

Matters came to head in September 1872, when a list of the corrupt congressmen dropped onto the desk of the editor of The New York Sun an opponent of the US president, Ulysses S Grant. The newspaper published the expos right before the presidential election in November that year.

As it happened, Grant won an easy victory, despite the furore. But the corruption that came to characterise the Gilded Age' was out in the open. In the new year, an embarrassed House of Representatives launched its own, somewhat half-hearted, investigations into the railroad scandal, just months before the Panic of 1873 hit a financial crisis caused by speculation in the railways.