6 January 1873: Crédit Mobilier of America scandal investigated

On this day in 1873, the US House of Representatives launched an investigation into the scandal surrounding the building of the Union Pacific Railroad.

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.

Durant founded a separate company, Crédit Mobilier of America, to build the railroad, and used his position at Union Pacific to dole out contracts worth millions of dollars to his new company. Meanwhile, Ames bought off his colleagues in Congress by selling shares in the new venture at a heavily discounted price.

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.

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.

Most Popular

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022