Why Couldn’t We See Derailment Coming?

Reading up on the horrors of Wall Street today is like reading textbook descriptions of scandals that rocked another Presidency in history. Most notably, the Grant administration was besieged by all manner of corruption, especially from the railroad tycoons that established the ground rules that big business is still playing by today.

During the late eighteen hundreds Jim Fisk and J. Gould, a couple of railroad tycoons and speculators, both close associates of Grants, cornered the nation’s gold supply. The idea was to buy up all the gold, hold it until the price went through the roof, then throw it back on the market and reap huge financial gains. In an attempt to stabilize the market Grant, who unlike Bush was not out to appease greedy cronies, but was severely criticized for being derelict in his over site, freed up 4 million in gold to save the day. However, his actions came too late, which created another Black Friday, in September 1869 that caused the stocks on Wall Street to plummet wildly. Sound familiar?

To highlight another scandal that relates to where we find ourselves now, there was the great Credit Mobilier caper of 1872. The Union and Pacific Railroads created a company known as the Credit Mobilier during the Civil War, which was erected to build the railroads. Huge profits were fashioned through this medium by awarding construction contracts directly to the company, in other words the railroad barons themselves. In this scheme, the government (taxpayers) was charged ridiculously high prices for work on an already government-subsidized railroad project. The story goes that when the culprits were implicated none were repentant nor was anyone ever punished, ring a bell?

The chronicles also suggest how ruthlessness these rail barons could be when they by passed towns and cities who refused to buy their bonds. Given that America was still transitioning from an agrarian to an industrial society, these bonds placed a financial hardship on many small communities that perished as a result of the industry sidestepping them.

In addition to all their other concessions from the public domain, the railroads also became the benefactors of interests-free loans and huge government land grants, with the latter sometimes exploited for logging revenues, while excess acreage was sold at sky-high prices, with all proceeds going solely to the barons.

In the end, this led to massive corruption, enormous license and wastefulness and the destruction of large pristine wooded areas.

In fact, in taking a closer look at J. Gould, considered the most unprincipled of the railroad tycoons, whose only interest was to acquire a fortune, left us the note worthy practice of stock watering. Gould and his cohort Fisk issued stocks several times greater than the value of his own rail line, The Erie. Others followed later when the railroads became too many in number that created a condition where more than half the railroad stocks were failing to pay dividends. Eventually, these practices, among others, led to other abuses that harmed not only railroads but the public.

Finally, rail tycoons brought us the widespread practice of bribing public officials into ignoring industry abuses’ that have become a lot more sophisticated today, given the influence powerful lobbyists have over elected officials. What do you do with lawmakers whose records suggest they have been wined; dinned and generously rewarded by an opponent that owns them to undermine you? Eventually, the railroads became too many in number creating conflicts over trade. This unrestrained expansion led to countless bankruptcies and, eventually, consolidation to lock out excess competition.

In effect, the railroads established the model that industry follows today, with the exclusion of those early pitfalls that eventually led to the rail industry’s downfall. As to government, it eventually responded to the railroad debacle with the creation of the National Railroad Passenger Corporation, in May 1971, a government-owned corporation that goes under the trade name of Amtrak, which provides intercity passenger services throughout the U.S. and parts of Canada. Now FannieMae and FreddieMac have joined the entourage of government owned corporations, even if they are structured for a different purpose. Surprisingly, had the railroad tycoons been a little savvier, considering they also held sway with the highest court in the land, they might have easily overrun the nation, since they were more solvent than the U.S. government at that time.

Therefore, while people recall to mind the bank failures of the thirties, railroads (America’s first truly big business) laid the ground work that was to suggest a long-term relationship between government and industry that, while stormy at times, has stood the test of time. You would think after roughly 150 years of rogue industry titans we would have mastered the lessons dictated by what a lack of regulation has inflicted, despite the rantings of a rogue right-wing agenda that has assaulted our Constitution, democracy and Bill of Rights. Even our human dignity has been embezzled through a play on words alongside corporations, which are mere abstractions, concepts and notions that see themselves as entities, as though they have entitlement to those words that gave foundation and meaning to our Constitution, “…inalienable human rights.”

It’s all there in the history books, including the fact that our history is a pragmatic one which suggests radical extremes don’t work. This includes the current bail out that should have been replete, at the very least, with over site, seizure of ill begotten gains, substantial public returns and viable legal remedies to address the long ignored issue of accountability, especially at the top.

This all brings to mind an age old historical debate among historians. Can democracy flourish in the urban societies where these industry giants dominate?

While I’ll leave that debate with the historians, if democracy is to have a chance it will have to be on the wings of stringent controls of industry and a workable check and balance system in government that also seems to have vanished in recent years.

We will also need to get a different perspective on the Chief Executive’s role in relation to the fact that government isn’t a one man show from the Oval Office, which may account for, in part, why we are where we are on both Wall Street and Main Street. Last though not least, ethics, integrity and common sense have to be brought back to the human experience. Let’s face it, the games of the rail tycoons are still being played out in board rooms all across America, along with a government the still placates the commercial sector. So, given our history, why didn’t we see this derailment coming?

4 comments on this article so far ...

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  1. Donald Hawkins said on October 20th, 2008 at 8:51am #

    The articles posted today well I need to take a walk. Thanks.

  2. Roger Hammond said on October 20th, 2008 at 7:55pm #

    I agree basically, It has all happened before and likely will occur again. A couple of points to clean up:
    The building of a transcontinental railroad was of great benefit to the government of a country that was split in two. Prior to that, it was easier to sail from California, around South America to the east coast than travel cross-country. The land that the government owned in the middle was worthless. Giving a railroad alternating sections of land accomplished two things. The railroads gained capital to build their plant and the government was now able sell its remaining half at double the price. And by the way, 30 members of congress were involved in Credit Mobilier, principally Oakes Ames who was an official in the company and owner of a large shovel and tool manufacturing company that still exists.
    Secondly, the downfall of rail had nothing to do with your previous observations. Passenger travel fell due to post-war economic expansion of the middle class (everybody has a car), maturation of air travel and the creation of the interstate highway system (government sponsored competition). A factor in the northeast rail downfall in the 60’s and 70’s was excessive regulation. Railroads were not allowed to cut some rates if they would undercut trucking. They were legally compelled to provide commuter service at a loss. There are books detailing government bungling and interference that cost them money and business. And after deregulation, rail is now hauling more freight, more efficiently and cheaper than ever. And unlike highways, they pay property taxes on their right of way. The government has gotten every penny back.

  3. nwkec said on October 21st, 2008 at 3:10pm #

    Actually the alternate media saw it coming for some time. I refer to Bill Bonners website dailyreckoning.com, Alex Jones website infowars.com. and Bob Chapmans website theinternationalforecaster.com. There was much information available from other websites as well but not from the talking media heads.

  4. AJ Nasreddin said on October 23rd, 2008 at 9:56am #

    I had a professor who said the end was coming back in 1989. No one pays attention until the prices go up and jobs are lost.