Crédit Mobilier of America scandal
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The Crédit Mobilier of America scandal of 1872 involved the Union Pacific Railroad and the Crédit Mobilier of America construction company.
Crédit Mobilier originated in France as an innovative financial institution offering low-cost shares that could be purchased by ordinary investors. Formed through an alliance of a protégé-turned-rival of the Rothschild Family, Emile Péreire, and the financial advisor of the Second Republic, Achille Fould, the company debuted upon the crowning of Louis-Napoléon Bonaparte as Emperor Napoleon III of France in 1852. Crédit Mobilier soon followed the Rothschilds' lead into the international railroad business. After an initial flourishing, Crédit Mobilier choked on unwise loans, particularly to Emperor Maximilian I of Mexico. In October 1867, Crédit Mobilier of France collapsed.
The company Crédit Mobilier of America had been formed by a vice-president of the Union Pacific Railroad. The company was designed to limit the liability of stockholders and maximize profits from construction. The company was the sole bidder for certain construction contracts from Union Pacific and in 1864 was given 1,074 km of the Transcontinental Railroad to build, with the hefty fees being paid by federal subsidies. The company also gave cheap shares of stock to members of Congress who agreed to support additional funding.
In 1867, Durant was replaced as head of the firm by Representative Oakes Ames. In that year Ames allowed members of Congress to purchase shares at face rather than market value, the same people who voted the government funds to cover the inflated charges of Crédit Mobilier. This became one of the best-known examples of graft in American history.
The story was introduced to the public arena during the Presidential election campaign of 1872 by the newspaper New York Sun, which was against the re-election of Ulysses S. Grant. Henry S. McComb, an associate of Ames, had leaked compromising letters to the newspaper following a disagreement with Ames. It was claimed that the $47 million contracts had given Crédit Mobilier a profit of $21 million and left Union Pacific and other investors near bankruptcy.
A Congressional investigation of thirteen members led to the censure of Ames and also James Brooks. A number of other political figures had their careers theoretically damaged, including James A. Garfield, Schuyler Colfax, James W. Patterson and Henry Wilson. During the investigation, it was found that the company gave stocks to representatives of both parties including over thirty officials including future president James A. Garfield. Garfield denied the charges and went on to become President, so the actual impact of the scandal is hard to judge. Schuyler Colfax was replaced of the Republican ticket for renomination as Vice President of the United States. Ironically, he was replaced by Henry Wilson who was also involved in the scandal.
