STEALING ARIZONA - THREE

 

I doubt most Americans remember James Gadsden (above) . In 1840 this ex-army officer became president and primary shareholder in the South Carolina Rail Road Company.  And only three things stood between him driving that railroad across Georgia, Alabama, Mississippi, Louisiana and Texas, all the way to the Pacific Ocean.  

First, his railroad was only 135 miles long and went no further west than the Georgia border (above). Second, it was over $3 million in debt ($64 million today). And third, in 1840 everything west of Texas still belonged to Mexico. But Mr. Gadsden was not willing to concede defeat before even starting. And because he was not, James Addison Reavis would have a golden opportunity to become one of the richest thieves in America – call it another unforeseen consequence.

By 1840 there were two routes under consideration for the first transcontinental railroad. The central route, favored by the business interests in New York and Chicago. It started in Missouri and followed the trail blazed by wagon trains already heading to the soon to be discovered California gold fields. The route favored by Mr, Gadsden and most southern politicians, started in either South Carolina or Georgia. However, the southerners could not decide between themselves on how to finance their railroad.  And Gadsden was too arrogant to form a consensus from his own allies. The only thing the southerners could agree upon was that they could not allow the central route to be used. So as long as the south had a veto, any transcontinental railroad would remain a dream.

The Mexican War (1846-1848) had given America a vast new empire north of the Rio Grande River, comprising what would be the states of  Texas, California, Nevada, Arizona and New Mexico.  But even this conquest failed to supply an acceptable route for a southern transcontinental railroad. And the "Compromise of 1850" made things even worse. In exchange for relieving Texas of its huge public debt, Texas came in as a slave state and California was admitted as a “free” state. After that, no matter who built the transcontinental railroad or where they built it - and they couldn't sidetrack into Mexico, because slavery had been outlawed there since the 1845  -   the end of the line would now be a  “free state”.  

Desperate to lure the Golden State back to the slavery side, even it it required cutting it in half, in 1851 the argumentative Gadsden (above) offered to supply 1,200 new settlers, if California would also admit “not less than two thousand...African domestics” into southern California. The ploy fooled nobody, and the proposal never got out of committee in the California legislature.  Defeated again, Gadsden decided to salvage what small part of the plan he still had some control over.

If he couldn't find a way around the Mexican border beyond Texas, Gadsden decided to move the border. With assistance from Mississippi's Jefferson Davis, who at the time was President Franklin Pierce's Secretary of War, Gadsden won appointment as an agent of the United States Government, authorized to buy a southern railroad route. Now, again, the one thing James Gadsden did not have were negotiating skills, and the minute he arrived in Mexico City and opened his mouth,  he offended the entire nation of Mexico. But Gadsden was in luck, because at the time (1853), the entire Mexican government consisted of one ego maniac, General Antonio Lopez de la Santa Ana.

This was Santa Anna's sixth go around as President-slash- dictator of Mexico. He is remembered in America for his capture of the Alamo, and killing “Davy” Crockett. But in Mexico he is remembered because he never seemed to learn from his mistakes, which constantly seems to have surprised the Mexican people. Every time a crises occurred, they turned to Santa Ana,  and he kept responding by looting the country and then burning it down to destroy the evidence. Typically, in 1853, Mexico was broke, and unable to pay her army. So no matter how many ways James Gadsden insulted him, and he did find many ways of doing that, Santa Anna could not walk away from the negotiating table,  because Gadsden was offering cash money.

The resulting Gadsden Purchase acquired 30,000 square miles of fertile farmland, harsh desserts  and valuable mineral deposits, and a railroad route over the lower end of the Rocky Mountains, all for  the bargain basement price of $15 million – about thirty-three cents an acre. From the American point of view it was a great deal. From the Mexican point of view, it was rape. But really, nobody actually involved in the deal got what they wanted. The generals Santa Ana paid off with the American cash were so offended by the deal, they overthrew Santa Anna again, and sent him into retirement for the sixth and final time. 

James Gadsden had so exhausted himself offending the Mexicans, he died the day after Christmas, 1858, and so missed the start of the American Civil War. But when the south went into rebellion in 1861 the north was free to finally build the transcontinental railroad via the central route  - which they finished in 1869. And when Gadsden's dream of the southern transcontinental would finally be built in 1881, it would profit the same western men who had built the original central route out of California -  Collis Potter Huntington and Charles Crocker.

Crocker (above) was a 49'er from Indiana, who made his first fortune selling shovels to miners in Sacramento. Then he went into banking, and he was one of Big Four who formed the Central Pacific Railroad, the western end of the transcontinental. In fact "Charles Crocker and Company" was the prime contractor on the Central Pacific Railroad. Of course the shareholders in "Croker and Company" were the same men who owned the Southern Pacific. This is known as the "heads I win, tails you lose" school of finance. By 1877, the big Hoosier had so much money, he was running out of things to buy. And at that fortuitous moment, who should Croker meet but a slightly sleazy newspaper man named James Addison Reavis.

Reavis told Croker the story of the Peralta land grant. Of course he probably did not mention that the land grant was a myth. Probably. But Crocker and a few other select California investors were willing to fund more research into the claim. Did they ever believe in the validity of the grant? They would have smiled at that question, and regarded it as unimportant. The only thing that matters in the world of Capitalism, is what you can afford to prove in court.  And James Reavis could now afford to research the heck out of the Peralta land grants. And this old forger figured he stood a pretty good chance of finding every single document he went looking for. In fact, he could guarantee it.

- 30 -

THE QUALITY OF FRAUD IN AMERICA

 

I believe no one should be handed a high school diploma without being provided with an understanding of the history of fraud in America. The ambitious and the greedy have always found a way to profit by cheating. And the mantra of deregulation is yet more proof that a good education in cheating might at least warn the suckers. For example, did you know that one of the men who did the most to advance the 19th century's greatest fraud upon the American people was “Honest” Abe Lincoln?

Lincoln’s break through case as a lawyer involved the 6 May 1856 destruction of the “Government Bridge”. 

The bridge was actually owned by the Mississippi and Missouri Railroad (above), but by calling it "Government Bridge" the railroad attracted more investors. It was first the bridge over the lower Mississippi River, between Rock Island, Illinois and Davenport, Iowa. 

Just two weeks after the bridge was opened to trains a steamboat, the old and leaky “Effie Afton”, ran into one of the bridge's piers which caused a fire that destroyed the boat and one span of the bridge. The owners of the Effie sued the owners of the bridge, claiming that bridges were a navigational hazard to river commerce.  It was an argument that promised to enrich the steamboat owners, and cripple the growing railroad industry.

The mercurial Charles Durant, one of the railroad’s officers, hired Lincoln to defend the bridge. In lieu of payment, Lincoln accepted $3,000 in Union Pacific railroad stock (the equivalent of about $66,000 today).

After winning the case (he got a hung jury) Lincoln traveled all the way to Kansas to inspect the intended route of the future transcontinental railroad, which would be built by corporations that Durant ran and manipulated.

And then, one of the first bills signed into law by President Lincoln was “The Pacific Railroad Act of 1862” which officially authorized the Central Pacific Railroad corporation to build east from California and the Union Pacific (whose vice president was Charles Durant (above) to build west from Council Bluffs, Iowa. This meant that Lincoln now owned some very valuable stock.

To pay for the construction across all those hundreds of empty miles, the railroad company was to be re-reimbursed for the total cost of building the line.  They were expected to make their profits from selling land they were awarded on either side of the rails. The completed railroad would make that land accessible, which would make it valuable. But the fact that Lincoln traveled all the way to Kansas to see the route and the property with his own eyes, showed that Lincoln knew enough not to trust the word of Charles Durant. And yet he had just turned this rapacious wolf loose upon the American taxpayers. Well, Lincoln had an excuse; he was a little distracted by the outbreak of the Civil War.

Doctor Charles Durant (Medicine had been his formal training), immediately showed his true genius by first buying out Union Pacific stockholder Herbert Hoxie for $10,000. This, in addition to stock he had already owned, gave Durant majority control of the railroad, even though the “Railroad Act” had limited individual stock ownership to avoid just the kind of manipulation Durant had in mind. Then Durant bought stock in competing railroads (on margin, of course, meaning he borrowed the money), and spread rumors that they would soon be joined to the Union Pacific line, thus giving them a piece of the projected profits from the transcontinental trade.

When those railroad stocks then went up, Durant sold them out. Eventually the suckers realized there would be no joining, and the stocks fell to below their original value. With the Civil War raging Durant had just cleared $5 million profit (the equivalent of about $100 million today), and he had yet to lay an inch of rail.

Durant was hot tempered, erratic and prone to manic depression. But he had a genius at cheating. And what he had done so far was just the prologue. Doctor Durant now came up with an idea he had learned from the French construction of the Suez Canal.

In early 1864 the good Doctor Durant sent his director of publicity, George Francis Train, on a search for just the right corporate vehicle. 

Train (above) found what he was looking for in the Pennsylvania Fiscal Agency, one of the innumerable stock schemes chartered by the states to fund "The American people’s railroad to the Western Sea.” None of these shell companies ever laid a single length of rail, but this one still had an effective charter and it was for sale, cheap. 

Train bought the company and renamed it Credit Mobilier, a name vague enough to leave you unsure just what they did. Then he sold shares in this new company for nominal amounts (often even on credit) to the principle stockholders of the Union Pacific Railroad - the majority going, of course, to Doctor Durant.  In other words, it was a shell company.

And in the completion in this little of slight-of-hand, the Union Pacific signed an exclusive “no bid” contract with Credit Moblier (meaning themselves) to supply the Union Pacific with all labor, grading, rails, ties, spikes, bridges, abutments, rolling stock and engines needed to actually build and run the railroad; let the fleecing begin. The owners of the Union Pacific had just agreed to pay Credit Moblier (themselves) whatever it cost to build the railroad, the bill, of  course, to be paid by the American tax payers, and the patriotic rubes who invested in the Union Pacific Railroad, which was not actually going to build anything.

The original engineer of the Union Pacific had calculated that the first 100 miles of track would cost $30,000 per mile to build. But Credit Moblier billed the railroad $60,000 per mile, which was taken directly from the pocket of the federal government. The route also began to meander across the landscape, like a drunken sparrow in flight. Each twist and turn added miles to the bill presented to the Federal government. 

By the end of construction in 1869, the profit from this padding of the construction bills produced a profit for the stockholders of Credit Mobilier of $50 million (equal to about $800 million today). Remember this was not the side of the equation that was supposed to provide a profit for the builders, the sale of farmland on either side of the tracks was supposed to justify the entire project.

Better yet, for the principle investor, the Union Pacific Railroad was something new on the American scene, a “limited liability corporation”. Under the old rules stockholders were liable for any debts the company ran up. A bankrupt company meant bankrupt investors. But investors in the Union Pacific Railroad Limited, including Doctor Durant, Mr. Train and several members of Congress who had been given Credit Moblier stock (because they would control any investigations into Credit Moblier) were liable only for the amount they had invested in the U.P.  And in many cases that was literally nothing.  And what little they did have invested, they sold out before the public found out what shoddy work was being done.

When the golden spike completed the “the people’s railroad to the western Sea” in 1869,  the Union Pacific Railroad Company was bankrupt. It had been looted by Credit Mobilier. The U.P. stock wasn’t worth the paper it was printed on. And, of course, by then, the very rich investors in Credit Mobilier were off looking for other railroads to loot.

Only after literally thousands of more scams just like this one would congress close the loophole in this particular fraud, making shell companies like Credit Mobilier largely illegal. But not completely. These laws allow for the seizure of all profits made from them, and assessing fines for even setting them up. This is called regulation. And by regulating the stock market the government attempts to limit the profits made on Wall Street to the actual profits from the real companies the suckers think they are investing in.

It’s enough to make you realize that if Lincoln had not been murdered in 1865, his reputation might have been more closely tied to that of Doctor Durant than it is today. When ever the  truly powerful in this nation have been caught red handed, they hide behind limited liability. They are still doing it. Without limited liability the bank executives called before Congress in 2008 to explain how they profited from creating the mortgage bubble, would never have had the guts to blame working class citizens for taking on home loans they could not afford.  Truth be told, capitalism begets scams like spring rains beget crab grass. 

                                    - 30 - 

GREAT EXPECTATIONS Chapter Three

 

I doubt most Americans remember James Gadsden (above) . In 1840 this ex-army officer became president and primary shareholder in the South Carolina Rail Road Company.  And only three things stood between him driving that railroad across Georgia, Alabama, Mississippi, Louisiana, and Texas, all the way to the Pacific Ocean.  

First, his railroad was only 135 miles long and went no further west than the Georgia border (above). Second, it was over $3 million in debt ($64 million today). And third, in 1840 everything west of Texas still belonged to Mexico. But Mr. Gadsden was not willing to concede defeat before even starting. And because he was not, James Addison Reavis would have a golden opportunity to become one of the richest thieves in America – call it another unforeseen consequence.

By 1840 there were two routes under consideration for the first transcontinental railroad. The central route, favored by the business interests in New York and Chicago. It started in Missouri and followed the trail blazed by wagon trains already heading to the newly discovered California gold fields. The route favored by Mr, Gadsden and most southern politicians, started in either South Carolina or Georgia. However, the southerners could not decide between themselves on how to finance their railroad.  And Gadsden was too arrogant to form a consensus from his own allies. The only thing the southerners could agree upon was that they could not allow the central route to be used. So as long as the south had a veto, any transcontinental railroad would remain a dream.

The Mexican War (1846-1848) had given America a vast new empire north of the Rio Grande River, comprising what would be the states of  Texas, California, Nevada, Arizona and New Mexico.  But even this conquest failed to supply an acceptable route for a southern transcontinental railroad. And the "Compromise of 1850" made things even worse. In exchange for relieving Texas of its huge public debt, Texas came in as a slave state and California was admitted as a “free” state. After that, no matter who built the transcontinental railroad or where they built it - and they couldn't sidetrack into Mexico, because slavery had been outlawed there since the 1845  -   the end of the line would now be a  “free state”.  

Desperate to lure the Golden State back to the slavery side, even it it required cutting it in half, in 1851 the argumentative Gadsden (above) offered to supply 1,200 new settlers, if California would also admit “not less than two thousand...African domestics” into southern California. The ploy fooled nobody, and the proposal never got out of committee in the California legislature.  Defeated again, Gadsden decided to salvage what small part of the plan he still had some control over.

If he couldn't find a way around the Mexican border beyond Texas, Gadsden decided to move the border. With assistance from Mississippi's Jefferson Davis, who at the time was President Franklin Pierce's Secretary of War, Gadsden won appointment as an agent of the United States Government, authorized to buy a southern railroad route. Now, again, the one thing James Gadsden did not have were negotiating skills, and the minute he arrived in Mexico City and opened his mouth,  he offended the entire nation of Mexico. But Gadsden was in luck, because at the time (1853), the entire Mexican government consisted of one ego maniac, General Antonio Lopez de la Santa Ana.

This was Santa Anna's sixth go around as President-slash- dictator of Mexico. He is remembered in America for his capture of the Alamo, and killing “Davy” Crockett. But in Mexico he is remembered because he never seemed to learn from his mistakes, which constantly seems to have surprised the Mexican people. Every time a crises occurred, they turned to Santa Ana,  and he kept responding by looting the country and then burning it down to destroy the evidence. Typically, in 1853, Mexico was broke, and unable to pay her army. So no matter how many ways James Gadsden insulted him, and he did find many ways of doing that, Santa Anna could not walk away from the negotiating table,  because Gadsden was offering cash money.

The resulting Gadsden Purchase acquired 30,000 square miles of fertile farmland, harsh desserts  and valuable mineral deposits, and a railroad route over the lower end of the Rocky Mountains, all for  the bargain basement price of $15 million – about thirty-three cents an acre. From the American point of view it was a great deal. From the Mexican point of view, it was rape. But really, nobody actually involved in the deal got what they wanted. The generals Santa Ana paid off with the American cash were so offended by the deal, they overthrew Santa Anna again, and sent him into retirement for the sixth and final time. 

James Gadsden had so exhausted himself offending the Mexicans, he died the day after Christmas, 1858, and so missed the start of the American Civil War. But when the south went into rebellion in 1861 the north was free to finally build the transcontinental railroad via the central route  - which they finished in 1869. And when Gadsden's dream of the southern transcontinental would finally be built in 1881, it would profit the same western men who had built the original central route out of California -  Collis Potter Huntington and Charles Crocker.

Crocker (above) was a 49'er from Indiana, who made his first fortune selling shovels to miners in Sacramento. Then he went into banking, and he was one of Big Four who formed the Central Pacific Railroad, the western end of the transcontinental. In fact "Charles Crocker and Company" was the prime contractor on the Central Pacific Railroad. Of course the shareholders in "Croker and Company" were the same men who owned the Southern Pacific. This is known as the "heads I win, tails you lose" school of finance. By 1877, the big Hoosier had so much money, he was running out of things to buy. And at that fortuitous moment, who should Croker meet but a slightly sleazy newspaper man named James Addison Reavis.

Reavis told Croker the story of the Peralta land grant. Of course he probably did not mention that the land grant was a myth. Probably. But Crocker and a few other select California investors were willing to fund more research into the claim. Did they ever believe in the validity of the grant? They would have smiled at that question, and regarded it as unimportant. The only thing that matters in the world of Capitalism, is what you can afford to prove in court.  And James Reavis could now afford to research the heck out of the Peralta land grants. And this old forger figured he stood a pretty good chance of finding every single document he went looking for. In fact, he could guarantee it.

- 30 -

GREAT EXPECTATIONS Chapter Three

 

I doubt most Americans remember James Gadsden (above) . In 1840 this ex-army officer became president and primary shareholder in the South Carolina Rail Road Company.  He had big dreams of a southern transcontinental railroad, beginning in Charleston and driving across Georgia, Alabama, Mississippi, Louisiana, and Texas, all the way to the Pacific Ocean. There were only three things that stood in his way. 

First, his railroad was only 135 miles long and went no further west than the Georgia border (north). Second, it was over $3 million in debt ($64 million today). And third, in 1840 everything west of Texas belonged to Mexico. But Mr. Gadsden was not willing to concede defeat before even starting. And because he was not, James Addison Reavis would have a golden opportunity to become one of the richest thieves in America – call it another unforeseen consequence.

By 1840 there were two routes under consideration for the first transcontinental railroad. The central route, favored by the business interests in New York and Chicago. It started in Missouri and followed the trail blazed by wagon trains already heading to the newly discovered California gold fields. The route favored by Mr, Gadsden and most southern politicians, started in either South Carolina or Georgia. However, the southerners could not decide between themselves on how to finance the work.  And Gadsden was too arrogant to form a consensus from his own allies. The only thing the southerners could agree upon was that they would not allow the central route to be used. So as long as the south had a veto, any transcontinental railroad would remain a dream.

The Mexican War (1846-1848) had given America a vast new empire north of the Rio Grande River, comprising what would be the states of  Texas, California, Nevada, Arizona and New Mexico.  But even this conquest failed to supply an acceptable route for a southern transcontinental railroad. And the "Compromise of 1850" made things even worse. In exchange for relieving Texas of its huge public debt, Texas came in as a slave state and California was admitted as a “free” state. After that, no matter who built the transcontinental railroad or where they built it - and they couldn't sidetrack into Mexico, because slavery had been outlawed there since the 1845  -   the end of the line would now be a  “free state”.  

Desperate to lure the Golden State back to the slavery side, even it it required cutting it in half, in 1851 the argumentative Gadsden (above) offered to supply 1,200 new settlers, if California would also admit “not less than two thousand...African domestics” into southern California. The ploy fooled nobody, and the proposal never got out of committee in the California legislature.  Defeated again, Gadsden decided to salvage what small part of the plan he still had some control over.

If he couldn't find a way around the Mexican border beyond Texas, Gadsden decided to move the border. With assistance from Mississippi's Jefferson Davis, who at the time was President Franklin Pierce's Secretary of War, Gadsden won appointment as an agent of the United States Government, authorized to buy a southern railroad route. Now, again, the one thing James Gadsden did not have were negotiating skills, and the minute he arrived in Mexico City and opened his mouth,  he offended the entire nation of Mexico. But Gadsden was in luck, because at the time (1853), the entire Mexican government consisted of one ego maniac, General Antonio Lopez de la Santa Ana.

This was Santa Anna's sixth go around as President-slash- dictator of Mexico. He is remembered in America for his capture of the Alamo, and killing “Davy” Crockett. But in Mexico he is remembered because he never seemed to learn from his mistakes, which constantly seems to have surprised the Mexican people. Every time a crises occurred, they turned to Santa Ana,  and he kept responding by looting the country and then burning it down to destroy the evidence. Typically, in 1853, Mexico was broke, and unable to pay her army. So no matter how many ways James Gadsden insulted him, and he did find many ways of doing that, Santa Anna could not walk away from the negotiating table,  because Gadsden was offering cash money.

The resulting Gadsden Purchase acquired 30,000 square miles of fertile farmland, harsh desserts  and valuable mineral deposits, and a railroad route over the lower end of the Rocky Mountains, all for  the bargain basement price of $15 million – about thirty-three cents an acre. From the American point of view it was a great deal. From the Mexican point of view, it was rape. But really, nobody actually involved in the deal got what they wanted. The generals Santa Ana paid off with the cash were so offended by the deal, they overthrew Santa Anna again, and sent him into retirement for the sixth and final time. 

James Gadsden had so exhausted himself offending the Mexicans, he died the day after Christmas, 1858, and so missed the start of the American Civil War. But when the south went into rebellion in 1861 the north was free to finally build the transcontinental railroad via the central route  - which they finished in 1869. And when Gadsden's dream of the southern transcontinental would finally be built in 1881, it would profit the same western men who had built the original central route out of California -  Collis Potter Huntington and Charles Crocker.

Crocker (above) was a 49'er from Indiana, who made his first fortune selling shovels to miners in Sacramento. Then he went into banking, and he was one of Big Four who formed the Central Pacific Railroad, the western end of the transcontinental. In fact "Charles Crocker and Company" was the prime contractor on the Central Pacific Railroad. Of course the shareholders in "Croker and Company" were the same men who owned the Southern Pacific. This is known as the "heads I win, tails you lose" school of finance. By 1877, the big Hoosier had so much money, he was running out of things to buy. And at that fortuitous moment, who should Croker meet but a slightly sleazy newspaper man named James Addison Reavis.

Reavis told Croker the story of the Peralta land grant. Of course he probably did not mention that the land grant was a myth. Probably. But Crocker and a few other select California investors were willing to fund more research into the claim. Did they ever believe in the validity of the grant? They would have smiled at that question, and regarded it as unimportant. The only thing that matters in the world of Capitalism, is what you can afford to prove in court.  And James Reavis could now afford to research the heck out of the Peralta land grants. And this old forger figured he stood a pretty good chance of finding every single document he went looking for. In fact, he could guarantee it.

- 30 -