Chapter 12
Global Capital Flows: Financing Growth, Creating Risk and Opportunity
The whole world has become a city.
–Fritz Stern1
By 1872 the fraud of the century could no longer be kept secret, in part because there is no honor among thieves. Stock of the Credit Mobilier (the American construction company set up by the Union Pacific Railroad to build the first transcontinental railroad) was placed in the hands of those who would do the most good for the corporation. Stock went to congressmen, senators, the speaker of the House of Representatives (James G. Blaine), the vice president of the United States (Schuyler Colfax), and a future president (James Garfield). But so rich was the fraud and so prevalent is greed among men that, when frustrated that they weren't getting their fair share, some of the thieves blew the whistle. Sometimes too much is not enough. By summer 1872 the New York Sun had the story. By September, credit became tight and the railroads turned from issuing bonds to borrowing short-term. A global credit crisis and the longest officially recorded depression in United States history was about to unfold. Congressmen Oakes Ames and James Brooks were both censured for their role in the scandal. As Charles P. Kindleberger (former professor of economics at MIT) argued, booms and busts are transmitted in many ways—surprise moves in commodity and security prices, interest rates, short-term capital movements, gluts and shortages of essential products, and, of course, ...
