One of the more fascinating stories of political corruption occurred 150 years ago in the state of New York. It revolves around a native New Yorker named Cornelius Vanderbilt. Born into poverty on Staten Island in 1794, as a teenager Vanderbilt borrowed money from his mother to purchased a small sail boat. He established a ferry from Staten Island across New York Harbor to Manhattan, and through frugal savings, hard work, and an entrepreneurial spirit, Vanderbilt eventually arose to become the wealthiest man in America.
This is a story of how crooked politicians almost took Vanderbilt down financially, but instead, Cornelius Vanderbilt took them down.
With the money Vanderbilt earned from his ferry business, Vanderbilt invested in a new invention called "steam boats." He established a steam boat business that was able to take goods back and forth from Albany to New York, bringing to the ever growing market of Manhattan the furs that frontier trappers brought to Albany from the Great Lakes region. Vanderbilt made his first fortune through this steamboat business, but he saw the proverbial "handwriting on the wall," and decided it was time to invest in railroads.
Vanderbilt bought shares in a small railroad line called the New York and Harlem Railroad in the 1850's. This line, along with the famous Hudson River Railroad line, were the only two railroad companies with access to Manhattan. In 1857, at the age of 61, Vanderbilt began buying even more shares of the New York and Harlem Railroad, and soon he became the majority owner.
Here's where it get's interesting.
The members of the Common Council of New York, what we now call New York's City Council, attempted to line their pockets by following the advice of a Wall Street mogul named Daniel Drew, who also happened to represent Harlem as a city council member.
The shares of Vanderbilt's New York to Harlem Railroad were rising. The company was profitable, and word on the street was that the city council was going to grant Vanderbilt's Railroad the right to have a trolley from Battery Park to Broadway, the length of Manhattan. A trolley was the forerunner of a modern subway, and if the Vanderbilt's railroad had this trolley business, his company's profits would soar even more.
Councilman Drew privately convinced the New York city council members to continue talking publicly about the council's desire to grant Vanderbilt's company the authority to build a streetcar line - a public discussion which only contributed to the skyrocketing share prices of Vanderbilt's New York and Harlem Railroad company. Drew told council members that if they passed the law granting trolley authority to Vanderbilt, "but at the last minute rescinded their decision," then the shares for the New York and Harlem railroad would plummet in price. The key to council members making money was "to sell short" New York and Harlem Railroad shares before the rescission announcement was made to the public.
The City Council's bill authorizing the construction of the streetcar line was passed on 23rd April 1863. Council members began selling short Vanderbilt's railroad shares over the next two days. Vanderbilt had some idea of what was happening and he warned the Council members to cease their actions. However, the city council continued with their illicit plan and formally rescinded the streetcar line franchise on the afternoon of 25th June 1863 for the sole purpose of making themselves rich.
Boom! People the newspapers screamed that the New York and Harlem Railroad stock would plummet during trading the next day.
But it didn't happen. The stock price of the Vanderbilt's company actually rose.
How could this happen?
Unbeknownst to the New York's city council members, Vanderbilt had purchased all of the New York and Harlem railroad stock available. He was not only the majority owner, he was now the sole owner.
When you sell a stock short and there are no shares to trade, the price of the stock rises. It is what is called a short squeeze. Short sellers can't do anything but watch in horror as the price of the stock they promised to buy back goes up in price rather than down. Unwise short selling has bankrupted many an investor.
New York city council members came to Vanderbilt and begged him to help them. Remember, these politicians sought to ruin Vanderbilt through politically corrupt business dealings. But instead, Vanderbilt had them over a barrel. The politicians were obligated to buy Vanderbilt's stock, but Vanderbilt wasn't selling yet - and the price of the stock was rising.
When the short squeeze was over and Vanderbilt finally allowed the city council out of their short positions, the price of the stock was at $180 a share, having grown from the $8 a share Vanderbilt first paid for the stock when he began investing. Vanderbilt made millions off the crooked desires of New York politicians.
Daniel Drew, the architect of the corrupt scheme to line his and other politicians' pockets with ill-gotten gains waxed philosophical about his loss of over a million dollars (over $20,000,000 in today's money). Daniel Drew one of the few politicians in New York who could afford such a massive loss in 1863 because he had already made a fortune on Wall Street. The poem that Drew wrote is something that the federal government of the United States should pay attention to in 2016, particularly since politicians have "borrowed" the Social Security money of participants - money that isn't theirs - with a "promise" to pay it back. Instead, they are funding their respective district's with money that is not theirs. Daniel Drew wrote:
Since those in political power today are not prone to put themselves in prison, I've written another poem that more likely parallels the future of the American government come November 2016."He that sells what isn't his'n, must buy it back or go to pris'n."
"The politicians who from others steal will find themselves replaced on Capitol Hill."