This week in Wall Street's history is marked by the death of the man who wrote the book on being an eccentric billionaire. Other notable events include one of the closing chapters in the Enron scandal and an event that still angers gold bugs even after over 70 years. Read on to find out more. (Find out what's happening in the news this week in Water Cooler Finance: Auto Hope, Bubbling Oil And Obamanomics.)
In Pictures: 6 Biggest Millionaire Flops
The Spruce Goose Is Grounded
On April 5, 1976, Howard Hughes, best known as a legendary aviator and film producer, died during a flight from Mexico to Texas. The billionaire had to be identified by fingerprints because his various neuroses and drug use left him emaciated and unrecognizable. In his prime, Hughes made headlines by setting flight records, making movies and carrying on affairs with a rotating cast of Hollywood starlets. He used the fortune inherited from his father to bankroll his films and create an aircraft manufacturing firm that won many government contracts - although under suspect bidding practices.
The mystery around Hughes deepened as he became more reclusive while also expanding his political influence with his wealth. Hughes continues to be tied to many popular conspiracy theories, while stories of the mental illness that permeated his later years continue to pop up. According to popular accounts, Hughes developed an acute phobia of germs and insects while also allowing his hair and finger nails to grow to extraordinary lengths. Even in death, Hughes continued to grab headlines as a handwritten will left part of his fortune to a service station owner in Utah. It was declared a forgery and, thus, Hughes died intestate. His fortune was eventually dispersed among relatives.
Going for the Gold
On April 5, 1933, Presidential Executive Order 6102 was introduced by President Roosevelt as part of the New Deal controls. This order essentially made "hoarding" gold illegal for private individuals. For gold bugs, this was one of the watershed events in history – a financial massacre akin to Custard's last stand. Gold or gold certificates over $100 in value were to be turned in to the Federal Reserve in return for paper currency. This influx of gold allowed the Fed to keep up transfers of gold abroad – a condition of maintaining a gold standard. Domestically, however, the currency was being inflated via the massive federal programs under the New Deal. This temporary measure remained in effect until 1974. During this time, many people kept secret stores of gold in safety deposit boxes and other unregistered stores. (For more insight on this event, see The Gold Standard Revisited.)
Truman, The Man Of Steel
On April 8, 1952, President Truman seized control of U.S. steel to stop a national strike. The crisis was brought about by government price and wage controls meant to fix the costs of the Korean War. The steel industry was particularly vulnerable to government controls because metal was vital for building the tanks, bombs and guns that were being thrown, tossed, shot and driven over the Korean peninsula. Truman's nationalization of the steel industry was challenged on constitutional grounds, but the government used further threats of seizure to bring both parties to the bargaining table. The whole incident raised unpleasant questions about national security, private industry and the limits of government power. (To learn more, see Why did the U.S. government take control of the steel industry in 1952?)
Patent Law Is Born
George Washington gave the United States its first patent laws on April 10, 1790. The original patent law covered inventions and processes and only lasted 14 years. Upon the expiration of a patent, only the original filer could renew it. Many American inventors opposed the idea of patents, notably Benjamin Franklin, but the new law provided income for inventors who sometimes saw their inventions copied and mass produced by early industrialist with deep pockets.
From a single paragraph in the law books signed by George Washington, patent law has grown to fill volumes of its own and has its own cadre of lawyers who specialize in it. Patents represent a source of profits for many companies while also proving a major source of legislative risk for companies that find themselves on the wrong end of patent infringement litigation. (To learn more, see Patents Are Assets So Learn How To Value Them.)
On April 10, 2006, former Enron Chief Executive Jeffrey Skilling declared himself "absolutely innocent" at his fraud and conspiracy trial in Houston. Enron had been cooking the books with the help of Arthur Anderson and both companies went down in flames, along with the portfolios of Enron's many investors. The judge must not have believed Skilling's declaration; the CEO was sentenced to over 24 years in prison. (To learn more, see Enron's Collapse: The Fall Of A Wall Street Darling.)
Morality by Taxation
April has traditionally been a bad month for smokers. Already taxed federally, on April 11, 1921, smokers saw Iowa levy the first state tax on cigarettes. And, on April 1, 2009, cigarette lovers saw a record increase in the federal tax from 39 cents per pack to $1.01. Combined with average state taxes, smoking a pack of cigarettes costs over $2 in taxes. The taxes are meant to help offset the cost of tobacco related health problems and, like all sin taxes, guide the public's choices.
That's all for this week. Next week we will look at an insider trading scandal and the birth of two of the largest corporations in the world. Until then.
Missed last week's article? Check out Wall Street History: A Random Walk, Nixon's Taxes and The Marlboro Man.
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