Competition and consolidation during speculative

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Competition andConsolidationDuring speculative bubbles, investors often overbuild new technologies, as did railroadsowners in the 1870s and 1880s. Railroads also suffered from mismanagement andoutright fraud. Speculators such as Jay Gould entered the railroad business for quickprofits and made their millions by selling off assets and watering stock. In a ruthlessscramble to survive, railroads competed by offering rebates and kickbacks to favoredshippers while charging exorbitant freight rates to smaller customers such as farmers.They also attempted to increase profits by forming pools, in which competing companiesagreed secretly and informally to fix rates and share traffic.
Jay Gould…Railroads also suffered from mismanagement and outright fraud. Speculators such as JayGould entered the railroad business for quick profits and made their millions by selling offassets and watering stock (inflating the value of a corporation's assets and profits beforeselling its stock to the public). Entered the railroad industry for quick profits and mademillions by selling off assets and watering stock. In fight to survive, railroads competed byoffering rebates and kickbacks to favored shippers while charging high freight rates tosmaller customers like farmers. Also formed poolsJ.P. Morgan…A financial panic in 1893 forced a quarter of all railroads into bankruptcy. J. PierpontMorgan and other bankers quickly moved in to take control of the bankrupt railroads andconsolidate them. With competition eliminated, they could stabilize rates and reducedebts. Moved in to take control of the bankrupt railroads and consolidate them. Byeliminating the competition, He could stabilize rates and reduce debts. The consolidationmade the rail system more efficient. Dominated the boards with interlocking directorates,creating railroad monopolies.Granger Laws…The Granger Laws were passed to stop slick financial schemes and ruthless practices bythe Midwestern states that became overturned in courts. This was created to regulaterailroads. The Granger laws passed by midwestern states in the 1870s were overturnedby the courts, and the federal Interstate Commerce Act of 1886 was at first ineffectiveInterstate Commerce ActRailroads captured the imagination of late-19th century America, as the public, localcommunities, states, and the federal government invested in their development. At thesame time, however, customers and small investors often felt that they were the victims ofslick financial schemes and ruthless practices. Early attempts to regulate the railroads bylaw did little good. The Granger laws passed by midwestern states in the 1870s wereoverturned by the courts, and the federal Interstate Commerce Act of 1886 was at firstineffective (see Chapter 17). Not until the Progressive era in the early 20th century didCongress expand the powers of Interstate Commerce Commission to protect the publicinterest.

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