The Bankruptcies of 1878: A Wave of 'Fraudulent' Insolvency?
As financial panic grips the Pacific Coast, Seattle editors decry a suspicious surge in businesses filing for bankruptcy before new laws take effect.
The story, cleaned up
A cleaned-up reading of the newspaper page: spelling and layout repaired, one story lifted off a crowded page. It follows the original closely but it is not a transcription. The original page is below; read it if a detail matters.
The unusual increase in bankruptcies this season all over the country has probably been a matter of surprise to many of our readers. Not only have these bankruptcies been unusually numerous throughout the Eastern and Western States, but they have been of exceptionally frequent occurrence upon the Pacific Slope. One name after another has been added to the long list in San Francisco of late, and Saturday last another voluntary of the 'heavier sort,' representing liabilities of over fifty-seven thousand dollars, is reported as filing a petition in bankruptcy, followed on Monday by a firm with liabilities estimated at $800,000. There is nothing, however, in the condition of trade or the country to justify the wholesale rush into bankruptcy which has characterized the present season. The real cause is apparent: the bankruptcies have in the main all been fraudulent. There has been a general rush among embarrassed and perhaps not over-scrupulous persons to avail themselves of the provisions of the bankrupt law before the repealing act went into effect on the first of next month. It has encouraged dishonesty, embarrassed trade, and placed an unnecessary restriction upon business.
“The effect of the postponement of this repealing act, which should have been made immediately operative, has been demoralizing in as much as it has offered a premium upon fraud and encouraged dishonesty.”
In 1878, Seattle business owners were accused of exploiting federal bankruptcy loopholes to dodge debts, a century before modern real estate investors and shell companies would refine the art of bankruptcy as a business strategy. Today's headlines about 'strategic default' in commercial real estate echo this late 19th-century anxiety over business ethics during economic downturns.
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