The purpose of this diary is to explore the economic and financial background of those pillaging and burning a (formerly) great American brand. Hostess Bakery created several American comfort foods including Ding Dongs, Ho Hos, Wonderbread, Suzy Qs, Dolly Madison Zingers, and Drake's Ring Dings. The fact that Hostess Bakery was the 2012 version of 2008's General Motors and Ford Motor Company is beside the point of this diary. However, let me note that Ding Dongs, Ho Hos, etc. do not mesh well with diet-conscious cuisine. Since moving to California ten years ago, I am not sure I have had more than two or three doughnuts during this period. Carbs and sugar and calories, oh, my!
Nevertheless, Hostess is now a great American tragedy, in no small part related to venture capitalists and corporate raider. This diary is the story of what has become normal in American business history and unfettered capitalism since 1865 and the end of the American Civil War. The robber barons came to the fore and such American luminaries as Cornelius Vanderbilt, John D. Rockefeller, and others earned their fortunes at the misfortune of others. Sometimes, this misfortune was facilitated by the very people who later benefited from the 'distressed events.'
More recently, Michael Milken, Carl Icahn, Monarch Alternative Capital LP, and Silver Point Capital LP have taken up the mantle of the robber baron. The venture capitalists see opportunity in the recession and swoop in to take advantage.
For an interesting filmaic history of the robber barons, the History Channel now has some fantastic historical background on the rise of the robber barons in 'The Men Who Shaped America.' Modern day robber barons and their admirers provide commentary (think Donald Trump, GE's former-CEO Jack Welch, Time-Warner's former-CEO Richard Dean Parsons, CNBC Mad Money's Jim Kramer, etc.).
According to the History Channel, Vanderbilt reportedly attempted to sell railroad rights of way into New York City to various railroads only to be rebuffed. 'Sell' in this case might be synonymous with 'extort.' When the railroads refused to open their purses to Vanderbilt, he blocked them from crossing the Albany Bridge towards New York City, causing a financial panic. Seeing opportunity in the misfortune of others that directly resulted from his own actions, Vanderbilt purchased as many shares of the New York Central on the New York Stock Exchange as he could at firesale pricing. Vanderbilt parlayed his investment into the control of the New York Centeral and into purchase of other railroads in similar fashion.
To further his transportation empire, Vanderbilt financed the early kerosine industry based in Eastern Ohio and Western Pennsylvania. The direct beneficiary of Vanderbilt's efforts to fill his freight trains was an upstart oilman by the name of John D. Rockefeller. Eventually, Rockefeller bankrupted hundreds of refinery owners as he solidified his hold on the kerosine and oil industry. When Tom Scott, head of the Pennsylvania Railroad attempted to build his own oil pipeline to compete with Rockefeller, Rockefeller closed his Pittsburgh refineries, costing Scott fifty percent of his freight revenue. Rockefeller's actions lead Scott's laying off thousands of workers and decreasing the wages of the remaining workers. The rioting that ensued nearly destroyed the Pennsylvania Railroad (full disclosure, at least three generations in my family worked for the PRR).
Needless to say, today's vulture capitalists, including Monarch Alternative Capital and Silver Point Capital, are merely a stone's throw morally away from Vanderbilt, Rockefeller, Carnegie et al. Today, when you discuss the new robber barons, famous American company names like Blockbuster, the Texas Rangers, the Dallas Stars, Muzak, and Hostess Bakery enter the conversation. More on the baining of Hostess Bakery below the fold.
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