Boeing Takes Off and Goldman Gets Off Easy
On this day in economic and business history...
William Boeing , founder of the aerospace company that still bears his name, was not an aircraft buff from the beginning -- but he came pretty close. Boeing, heir to tracts of timberland in the American West, as well as other valuable properties, dropped out of Yale at the age of 22 to master the logging business and make the most of his inheritance. The year he began his business career, 1903, also happened to be the year when the Wright brothers first proved that heavier-than-air powered flight was possible.
By 1908 Boeing had amassed enough knowledge to found his own lumber company in Seattle, Wash. His wealth and prestige granted him early access to the infant aviation industry, and by the turn of the century, Boeing was hooked. In 1914, Boeing took his first flight, as a passenger, over Lake Washington. The Boeing company's history page recounts its founder's experience:
Boeing told writer Harold Mansfield that he sat beside [early aviator Terah] Maroney on the front edge of the lower muslin-covered wing and as the biplane banked away from the lake, he saw the whole landscape tilting up beside him like a flat picture plate. After a few more sessions with Maroney, Boeing and [Navy Lieutenant G. Conrad] Westervelt decided they could build a better airplane.
A year later, Boeing attended a flight-training course held by aviation pioneer Glenn Martin, who had founded his own eponymous aircraft company in 1912. After taking delivery of his own Martin Model TA biplane, Boeing set out to hire a group of capable technical assistants to reverse-engineer and improve on Martin's model. In the summer of 1916 Boeing personally test-flew his first home-brewed biplane, the Bluebill B&W Model 1. A month after this gutsy test (air shows at the time were spectacles that drew people expecting a crash), on July 15, 1916, William Boeing founded Pacific Aero Products -- the direct ancestor to today's massive aerospace company.
Boeing's young company was born at just the right time, as the United States joined World War I a year later and was in urgent need of some training aircraft to help its naval aviators learn to fly. Pacific Aero Products delivered 50 trainer aircraft to the Navy before the war's end, which proved to be Boeing's greatest success for some time. Boeing would change the company's name shortly after America's entry into the war to the form you're familiar with today.
After the 1918 armistice, Boeing struggled to find buyers, and a glut of military-surplus biplanes kept the company from turning a profit for three long years. Boeing had held onto his timber business and set his stalled aviation company to work building furniture during the downtime, which provided enough liquidity to keep it aloft. Other orders for the construction of other manufacturers' models helped as well, but Boeing needed its own aircraft to achieve lasting success Boeing enjoyed its first real peacetime success as an aviation manufacturer in 1927 when it won a contract to supply 26 airplanes to the U.S. Postal Service. The success of this relatively modest order allowed Boeing to grow rapidly. A year later, William Boeing could boast of his company operating "the largest plant in America devoted solely to the manufacture of aircraft, and at the present time employing approximately 1,000 men."
In 1929, Boeing assembled the nation's leading aviation company, United Aircraft and Transport Corporation, by merging together several other major manufacturers and airlines. This company, which approached monopolistic size, joined the Dow Jones Industrial Average a year later, presaging Boeing's addition to the Dow by nearly six decades. United's control of the industry eventually led to an antitrust fight that the government won in 1934. William Boeing sold his shares and stepped down before the company could be broken apart. However, with capable leadership, all three of the post-split companies -- Boeing (controlling the Western U.S. manufacturing operations), United Technologies (originally United Aircraft, controlling Eastern U.S. manufacturing operations), and -- thrived for decades, and both halves of Boeing's former aircraft-manufacturing operation wound up representing American industry on the Dow in later years.
Exactly 38 years after its founding, Boeing entered the jet age with the first flight of its 367-80 prototype aircraft on July 15, 1954. Nicknamed the Dash 80, the prototype was Boeing's first attempt to adapt the jet engines it had first installed on the B-47 bomber for commercial flight. It was also a big risk for Boeing, which was attempting to enter a market that had crashed, quite literally, with the tragic fatal crashes of more than a dozen de Havilland Comet jetliners from 1953 onward. After three years in development, the Dash 80 led to the rollout of Boeing's first commercially successful jet: the 707, which took its test flight in late 1957 and was put into service shortly afterward.
Powered travel: The first generation
The most advanced form of commercial powered transportation and the most primitive happen to have been tested on the same day. It was on July 15, 1783 that the world's first successful demonstration of steam-powered travel took place on the River Saone in Lyon, France. That day, Claude-Francois-Dorothee de Jouffroy, Marquis d'Abbans (let's call him Claude) put a James Watt-model steam engine, installed on a 148-foot boat with paddle wheels called the Pyroscaphe, through its paces.
The leisurely 6-mile-per-hour upriver effort was greeted with cheers from crowds watching on shore, but the ill-adapted steam engine soon threatened to tear the boat apart. The test was cut short after 15 minutes, and so was Claude's inventing career. Despite his shore-bound admirers, the Frenchman faded in history after his country's scientists refused to recognize the achievement. More than two decades later, American Robert Fulton eclipsed Claude's pioneering effort with the first commercial steamboat trip.
Goldman gets off easy
The Securities and Exchange Commission reached a record-high settlement with Goldman Sachs in a securities fraud lawsuit on July 15, 2010. The $550 million penalty was the largest ever to be paid by a Wall Street firm. It was also an acknowledgement that Goldman had misled investors over the infamous synthetic collateralized debt obligation called Abacus -- a package of toxic loans that has played a key role in both Michael Lewis' The Big Short and several extremely anti-Goldman articles penned by Rolling Stone editor Matt Taibbi .
SEC Director Robert Khuzami crowed that the settlement was a "stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing." That's not how most of the financial press felt, though. ProPublica dismissed the deal as "less than a tenth of the gain Goldman's stock [market cap] had" on July 15, 2010, and pointed out that it was only "about two weeks' worth of profit." Slate writer Daniel Gross noted that Goldman CEO Lloyd Blankfein "traded a settlement for his job." Several writers pointed out that the lack of genuine accountability might only serve to embolden the controversial investment bank in any future financial shenanigans, as it could then expect to get off with a comparatively modest fine relative to its massive profits.
Goldman's profit for the 2010 fiscal year, at just more than $7.7 billion, couldn't quite pay off the fine in two weeks -- it actually took closer to three and a half weeks. The only person who may ever receive punishment for Goldman's lies appears to be Fabrice Tourre, the former Goldman vice president who helped create and market Abacus under hedge fund billionaire John Paulson's direction. Tourre's fraud trial begins today, three years to the day after Goldman's slap on the wrist.
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