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Great American financial failures: From Jefferson to Disney

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It's easy to scoff at millionaire celebrities who declare bankruptcy, but overextended credit is a time-honored American tradition. Some of our greatest heroes have fallen victim to bad investments and living beyond their means.

Except for divorce and credit cards, the primary causes of insolvency haven't changed much in the last two centuries. Thomas Jefferson made every credit mistake in the book, leaving his family so far in the hole they had to sell Monticello and most of its contents after his death. Mark Twain, Walt Disney, Ulysses S. Grant, and Abe Lincoln also declared bankruptcy at some point, for reasons we can all relate to -- and  managed to pull themselves out of debt by means we can still apply.

Bankruptcy: Famous Americans who went broke

It’s easy to scoff at millionaire celebrities who declare bankruptcy, but overextended credit is a time-honored American tradition. Some of our greatest heroes have fallen victim to bad investments and living beyond their means.

Except for divorce and credit cards, the primary causes of insolvency haven't changed much in the past two centuries. Thomas Jefferson made every credit mistake in the book, leaving his family so far in the hole they had to sell Monticello and most of its contents after his death. Mark Twain, Walt Disney, Ulysses S. Grant and Abe Lincoln also declared bankruptcy at some point, for reasons we can all relate to -- and  managed to pull themselves out of debt by means we can still apply.

Bankruptcy is nothing new. The first bankruptcy laws were passed in England in 1542 and laws for forgiving debt date to biblical times. Modern American bankruptcy is based on an article in the U.S. Constitution that gives Congress the power “to establish uniform laws on the subject of bankruptcies.” Early attempts to enact such laws were quickly repealed, but they came back whenever the country hit hard times. Some famous American icons were able to benefit from those laws. Others had to dig out the old-fashioned way.
Here's what some of our famous forefathers did to get into debt, what they said about the topic, and how they coped with it.

THOMAS JEFFERSON

“We must not let our rulers load us with perpetual debt,” Thomas Jefferson wrote in the 18th century. “We must make our election between economy and liberty or profusion and servitude.” Jefferson was referring to national debt, not personal, but he might have benefited by taking his own advice.

The wisdom behind his advice for the country has never been more obvious, yet Jefferson himself spent his entire adult life in debt, having acquired his father-in-law’s soon after marrying. Although Jefferson kept a large staff of slaves to run his farm and household at Monticello, he always lived beyond his means.

By 1815, Jefferson was forced to sell his library of 6,487 books to the U.S. government to help pay his bills. They became the core of the new Library of Congress. Yet he couldn’t resist buying more books. After his debts reached $100,000 (between $1 and $2 million in today's terms), he attempted, unsuccessfully, to sell some of his land by public lottery. Bankruptcy was an option only briefly during Jefferson’s lifetime. The first bankruptcy law in the U.S. was enacted in 1800, but repealed three years later.
While creditors resisted booting him from Monticello out of respect, his family was forced to vacate after his death, selling off the plantation along with its slaves and contents.

How he dug out: He didn’t, but he might have if he’d seriously downsized the plantation and patrician lifestyle, and freed his slaves as he had always promised to do.

 

ABRAHAM LINCOLN

“My old father used to have a saying: If you make a bad bargain, hug it all the tighter,” Abraham Lincoln once said.

Young Abe made his own bad bargain when he purchased a general store in Illinois in 1832. He and his partner proceeded to buy inventory on credit, overstocking the store despite lack of sales. Lincoln sold his share in the store and moved on, but he was stuck holding the bag when his former partner died.

How he dug out: Bankruptcy laws didn’t exist when Lincoln’s business went under -- a second bankruptcy law was enacted in 1841 but repealed two years later -- so Lincoln had to hand over the few assets he had and continue to pay the debt off over the next decade. Honest Abe left retail alone after that, proving himself better suited to law and statesmanship. He was still young when he recovered from that mistake and kept out of financial trouble by following his strengths and relying on others to manage the accounts.
 

ULYSSES S. GRANT

“The friend of my adversity I shall always cherish most,” said Ulysses S. Grant. “I can better trust those who helped to relieve the gloom of my dark hours than those who are so ready to enjoy with me the sunshine of my prosperity.”

The sunshine of Grant’s prosperity came after his victory in the Civil War, where he proved himself a brilliant general and strategist. He was less successful as a U.S. president, and even worse at money management. After his second term, Grant spent two years traveling the world with his wife, seriously depleting his savings.

In 1881, he bought a house in New York City and placed the bulk of his financial assets into an investment banking partnership with his son and a young investor his son recommended, Ferdinand Ward. Thrilled with the reported profits, Grant left the running of the business to Ward, who swindled Grant, bankrupted their company, then fled.

How he dug out: Broke and dying of throat cancer, Grant spent his final years paying off the debt, primarily by writing his personal memoirs, which were published by Mark Twain soon after Grant’s death. The memoirs were a huge critical and financial success. Grant also repaid a personal loan of $150,000 from William H. Vanderbilt with his Civil War mementos.

 

MARK TWAIN

“I am opposed to millionaires, but it would be dangerous to offer me the position,” Mark Twain once said.

Samuel Clemens, better known as Mark Twain, was a best-selling writer and popular speaker in his day and could easily have been a millionaire. Yet he lost money faster than he made it, forever investing in new technology and ill-fated start-ups.

“A dollar picked up in the road is more satisfaction to us than the 99 which we had to work for,” Twain once said, “and the money won at faro or in the stock market snuggles into our hearts in the same way.”

Twain invested huge amounts (about $7.5 million in today’s dollars) on the Paige Compositor -- a typesetting machine -- only to see it made obsolete by the Linotype, costing him book profits and a chunk of his wife’s inheritance. Despite his initial success publishing Ulysses S. Grant’s memoirs, his publishing business went broke.

How he dug out: Like Grant, Twain made it a point of honor to pay off his debts, by turning to what he did best: writing and speaking. He also had a little help from financier Henry Huttleston Rogers of Standard Oil fame, who took over Twain’s finances and convinced him to file for bankruptcy and transfer copyrights to his wife to protect his written works from creditors.

 

WALT DISNEY

Starting out as a voice actor and animator, Walt Disney went on to become a multiple Academy Award-winning producer, director, screenwriter and entrepreneur – despite some major setbacks.

Someone once asked him to name the biggest problem he faced in creating Disneyland. “Well, I'd say it's been my biggest problem all my life: money,” Disney said. “Most of the people I talked to thought [Disneyland] would be a financial disaster, closed and forgotten within the first year.”

Disney mortgaged everything, including his personal insurance, to raise the $17 million required to open Disneyland. Its success is legendary, but his first animation studio in Kansas City didn’t fare as well. After profits proved insufficient to cover animators’ salaries, Disney declared bankruptcy and moved to Hollywood. There, he and his brother pooled their money and tried again.

How he dug out: As the Disney motto goes: “Dreams really do come true.” Disney persisted in following his, even after bankruptcy, and learned from his mistakes. He chose the right place and the right time to open his second studio, surrounding himself with a dream team. “When we opened Disneyland, a lot of people got the impression that it was a get-rich-quick thing,” Disney once said, “but they didn't realize that behind Disneyland was this great organization that I built … and we were doing it because we loved to do it.”

See related: 3 common credit mistakes -- and how to fix them, State-by-state bankruptcy filings, 2005-2011, Careless-spending celebrities lose sympathy from American public, Celebrity credit card lessons

Published: October 31, 2011


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