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On this day in economic and financial history...
Most people can tell you that the gasoline in their car originally came from crude oil, which goes through a refining process after it's extracted from the ground in order to create useful finished products. But not many people can tell you how that gasoline is refined. The refining of petroleum is one of the most economically important chemical processes in the world, and one of the most important moments in its history took place on Jan. 7, 1913, when William Burton received a patent for thermal cracking.
Prior to Burton's development, oil refining was primarily done via distillation, which condensed different products in a tower according to density. Very little gasoline came out of this process, but demand for the fuel was booming thanks to Ford's (NYSE: F ) Model Ts, which were already becoming popular among the working class -- and which would soon become far more popular, thanks to the creation of the assembly line later that same year. Burton, who worked for Standard Oil of Indiana, saw the Model T as the start of a mass movement and sought to increase gasoline yields to handle what he felt would soon be a vast number of automobiles cruising American highways.
After years of research, he discovered thermal cracking, which used high heat and pressure to break crude oil's complex hydrocarbons into smaller and less volatile carbon chains. This effectively doubled the amount of gasoline extracted from each barrel of oil. There were drawbacks to this new method, but within a few years these drawbacks were eliminated. By the start of World War II thermal cracking's improved gasoline yield was credited with saving over a billion barrels of oil in the United States each year. Around this time, gasoline refining began using a catalytic cracking process, but Burton's thermal-cracking process is still used to produce diesel fuel today.
Burton rode this important discovery to the presidency of Standard Oil of Indiana in 1918. The company was a leading gasoline purveyor for many years, eventually changing its name to Amoco in 1985. Amoco merged with BP (NYSE: BP ) in 1998 in what would be (very briefly) the largest industrial merger in history.
The original "too big to fail"
Chrysler was too big to fail in 2008. It was also considered too big to fail on Jan. 7, 1980, when President Jimmy Carter signed the Chrysler Corporation Loan Guarantee Act into law. This legislation bailed out the floundering automaker with $1.5 billion in loan guarantees -- which wound up being the same amount President George W. Bush initially granted Chrysler 29 years later, when adjusted for inflation. This bailout was contingent on Chrysler obtaining several other financial commitments amounting to a further $2 billion.
President Carter's remarks on signing the Act echo the auto bailouts of 2008, in which Chrysler and General Motors (NYSE: GM ) obtained nearly $80 billion in funds between their auto operations and their finance subsidiaries:
This legislation does not violate the principle of letting a competitive free enterprise system in our country function on its own, because Chrysler is unique in its present circumstances. It has the most diversified work force of any corporation in America. Its suppliers and its dealers and its manufacturing plants touch almost every major community in our country.
It's important to have Chrysler preserved as a viable, competitive entity, not only to protect jobs involved but to protect the competitive nature of the American automobile manufacturing industry in its competition with foreign suppliers and in the provision of good products at a competitive price for the American consumer. ... With this legislation, 200,000 American jobs can be preserved, in manufacturing, in suppliers to Chrysler, and through the sale of Chrysler products.
Chrysler managed to turn its fortunes around quickly, thanks to cost-cutting measures implemented after the bailout and, in part, to the introduction of the minivan (the Dodge Caravan and Plymouth Voyager), which quickly became popular with baby-boomer families. The 1980 bailout proved a worthwhile investment for the government, which netted a $300 million profit by 1983, years before it was due for full repayment. Chrysler sold 12 million minivans in the first 25 years after it invented the category, maintaining its hold on more than 40% of the overall minivan market the entire time.
The first bank of a new nation
The Bank of North America opened its doors in Philadelphia on Jan. 7, 1782. It was the first of many financial-industry categories for a young country fresh off its successful war for independence. It was the first commercial bank in the United States. It was also America's first national bank, its first de facto central bank, and, a year later, the first company to go public on American markets.
The Bank's first stockholder list read like the signatories of the Declaration of Independence: Thomas Jefferson, Benjamin Franklin, Alexander Hamilton, and John Jay all held shares. The Bank also provided important funding to the federal government in the aftermath of the Revolution and supplied funds during both the War of 1812 and the Civil War. It was eventually superseded as America's central bank by the First Bank of the United States in 1791, but it maintained a leading role in the American financial system until the 20th century.
Today, after multiple mergers and acquisitions, the original Bank of the North America is now part of Wells Fargo (NYSE: WFC ) . The Bank first merged with a life insurance firm in 1929, and then it merged with the First National Bank of Philadelphia in 1955. This bank became part of First Union in 1998 in what was then the largest merger in U.S. banking history, and then First Union became Wachovia in 2001 after another large bank merger. Due to these mergers and acquisitions, Wells Fargo now holds the first national banking charter issued in the United States, originally granted to the Bank of North America in 1863.
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The leading edge of progress
Two components of the Dow Jones Industrial Average (DJINDICES: ^DJI ) have made important technological strides forward on Jan 7. IBM (NYSE: IBM ) made the first leap on Jan. 7, 1954, when it presented the world's first successful demonstration of machine translations. And on Jan. 7, 1992, AT&T (NYSE: T ) announced the impending release of a video phone for the mass market.
Machine translation is something millions of people are familiar with today, thanks to online sites that offer quick and dirty translations from one language to the other. Google (NASDAQ: GOOGL ) maintains one of the most popular options, and the military (largely through DARPA) has been actively pushing the development of better real-time translation options.
However, the computers of 1954 would choke on even the simplest programs running on today's systems, and the IBM-backed system was very rough around the edges. Developed in conjunction with Georgetown University researchers, IBM's machine translation ran on a Type 701 Data Processing Machine, a vacuum-tube contraption that users (mostly the government) rented for $16,000 a month. Its vocabulary contained only 250 words, and these had to be punched onto cards and fed manually into the machine.
Despite these significant limitations, IBM's lead researcher predicted that IBM might have a specifically designed translating machine available within three to five years. This turned out to be a pipe dream, as little progress was made until the advent of microprocessor-based computing in the 1970s. Today, Google Translate converts enough text from one language to another to fill one million books per day. One wonders how much of this translation is requested by people looking for clever insults in unusual languages.
AT&T's announcement was less momentous because, for one thing, videophone services had existed since the 1930s, and AT&T had already tried its hand at videophones in the 1960s with little success. This first effort had originally been predicted to place 100,000 AT&T videophones across its systems within a year, which was proven absurdly optimistic when the early videophone only mustered 500 subscribers at its peak.
Undaunted, AT&T again shot for the moon in 1992. At the announcement, AT&T executive Robert Kavner boasted that "this may be as profound a change as sound motion pictures or color television." However, the high cost (more than $1,000) and painfully slow frame rate (a consequence of the low bandwidth of traditional phone lines) turned this bragging into laughable hubris when only 30,000 of the new devices sold -- most outside the United States. Today, the most prominent video chatting service is Microsoft's (NASDAQ: MSFT ) Skype, a service the software giant acquired for $8.5 billion in 2011. AT&T, for its part, has never reaped much of a reward for the many millions of dollars it poured into developing videophones over the years.
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