Scandal had touched the Harding administration before the president's death, in the form of massive corruption in the Veterans Bureau and the Office of the Alien Property Custodian. Harding had fired the head of the Veterans Bureau, who later was sent to prison, as was the alien-property custodian. After Coolidge became president, members of Congress probed for the weaker links around Harding. They found them by early 1924.
Senate investigators discovered a remarkable pattern of ineptitude and corruption revolving around Attorney General Daugherty. Sufficient evidence was never found to convict him of anything, but the revelations quickly siphoned off public and official confidence in the attorney general. Coolidge believed that he could not ask Daugherty, especially as Harding's favorite, to resign just on the grounds that he was an embarrassment. Soon Daugherty went beyond the pale when he refused in his own defense to open the files of the Justice Department to Senate investigators. The president could not allow Daugherty to act both as attorney general and as his own defense counsel. "These two positions," Coolidge wrote, "are incompatible and cannot be reconciled." Therefore, on 27 March he demanded that Daugherty resign. Coolidge replaced him with an Amherst friend, Harlan F. Stone, a former dean of the Columbia University Law School.
An even greater scandal had developed earlier in 1924. Senate investigations indicated that oil magnates Harry F. Sinclair and Edward Doheny had bribed Albert Fall, while he was interior secretary, in order to gain leasing rights to the government's Teapot Dome oil reserve in Wyoming and Elk Hills oil reserve in California. Many Democrats and dissident Republicans had a field day with this, and attacks on the administration quickly became vituperative. Soon there were those who charged that the entire cabinet and even Coolidge had been involved in the oil transactions that had taken place during the Harding administration. President Coolidge remained calm in the face of mounting accusations. He acted quickly, though not precipitately.
While others were hastily arriving at judgments of guilt, Coolidge decided on 26 January to appoint two special counsel, one a Republican and the other a Democrat, to investigate the situation and to take appropriate action. His timing was impeccable, for the Senate was on the verge of taking more extreme action. His appointees, Owen J. Roberts and Atlee Pomerene, were perfect, for they had the professional expertise necessary to conduct an investigation that was neither a whitewash nor a flurry of vindictiveness. Because of their work, Fall was convicted for receiving bribes and so became the first cabinet member sent to prison for misconduct in office. Sinclair was found guilty of contempt of court. Moreover, the Teapot Dome and Elk Hills oil leases were canceled after exhaustive judicial proceedings. The investigations also revealed that Democrats as well as Republicans had been involved in the scandal.
This was not all that resulted from the Teapot Dome and Elk Hills scandal. Much of the investigation of Daugherty stemmed from it. Then, in February 1924, Secretary of the Navy Edwin Denby was forced from office by Senate pressures, although there was no evidence that he was culpable of wrongdoing. Coolidge had refused to ask for his resignation, making clear that he would not "sacrifice any innocent man [or] retain in office any unfit man for my own welfare." Denby volunteered his resignation so that he would not be a burden to the president. Coolidge made a good choice for the new navy secretary in Curtis D. Wilbur, chief justice of the California Supreme Court.
Denby's resignation led the administration's Democratic and Republican critics to try to connect the leadership of the executive branch, including Coolidge, with the oil scandal. Indeed, they sought to find scandal in other situations, especially the Treasury Department's handling of tax rebates to business and Henry Ford's proposal to develop federal property at Muscle Shoals, Alabama. The first of these succeeded in embarrassing its Senate sponsor more than the Treasury Department; the second led to extended debate over the development of Muscle Shoals and Ford's withdrawal of his proposal, but not to a scandal. In all, Coolidge handled the situation masterfully and with little help from the generally timid Republican regulars in Congress. He kept his head while his critics often lost theirs, and he acted as much to retain his self-respect as to win the next election. Moreover, the president benefited from the fact that the investigations demonstrated that, as Charles Evans Hughes said, "corruption knows no party."
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