By 1841, the government could no longer make the interest payments, and all the projects, except the largest canal, were handed over to the state's London creditors in exchange for a 50% reduction in debt.

Public blame was placed on the Whig party who had been in control of the General Assembly and the governorship during the passage of the act and the subsequent bankruptcy, though only nine members of both houses voted against the bill.

After the scope of the financial disaster became apparent to the state, the Whig party gradually began to collapse in Indiana, leading to a period of Democratic control of the General Assembly that lasted until the middle of the American Civil War.

When the state of Indiana was formed in 1816, it was still a virtual wilderness, and settlement was limited to the southern periphery where easy access to the Ohio River provided a convenient means to export produce.

The only significant road in the region was the Buffalo Trace, an old, dirt bison trail that crossed the southern part of the state.

Most of the population at the time lived along the Ohio River, and the canal would be little benefit to them, but they would bear the burden of paying for it, so their representatives opposed the idea altogether.

[5][6] On March 2, 1827, Congress made a new offer to the state, granting a half mile wide strip and to assist in the funding of construction.

At first, members only intended to continue funding the Wabash and Erie, but many representatives opposed the spending because it would have little benefit for their own constituents as the canal bypassed most of the major settlements in the state.

To appease the majority of the population that lived along the Ohio River, the bill called for the Vincennes Trace to be paved, making it usable year round.

[11] A Lafayette Turnpike was also approved, and to gain support of the representatives from the population centers in the far northern part of the state, the Michigan Road was also paved.

Most of the money from the project was gathered by mortgaging nine million acres (36,000 km2) of state owned land through agents of the Bank of Indiana to creditors in London and New York.

[12] Governor Noah Noble was a major supporter of the bill and it passed by the overwhelmingly Whig controlled General Assembly, although it was opposed by several prominent legislators including Dennis Pennington, James Whitcomb, Calvin Fletcher and John Durmont.

[14] Whitcomb outright rejected the idea of spending such a large sum of money, saying it would be impossible to pay back.

Noble was concerned however that the assembly had not passed the 50% tax increase he had told them was necessary to take care of the debt the state was expecting to take.

[16] There was a brief by Governor David Wallace to attempt to force the commission to only build one route at a time to conserve funds and avoid what was becoming seen as an impending financial disaster, but the different factions in the General Assembly could not agree on which line should be completed first.

It was however, considerably over budget due to the increased costs of having to build a grade out of the low lying Ohio Valley onto the Indiana table land, so the project could not be finished.

Had the project instead started in Indianapolis, it would have been able to earn income on freight and passengers along the relatively flat central Indiana portion, and been able to fund itself to construct the grade into Madison.

The Vincennes Trace was paved from New Albany to Paoli at a cost of $1,150,000, with another 75 miles (121 km) still requiring pavement when the project ran out of money.

The Panic of 1837, caused primarily by western land speculation, left the state in dire straits financially.

Provisions were made to make debt payments with more borrowed money, in the hope that the projects could be finished before the state's credit was maxed out.

Work only continued on the Wabash and Erie where workers were paid with stock in the canal, and not cash, and supplies were purchased using the federal funding.

[17] James Lanier, president of the Bank of Indiana, was sent by Governor Bigger to negotiate with the state's London creditors in a hope to avoid total bankruptcy in 1841.

[23][24] The creditors had taken the public works expecting that they could be quickly completed and become profitable, but were disappointed to discover that not to be the case for all the projects.

The Wabash and Erie was finally completed in 1848 and continued to operate for thirty-two years, but the high-rise portions of the canal in the central part of the state were found to be high maintenance and the frequent victim of muskrats.

The investors in the Bank of Indiana also made substantial profits, and the investments served as the start of a modern economy for the state.