DECEPTIVE FINANCIERING.—OVER-CAPITALIZATION.—STOCK “WATERING.”—FINANCIAL
RECONSTRUCTIONS.—LOSSES TO THE PUBLIC.—PROFITS OF CONSTRUCTORS.—BAD
REPUTATION OF OUR RAILROAD SECURITIES.—UNJUST AND DANGEROUS
DISTRIBUTION OF THE PUBLIC WEALTH.
The following chapter, on the subject of “Our Railroad Methods,” was
delivered by me as a Fourth of July address at Mr. H. C. Bowen’s Annual
Symposium at Woodstock, Conn., to an assemblage of over 3,000 people. It
was so favorably received by the press and the public in general, that I
have been encouraged to publish it in this book without any material
changes:
In the whole range of our law-making there is no one branch in
which there has been such an utter lack of judgment, foresight
and just regard for the rights of the citizen, as in the
legislation provided for our railroads and railroad companies.
For the most part, the statutes relating to this class of
corporations are a set of general enactments, loosely defining
the large powers granted to the incorporators, comparatively
silent on the duties and obligations of the companies to the
public, and conferring upon them a virtual _carte blanche_ as to
their methods of finance and of conducting their business.
In a country whose products are mainly bulky, and have to be
carried to markets hundreds or thousands of miles distant, it is
of the first moment that its railroads should be built with the
strictest economy and on the lowest possible capitalization. The
low cost of land and the cheapness of material for road-bed are
especially favorable to our securing this advantage; but the
laws have permitted a system of inflated financiering which
neutralizes these natural adaptations and immensely increases
the cost of transportation.
As railroads have to be largely built with borrowed money, their
construction in this country afforded an opportunity for
establishing credit relations with the great lending centres of
Europe, which might have been of incalculable value in promoting
the development of our vast resources in various directions.
England, Holland and Germany have indeed loaned us very large
amounts for railroad enterprises; but the law has permitted
these undertakings to be conducted with so much concealment,
misrepresentation and actual fraud, and has so disregarded the
rights of the bondholders, that American credit has become a
scandal and a by-word on the European bourses. The result is,
that foreign capitalists are seeking other fields of investment;
and their respective Governments are encouraging them by opening
up new colonies, and thus getting fresh sources for the supply
of products which otherwise would have continued to be readily
taken from the United States. Such are the rewards of immoral
financiering; and these bad methods are directly traceable to
the encouragements afforded by our negligently constructed
railroad laws.
Perhaps I may best succeed in making myself understood on this
subject by illustrating the way in which our railroads are
usually built. Under the laws of the State of New York—which are
a fair sample of the laws of most other States—a number of
persons form a company under the general railroad laws,
registering at Albany the proposed route of the road, the amount
of capital stock and bonds to be issued, and a few other
particulars required in the papers of incorporation. The
incorporators then proceed to form themselves into a syndicate
or company, for the purpose of contracting to build and equip
the road. Here comes the first step in the system of “crooked”
financiering. In their capacity of incorporators, the same men
make a contract with themselves, in the capacity of
constructors. Of course, they do not fail to make a bargain to
suit their own interests. They would be more than human if they
did. Usually, the bargain is that the construction company
undertakes to build the road for 80 to 100 per cent. of the face
value of the first mortgage bonds, with an equal amount of
stock, and sometimes also a certain amount of second mortgages
thrown in, virtually without consideration. The first mortgages
are supposed to represent the real cash outlay on the
construction and equipment; but, as a matter of fact, the true
cash cost of the work done and materials furnished ranges from
60 to 80 per cent. of the amount of first lien transferred to
the constructors. The Construction Company disposes of the
bonds, partly by negotiating their sale to the public through
bankers, at an advance upon the valuation at which they had
received them, and partly by using them in payment for rails and
equipment. Beyond the profits made from building the road for
the first mortgage bonds, there remains in the hands of the
constructors the entire capital stock and any second mortgage
bonds they may have received, _as a clear bonus_, to be held for
future appreciation, and to keep control of the Company and be
ultimately sold on a market deftly manipulated for that purpose.
This is the way in which a large majority of our railroads have
been and others are still constructed. It will thus be seen that
the actual cash cost of a railroad is ordinarily less than 60
per cent. of the stock and bonds issued against the property,
and that its first mortgage exceeds the amount of the legitimate
actual cost of the road.
The basis of all the discredit, the embarrassments, the
bankruptcies and the robberies of our railroad system is thus
laid at the inception of the enterprises. They rest upon an
intrinsically rotten and dishonest foundation; and the evil is
far from having reached the end of its mischief to the
financial, political and social interests of the country. In
some few cases, railroads thus exorbitantly capitalized have
proved able to earn the interest on their debt, provide for
additional outlays on construction and betterments, and even to
pay dividends on their stock; but, in a large majority of cases,
they have had to undergo a process of financial reconstruction,
in order to bring the debts of the Company within its ability to
meet its fixed charges. It is not a risky estimate to suppose
that of our present 125,000 miles of railroad, with its
$7,500,000,000 of stock and debts, 60 per cent. has undergone
this process of debt-scaling and rehabilitation. Were it not
that the new roads have opened up new country for settlement,
which has become an immediate source of traffic, these bad
financial results would have been more general and worse than
they have proved to be. The risks attending the building of
lines into unsettled regions ought to have been a reason why
they should be constructed upon conservative principles; but, in
reality, the prospects of settling new populations and of
tapping new sources of wealth, have been so magnified to the
eyes of distant and credulous lenders as to enable the
speculative constructors to easily consummate their illegitimate
schemes.
The general result of this system of financiering has been to
deprive the legitimate original investors of their chances of
making a fair return out of their investment. As a rule, the
bondholders have provided all the capital expended, and the
stockholders have invested nothing. The bondholders incur all
the risks; the stockholders have no responsibilities. If the
enterprise proves a success, the bondholders get their interest,
while the stockholders, without a dollar of original outlay, get
vastly more than ever falls to the mortgage creditors through
the stock becoming an instrument of profitable speculation. If
the enterprise is a failure, the bondholder has to forego
interest and finally to accept a new mortgage for a less amount
and at a lower rate of interest; whilst the original stockholder
has, in the meantime, made money out of artificially “booming”
the shares in Wall Street.
The profits realized on these speculative constructions are
enormous, and have constituted the chief source of the
phenomenal fortunes piled up by our railroad millionaires within
the last twenty years. It is no exaggeration to characterize
these transactions as direct frauds upon the public. They may
not be such in a sense recognized by the law, for legislation
has strangely neglected to provide against their perpetration;
but, morally, they are nothing less, for they are essentially
deceptive and unjust, and involve an oppressive taxation of the
public at large for the benefit of a few individuals, who have
given no equivalent for what they get. The result of this system
is that, on an average, the railroads of the country are
capitalized at probably fully 50 per cent. in excess of their
actual cost. The managers of the roads claim the right to earn
dividends upon this fictitious capital, and it is their constant
effort to accomplish that object. So far as they succeed, they
exercise an utterly unjust taxation upon the public, by exacting
a compensation in excess of a fair return upon the capital
actually invested. This unjust exaction amounts to a direct
charge and burthen on the trade of the country, which limits the
ability of the American producer and merchant to compete with
those of foreign nations, and checks the development of our vast
natural resources. In a country of “magnificent distances,” like
ours, the cost of transportation is one of the foremost factors
affecting its capacity for progress; and the artificial
enhancement of freight and passenger rates due to this false
capitalization has been a far more serious bar to our material
development than public opinion has yet realized. The hundreds
of millions of wealth so suddenly accumulated by our railroad
monarchs is the measure of this iniquitous taxation, this
perverted distribution of wealth.
This creation of a powerful aristocracy of wealth, which
originated in a diseased system of finance, must ultimately
become a source of very serious social and political disorder.
The descendants of the mushroom millionaires of the present
generation will consolidate into a broad and almost omnipotent
money power, whose sympathies and influence will conflict with
our political institutions at every point of contact. They will
exercise a vast control over the larger organizations and
movements of capital; monopolies will seek protection under
their wing; and, by the ascendancy which wealth always confers,
they will steadily broaden their grasp upon the legislation, the
banking and the commerce of the nation.
The illegitimate methods by which the wealth of this class has
been accumulated cannot always remain a mystery to the masses.
The time will come when every citizen will clearly perceive how
his interests have been sacrificed for the creation of this
abnormal class; and, when that time comes, a series of public
questions will arise that will strain our political institutions
to their very foundations. Already the working masses begin to
see the dim outline of the gigantic wrong that has been
inflicted upon them in common with all other classes. If they do
not understand the exact method by which a portion of the
rewards of labor has thus been diverted from them, they clearly
comprehend which is the class responsible. The labor troubles
that have so seriously shaken confidence during the spring of
this year have been largely stimulated by an idea that a serious
wrong has been done to the workman in the creation of these
abnormal fortunes. It is not surprising—although it may lead to
disappointing results—if workingmen should reason that, if
railroads can afford to make a few men so wonderfully rich, they
can afford to pay their employees higher wages and for shorter
hours. Nor can we wonder if, when capitalists are on every hand
piling up their wealth by the tens of millions, the laborer
should conclude that he ought to be able to get a few dollars a
week more, or deduct an hour or two off his day’s work, without
very seriously hurting the employing class. This may be and is
very fallacious reasoning; but it is what might very naturally
be expected under these circumstances, from a class who are not
trained to think beyond surface depth. It will be of no avail to
tell the workmen that this unjust distribution of wealth is
final and irrevocable; that there is no power of redress by
which a wrong of this nature can be righted; or that, as voting
citizens, they are as much responsible as anybody else for
permitting the neglects and defects of legislation that have
made these inequalities possible. This class never reason either
calmly or logically, and it will take a great deal of fruitless
agitation to satisfy them of the hopelessness of their methods
of seeking reparation.
The Socialistic seductions which have captivated such large
masses of the working population of Europe will all the more
readily find acceptance among our millions of laborers because
they have before their eyes such conspicuous instances of the
unequal division of wealth and of the overwhelming power of
organized capital. Certainly, if any facts could be supposed to
justify the doctrines of Socialism and Communism, it would be
the sudden creation of such fortunes as those which, within a
very few years, have come into the hands of our railroad
magnates. A few years later, the public will understand much
better than it now does how facts like these have contributed to
the raising of questions of government which will dangerously
test the cohesion and endurance of our political institutions.
Artificial methods of establishing our railroad corporations
have naturally led to artificial methods of regulating their
operations. Over-capitalization incapacitates the roads for
competition; for it necessarily holds out a temptation to
parallel existing roads by others at a lower capitalization. As
roads running between the same points were multiplied,
competition for “through” business became more active, until not
only were dividends threatened on some of the best lines, but
some roads were driven into default on their mortgages. At this
point the “pool” was introduced—a device by which all lines
running between the same points agree to put their business from
through traffic into a common aggregate, to be distributed among
the several members according to certain accepted percentages.
It was hoped that, in this way, uniformity of charges could be
maintained, at such rates as were necessary to make the business
satisfactory to each member. This, however, was soon found to be
a step “from the mud into the mire.” The pool was discovered to
operate as a premium on the construction of new parallels.
Speculators were quick to perceive that they could build new
lines on the same routes for much less cost than the old ones,
and that, with a lower capitalization, they could easily compel
the pool to admit them to membership, with all the privileges of
a ready-made traffic and with all the guarantees the pool could
afford of exemption from competition, and of ample charges.
Thus, the pools that, in the first instance, were made necessary
through the evils of speculative methods of construction,
became, in turn, the source of a new and even worse form of the
same evil. New roads were built, or sets of old detached ones
were connected, so as to afford additional parallels to the
existing trunk lines, with no other object than to compel the
latter to support them by dividing with them a portion of their
traffic, or to accept the alternative of a reckless cutting down
of rates. The end to this viciously excessive system of
construction can only come when the pools have been reduced to
such a low condition that they will no longer care to take
newcomers into their co-partnership; in which case speculative
builders will see no chance for profit in such ventures. The
fate of the “Nickel Plate” and of the West Shore speculations,
by which nearly 1,000 miles of needless road was built to divide
traffic with the Vanderbilt system, serves as a warning against
the danger of building roads to live upon pool support; but,
nevertheless, the Eastern trunk pool still stands exposed to a
great deal of harassing outside competition from possible and
contemplated new combinations of existing detached links. Routes
of the latter kind are even more formidable competitors than new
lines, because they can be provided at a lower capitalization,
and have already the support of an established way traffic. It
would not be surprising if, within the next three or four years,
several new routes should in this way be established between New
York and Chicago.
It will thus be seen that the very contrivance intended to stave
off the vicious effects of artificial capitalization is
contributing, by a sort of punitive process, towards the end of
reducing earnings to a just ratio to the true value of the
properties. The weakness of the pool, arising from its
temptations to new competitors to enter the field, is not the
only cause of its failure. Up to this time it has been found
impossible to find a form of pool stringent enough to restrain
the members from cutting rates against each other. The modes of
possible evasion are so numerous, the sacrifices of special
advantages that each member has to make are so galling, the
small share that remains to each road in a numerously divided
business is so small, and the temptations of agents to get
freight “by hook or by crook,” in dull times are so
irresistible, that the strictest watching and the severest
penalties fail to secure a faithful observance of the pool
agreements. Much forbearance is shown towards transgressions,
and deliberate violations have to be condoned or connived at;
but, all the time, the pools are in imminent danger of
jealousies and breaches of faith causing their disruption. No
sooner have they won public confidence by maintaining harmony
through a period of prosperous business, than the public wake up
to find that some member has been secretly “cutting,” and the
agreements are torn to pieces.
The result is, that the public have lost all confidence in the
ability of the pool to regulate competition; and, still worse
for the railroads, their managers are losing faith in them also.
The great crucial test of this expedient so far as respects the
Eastern lines, is likely to come when the number of smaller
outside competitors, of the character just alluded to, comes to
be increased. The pool will not be likely to admit them into its
fold, which already includes too many diverse interests to
permit of harmony; and if it did, the danger of disagreements
and disruption would be only thereby increased. And yet, if
those routes are shut out, they will act as so many free lances,
attacking the older lines in every direction, and doing business
at rates which will leave the pool companies no alternative but
to follow suit. In this dilemma, the outlook for some time ahead
is not an encouraging one for the older companies. To my view,
it seems very probable that their original sins of construction
and their subsequent transgressions of stock “watering” are
about to find them out. The natural law of competition is a
terrible foe to the violators of commercial justice. It is the
inevitable police power of trade. Its working may be evaded for
a time; its final conquest over wrongs and monopolies may
sometimes be delayed beyond the limits of human patience, and
men may at such times lose confidence in its power to right the
wrongs of society; but its ultimate success in the restoration
of equity and fair-play is as certain as the rising of the sun.
My absolute confidence in the ultimate triumph of this principle
prompts me to venture the assertion that, _at no very distant
period_, the wrongs practised in the original construction of
our railroads and in the subsequent “waterings” of their stocks,
will be compensated through competition adjusting the profits of
the companies to the equivalent of a fair return upon a _true
valuation_ of the properties; that is, a value measured by what
they are able to earn under the conditions of free competition
and the now current cash cost of providing like facilities.
That, it appears to me, is the solution towards which our
railroad problem is now steadily working; and neither
Congressional legislation, nor State regulation, nor the
resistance of organized capital, can be expected much longer to
stave off that result.
It may, however, be very properly asked, whether legislation
has no duty in the premises? To me, it appears that it has a
very weighty one. The consequences of the original neglect
to prescribe proper regulations for the construction,
capitalization and financial management of railroads has
been so fully exposed by their past history, that the
Legislatures will greatly err if they neglect to impose
restrictions upon future corporations that will prevent
farther repetition or perpetuation of the evils. When the
Government bestows upon railroads important privileges and
franchises, under which fundamental private rights are held
in abeyance for the common good, it is due to the public
protection that the recipients of these favors should be
held under restrictions which will prevent them from abusing
the privilege to the public disadvantage.
When a railroad company capitalizes its property at double its
actual cost, and seeks to collect charges calculated to yield
dividends upon such false capital, it grossly perverts and
abuses the privileges conferred by its charter, and virtually
perpetrates a public robbery. This appears to be a perfectly
plain proposition, and yet this glaring wrong has been so long
tolerated that not only the railroads, but a portion of the
public even, have come to regard it as a sort of right inherent
in these corporations. One of the first duties of the State
Legislatures, therefore, is to enact laws requiring that the
stocks and bonds issued against any railroad hereafter built
shall, in no case, exceed in the aggregate the _true cash cost_
of the property; the penalty for the violation of this
restriction to be forfeiture of charter. The responsibility of
managers should be definitely fixed. All extensions, betterments
or improvements should be provided for by issues of stock or
bonds on like conditions. The issue of mortgages should be
restricted within 60 per cent. of the true cost of the property.
In order to prevent wrongful speculative profits being realized
by the incorporators, they should be prevented from becoming the
constructors of their road, directly or indirectly; and all
contracts for construction, equipment, extensions or
improvements should be made upon open competitive bids, the
lowest bid to be accepted, with substantial guarantees for the
faithful performance of the contract. Also, it should be made
the duty of a board of State railroad commissioners to see to it
that all these conditions are strictly complied with.
Regulations should be provided prohibiting issues of stock for
any other than construction or equipment purposes, forbidding
the payment of dividends not actually earned, and enforcing the
amplest publicity of details relating to current traffic and the
financial affairs of the companies.
Had our original railroad laws incorporated provisions of this
character, our railroads would have all along ranked as the
safest and most stable investments of the country; the discredit
that hangs over our corporate enterprises would have been
averted; transportation would have been done at lower rates with
steadier charges, and we should have been saved the social and
political excrescence of an aristocracy based upon ill-gotten
wealth. After our bitter experience of the dangerous results of
neglecting to guard the railroad interest by some such
restraints as the foregoing it surely is not too early now to
apply these safer methods to all future enterprises of this
character. Not only is such legislation due as a measure
necessary for the protection of our commerce and investors, but
it would go very far towards remedying the evils that have grown
up under the old and badly regulated system. To a man of
business it is hardly necessary to point out what would be the
competitive advantages of roads constructed under the proposed
regulations. As a rule, their capitalization would not exceed 50
to 60 per cent. of that of the older companies, and they could,
therefore, be run upon a much lower rate of charges.
The thoroughly conservative nature of their organization would
bespeak fer them a degree of public confidence which would
enable them to get all the capital needed for really legitimate
undertakings, whilst purely speculative ventures would be put
under conservative check. Under these circumstances new roads
could do a profitable business, and yet compete disastrously
with the old excessively capitalized companies. The ultimate
result of this competition from the new order of roads would
inevitably be to reduce the earnings of the older class to a
point which would admit of interest and dividends being earned
_only on the same rate of capitalization as existed among the
new-system companies_. In other words, the effect of the honest
method of capitalization here suggested would be to squeeze all
the “water” out of the old companies, and to bring them in
effect, though possibly not in form, to the same financial level
as the new.
If my reasoning here is correct, there is cause for our great
railroad capitalists to look out for the security of their
investments. The basis for their wealth may prove far less
certain than they have imagined it to be. With the prevailing
and steadily increasing public feeling against the methods of
railroad capitalists and the working of our railroad system,
what assurance can there be that, when a remedy for these
corporate wrongs comes to be clearly propounded, it will not be
eagerly urged upon the attention of the Legislatures and adopted
without much ceremony? The dash of a Governor’s pen is,
therefore, all that stands between the railroad millionaire and
the sudden extinction of a large portion of his inflated paper
wealth. Is this a chimerical conclusion? The question, it seems
to me, deserves a far more serious consideration than those most
vitally concerned have yet bestowed upon it. No man can
confidently deny the possibility of such a result as is here
indicated. No one familiar with the present public temper on the
subject of railroad monopoly can reasonably question _the
probability even_ of a settlement of this kind being ere long
resorted to. Under these circumstances, it is a question very
pertinent to the times, whether the foundation of our railroad
aristocracy is as broad or as firm as it has been supposed to
be, and whether a healthy solution of the great railroad problem
is as difficult and as remote as some despondent people have
represented it to be.
[Illustration:
A ONE THOUSAND DOLLAR BOND OF THE STATE OF GEORGIA.
Repudiated.
]
------------------------------------------------------------------------
CHAPTER XXVII.
GEORGIA REPUDIATION BONDS.
HOW A SOVEREIGN SOUTHERN STATE CHEATED THE NORTHERN MEN WHO HELPED HER
IN DISTRESS.—A NEW WAY TO PAY OLD DEBTS.—CANCELLATION BY REPUDIATION
OF JUST CLAIMS FOR CASH LOANED TO SUSTAIN THE STATE GOVERNMENT,
BUILD PUBLIC SCHOOLS AND MAKE NEEDED IMPROVEMENTS.—BOTTOM FACTS OF
THE OUTRAGE.—THE RECENT ATTEMPT TO PLACE A NEW ISSUE OF GEORGIA
BONDS ON THE MARKET, WHILE THE OLD ONES REMAIN UNPAID.—THE CASE
BEFORE THE ATTORNEY-GENERAL OF THE STATE OF NEW YORK.—HE EXAMINES
THE LEGAL STATUS OF THE BONDS IN CONNECTION WITH THE SAVINGS
BANKS.—HIS DECISION PROHIBITS THESE INSTITUTIONS FROM INVESTING THE
HARD EARNINGS OF THE WORKING PEOPLE IN THESE DOUBTFUL AND DANGEROUS
SECURITIES.—A BOLD EFFORT TO HAVE THE FRESH ISSUE OF GEORGIA PAPER
PUT UPON THE LIST OF LEGITIMATE SECURITIES OF THE NEW YORK STOCK
EXCHANGE FIRMLY OPPOSED AND EVENTUALLY FRUSTRATED.—REFLECTIONS ON
THE BAD POLICY WHICH ADVOCATED REPUDIATION AND HAS INJURED GEORGIA
CREDIT IN THE EYES OF THE WORLD.—GENERAL OBSERVATIONS UPON THE
NATURE OF REPUDIATION OF STATES’ DEBTS, AND THE MORAL INFLUENCE ON
THE GENERAL CREDIT OF THE UNITED STATES.—SUCCESSFUL APPEAL OF
BONDHOLDERS OF THE REPUDIATED BONDS TO THE STOCK EXCHANGE.
One of the saddest events of my business experience arose from the
purest motives on my part, to aid the South in the work of
reconstruction, in the way of which, as I have stated in the previous
chapter, President Johnson threw the greatest obstacles.
I ventured my money and offered my friendship at a time when that
section of the country stood in need of both money and friendship, and
used my best efforts to bring about the return of such feelings of
fraternal harmony as should exist among all the citizens of this great
country. For these kindly offices I was treated with the basest
ingratitude by some of the Southern States.
I held a large amount of Southern securities, all issued for full value
received, which went into the internal improvements of that section,
enhancing the taxable value of its property. These securities bore the
great seals of the Sovereign States of Georgia and Alabama.
The dishonor attaching to repudiation in these instances has been
brought out in more glaring colors, from the fact that these States have
long since become abundantly able to liquidate their obligations, and to
erase the black spot from the escutcheons of their chivalrous people.
The people themselves are not so much to blame as the disreputable
politicians into whose hands the management of their affairs had fallen.
It is of the sovereign and high-toned State of Georgia that I have most
occasion to complain. On account of the bad faith of that State, through
her political managers, I suffered a terrible reverse in my fortune,
which came near crushing out my financial existence.
It is not, therefore, surprising, I think, that having placed my faith
in the integrity of that State and the promises of its officials and
governing power, and having been so basely deceived, that I should now
be aroused to act in self defence, fight for my rights and do all in my
power to cause the bonds or securities for which I paid good money to be
redeemed, and to have my just claims satisfied. It has therefore, been
incumbent upon me to leave no stone unturned in fighting this battle,
with the hope of recovering the money, or a part of it, that was filched
from me through the ostensible defalcations of these sovereign and
chivalrous States.
About thirteen years ago the repudiation which has reflected such
disgrace upon the South became prevalent in that section, and took the
character, for a time, of a severe financial epidemic.
It was for this reason that the Legislature of the State of New York, as
well as the legislatures of several other States, considered it
necessary for the protection of the savings banks, which are the
custodians of many hundreds of millions, chiefly of the hard earnings of
the working people, to prohibit these institutions from investing in, or
loaning upon, the securities of any State in the Union that had within
ten years previously repudiated any of its lawful obligations.
The laws of the State of New York, in chapter 409, section 260, of the
laws of 1882, provides that savings banks shall be prohibited from
investing money in stocks or bonds of any State which, in the language
of the statute, “has within ten years previous to making such investment
by such corporation defaulted in the payment of any part of either
principal or interest of any debt authorized by any legislature of such
State to be contracted.”
It was for this reason that the newly issued securities of some of the
Southern States have been unable to find a resting place in the monied
institutions of the North.
The State of Georgia, recently finding that she had some obligations
becoming due, and seeing that money was cheap in the North, and that
more than ten years had expired since she repudiated her former
obligations, thought there was a good opportunity of issuing a fresh
batch of these so-called securities, similar to those that had been
dishonored in 1873.
The politicians of Georgia thought there was a good opening in the State
of New York to remove the restriction placed upon the savings banks in
1882. They saw that the Governor and the Legislature were both
Democratic, with a Democratic Attorney-General also, and therefore
determined to take advantage of this political condition, which they
supposed was highly favorable to their scheme of stealing a march upon
the holders of the old repudiated bonds of Georgia, who had been chiefly
instrumental in getting the act passed for the safety of savings banks’
depositors in the State of New York.
The Georgia politicians aimed at having the restriction of the savings
banks removed, so far as it related to their State, in order to afford
them an opportunity of issuing several millions of 4½ per cent. bonds
for the purpose of taking up an old issue of the 7 per cent. bonds, thus
effecting a considerable saving to the taxpayers of their State in this
reduction of interest.
With the purpose of having this matter arranged as quietly as possible,
two of the ablest lawyers of the State of Georgia were surreptitiously
sent to Albany to make argument before the Attorney-General, Mr. Denis
O’Brien, and to attempt to convince that official, in a very plausible
manner, why the restriction should be removed from the savings banks in
the case of Georgia. No opposition was expected, and the enthusiastic
hope was indulged by those who were engineering the scheme that upon
this _ex-parte_ statement of these astute Georgia lawyers a favorable
opinion would be elicited from the Attorney-General of this State, which
would justify the Superintendent of the Bank Department in issuing an
order to remove the restriction which precluded the savings banks of New
York from investing in Georgia bonds, on the ground that the State had
not repudiated within ten years. The repudiation could be traced back
thirteen years, instead of ten.
Pursuant to this application, a small item of a few lines appeared in
one of the Atlanta papers, which stated that Mr. Calhoun had just
returned from Albany, having made a very strong and forcible appeal to
the Attorney-General there, urging him that the restriction on the part
of the savings banks be removed so far as Georgia was concerned.
This item was telegraphed to me, and on receiving the despatch I
notified the holders of the repudiated bonds, and wired the
Attorney-General asking him when a hearing of the other side could be
had.
When the day arrived for the hearing before the Attorney-General, Mr.
Calhoun was surprised to find that there was any opposition to his
application, as the business had been so quietly managed that it was
supposed by the Georgia members of the Bar that the bondholders would
hardly be apprised of it until everything should be fixed according to
the pre-arranged programme, and in favor of the repudiating State
obtaining fresh and unlimited credit without settling up the old score.
Mr. Calhoun was assisted in his able argument on the sovereign right of
repudiation by the Hon. N. J. Hammond, Member of Congress and
ex-Attorney-General of Georgia.
In reply to these great lights of the Southern Bar, whose genius would
have shone more brilliantly in an honest cause, I made the following
address:
Henry Clews’ speech before the Attorney-General of the State of New
York, June 20, 1885:
The original act of repudiation by the State of Georgia has been
repeated each six months since that period to the present date,
by the refusal of the State to recognize and pay the coupons on
said bonds as they matured. This alone repeats the repudiation
of that State twice each year for the past ten years at least,
and therefore is a continuance of the repudiation from the time
of the original vile act up to the present date; besides which,
the bonds repudiated had twenty years to run. The maturity of
said bonds does not expire until 1890. The repudiation should be
considered, therefore, as continuous during the entire period,
from the date of the issue of said bonds until 1890, five years
hence. If it is to be accepted that the test of a State’s credit
is to be able to show a record free from fresh repudiation for a
period of ten years, and that repudiation is not a continuous
repudiation until such obligations are fully settled and
provided for, what is to prevent a State from negotiating a
fabulously large amount of bonds, and thereby place an amount
sufficiently large in her treasury to admit of bridging over for
the required ten years, and, after making such ample provision,
then pass an act, as heretofore, repudiating the bonds issued,
and keep repeating it each decade? Supposing the same rule held
good with a bank robber—and there is, as far as integrity goes,
really no great difference between the two, only one seeks
protection in Canada and the other behind her sovereign rights,
which is her Canada refuge. The robber breaks into a savings
bank, guts it of several millions of dollars, flees to Canada,
and there lives in affluence for ten years. How silly it would
appear if, after ten years, provided he could show a record free
from thieving during that time, he had the legal right then to
come back, and thereby be entitled to a clean record as an
honest man, and in consequence be accorded a high credit. The
position of the State of Georgia in assuming such a role, in
coming here at this time to ask our savings banks to aid her in
such a nefarious business, simply lacks a parallel for audacity.
The management of savings banks must be conducted so as to
inspire confidence with the depositors and with the entire
community also. It is necessary, especially at panic periods,
for full confidence to be felt in the investments of such
institutions. If the prohibition is removed, as is now sought to
be, and savings banks be permitted to invest in Georgia
securities, and one of them should buy $500,000 of the bonds, I
venture the prediction that such an investment will sooner or
later form the basis of a rumor which will cause a panic among
its depositors and break that institution. This would result in
a most serious disaster to probably thousands of poor people
whose money had been lodged there for safe-keeping. The mere
whisper during a panic that a certain institution had $500,000
of Georgia bonds, and they were about to be repudiated, would
bring about just such a disaster as I have stated.
I ask your Honor if it would be wise for any savings bank to be
permitted by the Superintendent of the Banking Department to
become thus exposed to ruin? A State that is abundantly able to
meet her obligations and dishonors them is too despicable for
either credit or tolerance in a civilized community, and it is a
disgrace to the nation that States comprising it have the power
to make such obligations and repudiate them at will and screen
themselves behind their sovereign rights, whereby they cannot be
sued, and in consequence leave the outrageously wronged innocent
bondholders without means of redress whatsoever. If the United
States Government ever expects to obtain that permanent high
credit in the money markets of the world to which the immense
resources of this magnificent country justly entitle her, the
great and growing evil of State repudiation must be remedied.
For States to repudiate with impunity, as the State of Georgia
has done, leaving no means whatever for redress on the part of
the victimized creditors, is a blot upon the escutcheon of the
whole country. This is not a fight, your Honor, on the battle
field against the South; it is a fight on the financial field,
and, as it is second only in importance to the other, it must be
settled, and now is the time to strike the blow, as it will do
the most good in that direction. We, the creditors of Georgia,
have not only borne the loss and hardship of having our
securities made valueless by a legislative body, and many of us
ruined thereby, but we have also been vilely defamed—being
branded as conspirators to rob the State—simply because we were
found to be holders of these dishonored bonds. This has been
done by the State to cover up her own infamy, and make it appear
that we were the guilty parties and not the State. The attitude
of the State of Georgia, your Honor, is not unlike that of a
pickpocket, who, after rifling his neighbor’s pockets, is the
first to cry “stop thief” to elude detection. All that the
bondholders ask and claim is to have the entire case submitted
to a proper judicial tribunal. This right we have been denied by
the State, and the Constitution leaves us powerless to enforce
it. The State simply says, the bonds are fraudulent and we will
not pay them. It is a very remarkable circumstance, however,
that there has not been a single one of the numerous officials,
from ex-Governor Bullock down, who were connected with the issue
of these so-called fraudulent bonds, prosecuted to conviction in
the thirteen years that have intervened since their issue. Still
these bonds are all repudiated on the ground of being
fraudulently issued, and the innocent bondholders alone are made
to suffer the harsh penalty imposed for having staked their
money on their belief in the honor and integrity of the people
of Georgia, which it is quite apparent are now _non est_.
I addressed a letter to your Honor on May 27th last, which
contains important information in connection with these
repudiated bonds. I ask permission to read this letter at the
present time, so that it may become a part of the evidence in
this case.
The following circular letter contains a variety of opinions analyzing
the true relations of the State of Georgia to her creditors, and clearly
setting forth the nature of her liability in the matter of the
repudiated bonds in connection with the house of which I was the head:
REPUDIATION ROBBERY BY THE “SOVEREIGN” STATE OF GEORGIA.
“_The divine doctrine of State Sovereignty, which makes a State
too dignified to be sued for its debts, ought to make
it also too respectable to cheat its creditors_”
NOTICE.—Managers of Insurance Companies or Savings Banks should be and
are likely to be held responsible, by stockholders and depositors, for
any losses incurred in the event of their buying or loaning upon any
bonds issued hereafter by States which are under the cloud of
repudiation.
* * * * *
NEW YORK, May 27, 1885.
HON. WM. A. POST, _Deputy Attorney-General, Albany, N. Y._:
DEAR SIR:—I deferred answering your telegram of Saturday until
this morning for the purpose of ascertaining whether the
bondholders’ counsel would be in readiness to meet you at the
time proposed, and only ascertained the fact this morning that
he would, so I wired you accordingly. I presume that this
Georgia repudiation question comes before you for the purpose of
removing the prohibition from the savings banks of this State to
their buying or loaning upon Georgia State bonds, owing to that
State being under the cloud of repudiation. The prohibition of
the savings banks, issued by Mr. A. B. Hepburn, the former
Superintendent of the Banking Department, was based upon a
thorough and exhaustive examination in reference to all matters
appertaining thereto. This I have reason to know, as that
gentleman visited New York and took my testimony and others in
the case. The State of Georgia has always charged, as the
justification for repudiation, that R. B. Bullock, Governor at
the time of the issue of said bonds, had issued the bonds
without proper legislative authority, and besides had stolen or
misappropriated most of the avails. About three years since
Governor Bullock visited Atlanta, Ga., and demanded his trial
under the several indictments against him. The trial came up
soon thereafter, and he was acquitted on all the charges. This
gentleman is now a resident of Atlanta, Ga., and is to-day one
of its most prominent citizens. It has been also charged that as
he was a Northern born man, that he was a “carpet-bag” Governor,
and for that reason the bonds were not a legal issue. That
attitude is also unwarrantable, as the ex-Governor remained
South during the period of the entire war, and took a prominent
part on the Confederate side, in giving aid and comfort, and
thereby can justly be considered as being a Southerner and not a
Northerner in his interests and feelings. Most of the bonds
repudiated were passed upon as legally issued and properly
signed, by our best lawyers, such as Messrs. Evarts, Southmayd &
Choate, ex-Judge Emott, Abbott Bros., E. Randolph Robinson, the
brother of Judge Sedgwick, of this city, and others.
Some of these repudiated bonds were also passed upon by the New
York Stock Exchange, and because repudiated were afterwards
stricken from the list of securities to be dealt in. The face of
these securities were worth par a few days prior to their
repudiation, and immediately after that Act was passed were
reduced to no more than the value of the paper upon which they
were engraved. The same may at any time be the fate of any new
securities to be issued by that State. Those who had these bonds
were and are innocent parties, and among the sufferers are Trust
Companies and savings banks. The Metropolitan Savings Bank holds
$100,000 of the 7 per cent. Georgia gold bonds, bought about
par; the Brooklyn Trust Trust Co. holds $100,000; the Union
Trust Co. holds $100,000; the Commercial Warehouse Co. held
between $300,000 and $400,000 of the bonds, and their
repudiation caused the failure of that institution. The New York
State Loan and Trust Co., Henry A. Smyth, President, also had
$100,000 of the bonds, which loss was largely instrumental in
causing the collapse of that concern. The Broadway National Bank
holds $200,000 of these bonds as collateral, upon which they
loaned $160,000; Morton, Bliss & Co., Morris K. Jesup, Drexel,
Morgan & Co., Ezra A. Boody, George Morgan, son-in-law of J. S.
Morgan, of London; J. Bowman Johnson & Co., Richard Irvin & Co.,
L. Von Hoffman & Co., Russell Sage and many other first-class
parties that I can name are prominent sufferers resulting from
Georgia’s repudiation; besides which, my firm in 1873 held over
$2,500,000 State of Georgia securities, all of which had been
paid for or advanced upon, and my firm’s suspension at that time
was attributable thereto.
The only way to do, in my judgment, is to make the Southern
States which are now under the serious cloud of repudiation,
understand that their credit is impaired and facilities for
obtaining money materially lessened because of it. Then,
realizing _that_ as their position, and finding that they are
shut out of the financial markets of the world owing thereto,
they will soon make a compromise with their lenient creditors,
and remove the blot from their escutcheons. The Federal
Government is comprised of the various States of the Union, and
to-day enjoys as high a credit as any nation in the world. If
the various States comprising the United States are permitted,
however, to repudiate with impunity and screen themselves behind
their sovereign rights so that creditors have no recourse, the
odium will soon fall upon the General Government, and its credit
will finally become tarnished if not crippled in consequence.
The State of Georgia, as can be proven, received full value. The
internal improvements in Georgia bear testimony of this. The
taxable property of the State has been immensely enhanced by
these improvements, and the debt repudiated is a mere bagatelle
as compared with the ability of the State of Georgia to provide
for it. She has become rich in late years, and if the stain of
repudiation should be wiped out, would stand an excellent chance
of becoming a favorite resort for emigration and for the flow of
capital. Emigrants from other countries to this, in locating,
first look to the credit enjoyed by the State their attention is
called to, and if found high, their conclusion is that there is
safety for property, and if so, corresponding safety for life;
but they will not go to a repudiating State, and in this way the
South is held in check in the development of her resources,
owing to the want of new blood. The bondholders of the State of
Georgia have frequently offered to leave all points at issue in
reference to Georgia’s repudiation to the Courts of that State,
to the United States District Judge, or to arbitration, the
parties to be selected by both sides, all of which has been
denied, the reply being the “bonds are repudiated, and we simply
will not take any steps to provide for their recognition or
payment, and what are you going to do about it?” Under the
circumstances, creditors are powerless, of course, to do
anything, as the State cannot be sued. If you desire it, I will
send you a sample bond of some of the issues repudiated, so that
you may see how beautifully the signatures are written, and how
firmly fixed the seal of the Commonwealth is placed upon them,
besides the magnificent steel engraved workmanship of the
Continental Bank Note Company of this city. If there was not a
prospect of the State of Georgia being forced by public opinion
to provide for these bonds at some future time, they would be
worthy to be framed and hung up in our parlors as a complete and
fine work of art.
Judge Lochrane, former Chief-Justice of the State of Georgia,
has wired me that he will appear before you on Wednesday;
Colonel R. A. Crawford, of Georgia, will also do so; Messrs.
Abbott Brothers, of this city, and others will appear before
you.
You will please append this communication as a part of the
testimony, and should you desire more on the subject, call upon
me therefor.
I have the honor to remain,
Your obedient servant,
HENRY CLEWS.
* * * * *
EDWARD BRANDON, ESQ., _Chairman of the Committee on the
Admission of Securities to the N. Y. Stock Exchange_:
DEAR SIR:—It is currently reported that the State of Georgia is
about to apply to your Committee to list a new issue of bonds.
In behalf of myself and others who have suffered most seriously
by that State’s unwarrantable repudiation of bonds, which have
as full a right to an equal standing as representing the credit
of the State of Georgia as possessed by the new bonds to be
issued, and fully realizing that the cruel fate of the former
merely represents what may be that of the latter, I claim the
right, as a member of the New York Stock Exchange, as a sufferer
to the extent of several millions of dollars by the State of
Georgia’s bad faith, to protest against the admission of any new
securities hereafter to be issued by that State until her
repudiated bonds are recognized and provided for.
Yours very truly,
HENRY CLEWS.
Ex-Governor Bullock’s Democratic successor, soon after he was elected to
that position, appointed as Attorney and Agent for the State of Georgia,
one of the State’s ablest lawyers, a gentleman distinguished as having
been a member of the Confederate Congress, to investigate all the
business transactions between Henry Clews & Co. and the State of
Georgia. Under his signature as Attorney and Agent for the State, he
makes the following statement: “I would say, with a great deal of
pleasure, that after a very thorough and complete examination of the
books of account, papers and correspondence of Messrs. Clews & Co., so
far as they relate to transactions of that house with the State of
Georgia during Governor Bullock’s administration, I am satisfied that in
all the dealings of that firm with the State of Georgia, they have acted
with both fairness and liberality, and I am convinced that in all these
matters Mr. Clews did nothing that would not bear the closest scrutiny,
and he did nothing, in my opinion, to affect his character for integrity
and fair dealing. I make this statement with the more pleasure because I
began this examination of accounts of Clews & Co. under impressions very
unfavorable to Mr. Clews.”
* * * * *
The opinion of ex-Governor Brown, now our able senior United States
Senator, was asked by thirty-five members of the Legislature of 1873. In
the course of a comprehensive and exhaustive argument, the distinguished
Senator says: “The State will be driven to abandon this position
(legislative repudiation) and to permit a case to be made by her
creditors to test the validity of these bonds in the courts of the
country, or she must stand dishonored in the estimation of all good men,
and her credit must sink to a ruinous depth.”
* * * * *
The late ex-Governor Alexander H. Stephens, ex-Vice-President of the
Southern Confederacy, is on record as saying, in reference to this
repudiation, that it is “nothing short of public swindling. Not less
infamous than obtaining money under false pretences.” But the partisan
feeling was then so intense that even the lamented ex-Governor Jenkins
was hardly accorded a respectful hearing in the Constitutional
Convention, of which he was president, when he plead against sweeping
repudiation without granting the holders a judicial hearing. Ex-Governor
Jenkins said on that memorable occasion: “Now, sir, I take this ground:
that for the proper examination and investigation oi these claims,
neither the Legislature nor this Convention, nor the people themselves,
are a proper tribunal to decide these matters. They ought to be examined
and determined judicially. It will now, I presume, be admitted that the
five years’ time between legislative and constitutional convention
repudiation was not allowed to pass unnoticed by the parties having
these bond claims against the State. Having waived our sovereignty in
the past to allow the State to be sued in every county in the State on
claims for small-pox expenses, I submit that our sovereignty ought not
to be plead to bar so important an issue as that now under
consideration. The State can, in no event, be put to loss. The whole
State has been largely benefited by the legislation and by the executive
action which was subsequently repudiated. We have been for fifteen years
past collecting annual taxes on fifty millions of enhanced value of our
taxable property; an increase which is directly traceable to the good
effects of the new railroads built under that legislative and executive
authority. Shall we—can we honestly receive these benefits and repudiate
our liabilities?”
* * * * *
An interview with ex-Governor Rufus B. Bullock, of Georgia, May 29th,
1885:
A reporter called upon ex-Governor Bullock at his rooms, Fifth Avenue
Hotel, and obtained the following interview:
Governor Bullock: “Any information in my possession is at your
service. I have published from time to time, over my own
signature, my views on this subject, and I have no objections to
repeating them. I desire to say, however, that I am in no wise a
party to the recent proceedings which have been had before the
Attorney-General of New York. I was in the city on private
business and without any previous knowledge of the proposed
hearing. I attended the hearing out of curiosity, expecting to
hear an argument by ex-Chief Justice Lochrane, and while there
was invited by the Acting Attorney-General to respond to his
inquiries. This I did with the result as reported in your
valuable paper. During my administration in 1868-’69-’70 and
’71, bonds of the State were issued for State purposes, and the
endorsement of the State was placed upon certain railroad bonds
under the authority of law.
During the wild excitement that resulted in and followed the
overthrow of the Republican government in Georgia, nearly all
the acts of Republican administration were repudiated, among
them its financial transactions, and up to this day and hour the
questions of fact have never been permitted to reach any
judicial tribunal.
The people of New York State are fair-minded, law-abiding and
honest, and whenever they can be informed of the truth will
fearlessly follow it; but with regard to the real merits of this
repudiation, no light has reached them because our courts have
been closed.
It is asserted by the holders of these repudiated
obligations—and in this assertion I concur—that every bond was
issued in accordance with law, and that the State is now in the
enjoyment of the benefits resulting therefrom. In the exciting
times to which I have referred, a majority of the then
Legislature decided that the State was not bound by the acts of
its predecessors, and therefore these obligations were null and
void.
This is, of course, a question of law, and not of legislation. I
am sure that now, when partisan passion has subsided, both
parties to this controversy would cheerfully acquiesce in any
decision reached by our Supreme Court, and that the holders of
these defaulted securities would accept whatever is awarded them
in a long term bond at a low rate of interest, and on such an
adjustment all parties, at home and abroad, could unite in
maintaining the high financial credit to which the Empire State
of the South would then be entitled.
In December of last year the Atlanta _Constitution_, discussing
this subject, used the following language: “The burden of his
complaint is, that the bonds have never had a hearing in court.
This comes with poor grace from the ex-Governor, who, when the
validity of the bonds issued under his administration was being
discussed by the legislative committee, was absent from this
country, his whereabouts unknown, and his testimony not
procurable. The bonds were ‘in court’ then, and as Governor
Bullock was not present with his evidence when it was needed, he
should not complain that a new hearing is not had for his
benefit.” To this I made reply, which the _Constitution_ kindly
published, and I will thank you to copy as follows: “I desire to
say that I was not absent from the country. My whereabouts were
known, and my testimony was before the committee in the full and
complete report of the financial condition of the State which I
made to my successor, sustained by the official records of the
Executive and State Departments. I never received a request from
that committee to come before them in person, and my presence
would not have added to the information in their possession.
Every request received by me from my successors, to aid in their
investigations, has been promptly complied with. In accordance
with such request I met Dr. Bozeman, financial agent,
Attorney-General Hammond and Governor Smith, in New York, and
also subsequently, Colonel Snead, Attorney for the State, and
Colonel Kibbe, chairman of committee. No fact within my
knowledge has ever been withheld, nor have I ever neglected any
proper opportunity to contradict the statement that any of the
bonds issued during my administration and reported to my
successor were ‘bogus.’ But, Mr. Editor, the question is, shall
a debtor pass on the validity and enforce judgment against his
own indebtedness? I submit that a legislative investigating
committee is not ‘a court’ in the sense that its findings are
conclusive on questions of law. To hold a question so decided to
be _res adjudicata_, is to sustain a legislative usurpation of
the judicial functions of the government. If your position be
well taken, that because the Legislature has decided against the
bonds, the case is _res adjudicata_, and the judiciary is
precluded—of what avail is our constitutional guarantee that the
executive, legislative, and judicial branches of the government
shall be separate and distinct, and that neither shall encroach
upon the functions of the other? What protection has a citizen
for his property if a legislative decision upon a legal question
must be regarded as final _res adjudicata_?
Does not the taking of other people’s money to build up our
railroads, and refusing those people a hearing in courts of our
own creation, before judges of our own election, indicate a want
of confidence in the justice of our cause? The Territory and
State of Minnesota used other people’s money to open up her
lands by the construction of railroads, just as Georgia did,
pledged the faith of the State for repayment, and then
repudiated, just as Georgia did. After twenty years’ delay,
justice has been done, and her obligations, as ascertained
through her court, have been paid. I have faith to believe that
the Empire State of the South will eventually keep pace with her
sister States in the Union in meting out exact justice through
her courts to every man, come from whence he may.
* * * * *
Hon. Wm. A. Post, Deputy Attorney-General of this State, by
appointment, visited this city last Friday to take evidence on
the Georgia repudiated bond question, the object being to
determine the legal status of a new issue of bonds by the State
of Georgia in connection with the savings banks of this State.
Owing to the repudiation of that State, at present these
institutions are debarred from investing in bonds of any
repudiating State, and the effort now is being made by the
representatives of the State of Georgia to remove that barrier,
so that the savings banks can be gutted of their surplus means
and filled up with the bonds issued by that State, which are
more than likely to share the wicked fate of repudiation, as
previous issues to the extent of $8,000,000 have done. The
savings banks managers, even in the event of obtaining a
decision authorizing them to take Georgia bonds for investment,
should be held personally liable for any losses that may fall
upon such institutions if they hereafter invest the funds of
widows and orphans in a security which, judging from past
experience, is almost sure to be wiped out and made worthless.
Mr. Clews charged that Mr. Calhoun’s appearance in representing
the State before the Attorney-General at Albany was a
surreptitious proceeding, and was only heard of by mere chance
by the holders of the repudiated bonds through a squib in a
Georgia paper. He also stated that the bondholders had patiently
waited twelve years for their money, and no body of creditors
had ever been so lenient as those of the State of Georgia, and
justice demanded that these long-suffering and much-defamed
creditors should be settled with prior to the financial world
according to the State of Georgia a sufficiently high credit to
admit of her floating any new issues of bonds. A motion was made
to adjourn the meeting until the 20th, which Mr. Post said he
would accede to after asking ex-Governor Bullock a few questions
in relation to the connection of the firm of Henry Clews & Co.
and the State of Georgia during the time he was its Governor. He
desired to make these inquiries now, as the ex-Governor was
present and might not be at the adjourned meeting. Mr. Clews
requested permission to state that his firm—Henry Clews &
Co.—had never been agents for the State of Georgia, but merely
acted for her as bankers and brokers. The agent of the State
during the entire period of Governor Bullock’s term of office
was the Fourth National Bank of this city. He stated that his
firm received no bonds, excepting by purchase or as collateral,
and advanced money to the State as it was needed. At one time
the State owed for said advances as much as $1,650,000; the
money so advanced was stated by Georgia’s officials as required
to meet the expenses of the government of the State. Ex-Governor
Bullock fully ratified Mr. Clews’ statement. He admitted that
the Fourth National Bank was the State financial agent, and that
he had placed a large quantity of bonds with Henry Clews & Co.
to market and as collateral for advances. “I will say,” said the
Governor, “that every dollar secured on the sale or pledge of
these bonds was received by the State, and it was expressly
agreed that the firm of Henry Clews & Co. should hold all the
bonds in their hands as security for the indebtedness due them
by the State of Georgia.”
* * * * *
GEORGIA’S OUTLAWED BONDS.
Newspapers in Atlanta, Savannah and other parts of Georgia have
violently assailed _The Graphic_ for its comments on the new
issue of Georgia State Bonds as affected by the repudiation of a
former issue. These journals are short-sighted, as are the
people of Georgia who imagine that they save money by outlawing
the obligations of their State issued in the usual manner. We
will not impute deliberate dishonesty to them, but they
certainly do not place their own motives in a favorable light
when they exclude the holders of the repudiated bonds from even
the right to present their claims before the civil courts of
Georgia. Ex-Governor Bullock has been berated in the same
connection, and he cogently replies:
“I have no pecuniary interest in the repudiated bonds or
obligations. I have no lot or part in any scheme or combination
by or through which public attention is or has been called to
this matter. My attitude is that of a private citizen who has as
high a regard for the honor and good name of Georgia as any man
within her borders. I never obtrude “the bond question” upon the
public attention. But when my official action is attacked in
that connection I shall never fail to assert and re-assert that
the financial statement made by me to my successor in office was
the exact truth and that its correctness never has and never
will be successfully controverted. In that financial statement
were many of the State obligations, which in a time of great
public excitement and partisan zeal were ‘outlawed’ by the
action of a political body, and up to this day and hour the
holders of such obligations have been denied that cool,
dispassionate hearing of their claims which our courts alone can
give. My ‘attitude’ is that Georgia is too great, that she
stands too prominent in this country and in the world at large
to accept the position of being a semi-annual defaulter and
refusing to the creditor a hearing in her own courts. It is idle
for me to assert or for you to deny the validity of the
defaulted securities. That is a question of law, and no Georgian
can defend his State while she slams the door of our courts in
the face of our creditors. I assert that it does make a vast
difference to Georgia whether her new securities are listed at
the Exchange in New York. Our own people or other people can, of
course, buy and own them, and I know the interest and principal
will surely be paid, but unless the bonds are ‘listed’ they are
not, in mercantile parlance, a ‘good delivery,’ and will not
stand abroad as they should, equal with the best State in the
Union.”
A State which once repudiates its obligations cannot be trusted
not to do the same thing again. What guarantee can any investor
have that the bonds which Georgia is now trying to put upon the
market may not be outlawed by the next Legislature? The
_Graphic_ has no interest in the matter beyond that of upholding
public morals, the good name of the State and the rights of
swindled creditors. The State which repudiates is as foolish as
the imbecile who cut off his nose to spite his face.—_N. Y.
Graphic_, June 6th, 1885.
* * * * *
The extreme care with which so-called securities or new issues
of bonds are scrutinized in this market nowadays is shown in the
opposition which has sprung up to the proposed listing on the
New York Stock Exchange of $3,500,000 new Georgia State bonds.
While money is a glut in the markets and our banks are now
carrying a larger idle reserve than ever before known in the
history of business, there is no disposition to permit Southern
repudiators to come in and secure any part of the funds. The
application to the Attorney-General to permit our savings banks
to “invest” in the bonds, and the request that they be listed in
the Stock Exchange, aroused New York bankers to action, and
their opposition has been so far very effective. It has had this
good, at least, that it has revived attention in regard to the
repudiation of old obligations of Southern States. By its act of
repudiation, Georgia mulcted the New York investors to the tune
of millions. I know of one banker who now holds more than
$2,500,000 of these bonds, on which there is an interest
accumulation of twelve years’ duration, and at least three
leading financial institutions were carried to the wall by the
same means. Now, it is considered very poor grace for the modern
Christian statesmen of Georgia to pass around the hat again. Let
the State first repudiate its repudiation, pay up old scores,
and then it will be quite early enough to ask for further loans.
The argument that the credit of the State is really benefited by
the repudiation, as she has so much less obligations to meet, is
a quaint one, and worthy the source from which it emanates. This
is not the sort of “prosperity” that invites further investment
of Northern funds.—_Syracuse, N. Y., Sunday Herald._
* * * * *
GEORGIA BONDS.
When a Georgia bond is put on the market, our Democratic friends
cry out “Great is the Credit of Georgia.” They claim that
Georgia pays all of her obligations whenever they are due,
knowing their claim to be utterly false. Georgia has not only
repudiated legal obligations, in the hands of innocent
purchasers, but she denies the parties who have paid value for
her bonds the right to take the judgment of her own courts on
the validity of those bonds. So in the bond business the State
of Georgia acts not only the role of the thief and robber, but
also of the coward. The man who claims that Georgia meets all
her obligations is simply a liar.
* * * * *
Respecting State securities, investors are showing a very proper
discrimination against the issues of States tainted with
repudiation. The action of the Superintendent of the Banking
Department of this State, in forbidding savings institutions
from investing in the new issues of the bonds of Georgia, has
attracted attention to the danger of investments thus tainted,
and is very generally approved by the investing public as a
check to future acts of this kind. The disposition shown by
certain managers of savings banks to put the funds in their
charge into such doubtful securities should be strongly
condemned; and it is a question whether it is not necessary, as
a protection to such depositors, to make such a use of the
deposits of the poorer classes a penal offence.—_Weekly
Financial Circular of Henry Clews & Co., June 6th, 1885._
* * * * *
HOW THE GEORGIA BONDS WERE NEGOTIATED.
The following circular explains the manner in which the Georgia bonds
were negotiated with my firm:
NEW YORK, July 3, 1885.
HON. WM. A. POST,
_Deputy Attorney-General, State of New York_:
The firm of Henry Clews & Co. did not solicit the account of the
State of Georgia, but it was opened at the request of Mr. I. C.
Plant, the leading private banker of Macon, Ga., and the most
influential and affluent banker of the State of Georgia then and
at the present time. Mr. Plant was brought to my office by Mr.
P. C. Calhoun, President of the Fourth National Bank, which
institution was the financial agent of the State of Georgia at
the time. Mr. Calhoun introduced Mr. Plant to me, by giving that
gentleman a very strong endorsement, and stated that Mr. Plant
was in this city for the purpose of raising money for the State
of Georgia, which money was required to pay off the members of
the Legislature. Mr. Calhoun stated that his bank had loaned to
Mr. Plant $400,000 on currency 7 per cent. Georgia bonds, and as
money was very stringent at the present time and the calls were
very numerous, he felt as though $400,000 was as much as he
ought to loan in any one quarter. “But if you have any money,
Mr. Clews, that you are willing to loan at the present time, if
you will accommodate Mr. Plant, it may result in your doing some
good business with the State of Georgia. I would say,” said he,
“that you cannot advance money in any quarter where it would be
safer than to loan on the Georgia State bonds which Mr. Plant
will offer you. I know the State of Georgia well. I have ridden
on horseback over almost every foot of ground in the State in my
early life in my collecting trips. My father was in the saddlery
and hardware business, and the larger part of his business was
in that State. I know the people of this State; and as an
evidence of my opinion of the future of this State and its
bonds, I will say that if I had my choice to put my money into
these bonds of the State of Georgia, or those of the State of
New York, to leave to my family, I would give the bonds of
Georgia the preference, for the reason that her debt is so small
as compared with the debt of the State of New York at the
present time, and the future of the State of Georgia is destined
to be one of great prosperity.” Mr. Plant then said: “Mr. Clews,
Mr. Calhoun has advanced $400,000 towards the amount I need, and
I want $250,000 in addition. I know the money market is very
tight [as it was at that time, money being worth 7 per cent. per
annum and 1 per cent. per day commission]; still, I think, if
you will loan this money to the State of Georgia, that it will
enable you to make a connection which will prove profitable to
you in the end.” I said: “Very well, Mr. Plant, I will make the
loan to the State of the $250,000 which you require.” Mr. Plant
then said: “Well, place it to the credit of the State of
Georgia, and I will bring in 500,000 of Georgia 7 per cent.
currency bonds, the same character of bonds which have been
lodged as collateral with the Fourth National Bank. I will go at
once to the Fourth National Bank, where they are, and bring them
down here;” which he did. The $250,000 was then placed to the
credit of the State and a telegram to that effect was sent to
the Governor, and it was at once drawn out on the official
drafts of the State. This started a correspondence with Governor
Bullock, in his official capacity, he being entirely unknown to
me before. Other applications were then made direct by the
Governor for additional loans, which were made from time to
time, until the amount so advanced reached to $1,650,000. After
receiving, in addition to the 500,000 bonds referred to, 800,000
more of similar bonds came into our possession from time to time
as collateral, being put up at 50 cents on the dollar; and when
we afterwards received a large installment of the gold quarterly
7 per cent. bonds, having at that time an excess of collateral
in our hands, we voluntarily forwarded to the State 500,000 of
the Currency 7s. This was precisely and exactly the way my
firm’s connection was commenced with the State of Georgia. Mr.
I. C. Plant, who is still a banker of Macon, Ga., I am sure,
will testify to the correctness of my statements.
The State of Georgia gold 7 per cent. quarterly interest bonds
were placed by the Governor of Georgia in my firm’s hands as
additional collateral against the advances made to the State,
with full instructions to sell same and credit avails.
Application was made by request of Governor Bullock to have this
issue of bonds placed on the regular list of the New York Stock
Exchange, and after a full investigation by that body, they were
admitted. A portion of these gold bonds were sold in this
country and the balance in Europe. When the Georgia Bond
Committee came here 77,000 of these bonds were in Europe in the
banker’s hands there for sale, and my New York firm held 25,000,
all others received having been sold. These 102 bonds were
reported to this committee as unsold at that time, but soon
thereafter, and before the Act of repudiation was passed by the
Georgia Legislature, these 102 bonds were sold and reported as
sold, and I think the price was 97½, and the State’s account was
credited with the avails, and the proper authorities of the
State were duly notified thereof. Up to the time of sale of
these 102 bonds our standing order to sell continued and was
never revoked; because, however, these 102,000 had been reported
to the Georgia Bond Committee when in this city as being on hand
at that time, they were repudiated, together with the other
bonds which we were supposed to still hold. The New York Stock
Exchange was called upon by the Treasurer of the State of
Georgia to order struck from the list these 102 bonds, and the
Exchange was compelled to be governed thereby, as official
notice had been received of their repudiation. The following
were the numbers of these bonds * * * * You will perceive that
the numbers are not consecutive, thus showing that they were not
the last of the bonds placed in our hands. The low numbers were
received first and the highest numbers last, in the deliveries
made to us by Governor Bullock. Under this statement of facts,
which I am prepared to prove, I insist that these 102,000 bonds
are as binding upon the State of Georgia as any of those which
are now recognized. My fellow members of the Stock Exchange who
have made investigation fully confirm this opinion. A large
number of the coupons of these bonds were paid by the State on
these 102,000 bonds, thus showing the State’s recognition of
them at one time. My firm repeatedly called upon the officials
of the State of Georgia to pay the balance due, but we could get
no response. After waiting patiently a very long time, we called
in eminent counsel for advice in this matter, and under said
advice the Governor and Treasurer of the State of Georgia were
notified in the regular legal form that if the said indebtedness
was not paid on or before a specified date the collateral in our
hands, each item being specified, belonging to the State, would
be sold at public auction at the Merchants’ Exchange Rooms, 111
Broadway, at 12 o’clock, by A. H. Muller & Sons, auctioneers.
This notice of said sale, together with list of securities, was
inserted in the newspapers; the sale took place, and the 800,000
Currency and other bonds were disposed of to the highest
bidders, and the State’s account credited with the avails. All
these securities should be considered, therefore, as having
passed out of my firm’s possession and in the hands of other
holders for value. The State of Georgia in this matter is
certainly amenable to New York laws, and the entire business was
conducted in accordance with said law. Governor Bullock’s
successors did all they could to depreciate the securities
issued by their predecessors, and are responsible for the low
prices which the State of Georgia bonds afterward sold for, as
during Governor Bullock’s administration the State 7s were at
about par and the first mortgage Brunswick & Albany bonds,
guaranteed by the State, sold at 90 and upwards. As an evidence
of the high credit which my firm had worked up for the State, we
bought out the first million issued of Brunswick & Albany First
bonds guaranteed by the State of Georgia, in the Berlin and
Frankfort markets at 104, and there were seven millions of bids
therefor, and the one million had to be distributed _pro rata_
amongst the said bidders. In testimony of the correctness of
this statement, I refer you to Mr. Budge, the head active
partner of Hallgarten & Co., and Mr. Schiff the head active
partner of Kuhn, Loeb & Co., of this city, who were interested
with me, and through these two gentlemen the bonds were sold.
After this great success, I ask you, or any fair-minded man, was
not my firm entitled to continue to advance upon Brunswick &
Albany first mortgage bonds endorsed by Georgia? and as the 275
Cartersville & Van Wert bonds, endorsed by the State of Georgia,
were offered to my firm shortly after this signal success as
collateral, were they not also equally justified in advancing
167,000 upon them? and _in that_ way, and in that alone, these
securities came into our hands. I most positively assert that my
firm never had any other pecuniary interests but as herewith set
forth in these two enterprises. At the time of the repudiation
of the State, my firm held
750,000 Brunswick & Albany first mortgage bonds,
endorsed by State of Georgia.
275,000 Cartersville & Van Wert first mortgage bonds,
endorsed by State of Georgia.
587,000 State of Georgia Gold 7s.
350,000 Brunswick & Albany first mortgage bonds.
400,000 Coupons cashed by us on the State of Georgia
securities, but a legal claim
against the State.
800,000 State of Georgia Currency 7s.
——
3,162,000
Also, a judgment of 525,000 obtained in favor of Henry Clews &
Co. in the State courts of Georgia against the Brunswick &
Albany Railroad Company, being an amount due my firm over and
above all securities in our hands. My firm also obtained in the
United States District Court of Georgia a judgment to secure our
advances of 167,000 to the Cartersville & Van Wert Company.
Neither of these judgments have ever been satisfied.
This leaves out entirely the 102,000 Georgia 7s (quarterlies),
as well as many other scattering lots of different issues of
the State of Georgia securities. The past due bonds referred
to by Mr. Hammond were being hawked about, both here and in
London, for the purpose of forcing their payment, and the
holders threatened to use them to interfere with the sale of
the gold 7s which we were about to bring out in this and
foreign markets. I mentioned this matter to Governor Bullock
when on a visit here. He then directed me to buy up such of
these bonds which were in troublesome hands, and as they were
a demand claim against funds then in the State Treasury, all
you have to do, he said, is to charge up the amount which you
paid for said bonds to the State’s account and retain in your
hands the bonds as collateral, and when the State is flush
enough I’ll see that you are paid direct from the Treasury.
These past due bonds belonged to us, and were taken up by our
money and not the State’s; the 98,000 which were cancelled,
which Mr. Hammond refers to, were so cancelled by error, which
I am fully prepared at any time to prove. The depreciation in
Georgia State bonds which Mr. Hammond refers to did not exist
during Governor Bullock’s administration, but was brought
about by his successors in office, as they did all they
possibly could to depreciate the bonds of the State authorized
and issued by the previous Legislature.
I have the honor to remain,
Your obedient servant,
HENRY CLEWS.
* * * * *
GEORGIA SECURITIES AND NEW YORK SAVINGS BANKS.
The efforts that are being made to place Georgia securities in
the savings banks of New York ought to be resisted for two very
good reasons: First, such investment would be contrary to the
law of the State; second, even if it were legal it would be
imprudent and unsafe.
As to the authority of our savings banks to invest in these
securities, it is understood that the opinion of the
Attorney-General has been asked. On this point there is not much
room for question. Savings banks are prohibited by law from
investing in the stocks or bonds of any State that has within
ten years defaulted in the payment of any part of the principal
or interest of its debt. By a constitutional amendment adopted
in 1877, Georgia ratified previous acts of the Legislature
repudiating more than eight millions of its obligations. The
excuse given for this proceeding was that the State’s
obligations had not been lawfully contracted, and therefore were
not binding. On this ground it is claimed that Georgia
securities do not fall within the prohibition put by the law
upon the savings banks of New York. There would be some force in
this view if Georgia were sustained by any judicial decision
holding the bonds invalid. But it took advantage of that
principal which protects a State against suit by a citizen. It
decided the question by its own arbitrary edict It gave its
victimized creditors no voice in the matter. In the absence of
judicial support or warrant, its action can be regarded only as
a repudiation.
But if there were no legal obstacle in the way, prudence alone
should deter any savings institution from investing in the bonds
of a State that has so recently broken its faith and repudiated
its obligations. The managers of a savings bank hold an
exceptional trust. These institutions are the depositories of
the earnings of the poor. The first consideration in their
management is safety. With that end in view the law imposes the
most stringent regulations on their supervision and the
disposition of their funds. Their investments are properly
restricted to the safest and most unquestionable securities.
There is neither authority nor excuse for taking any risk. Let
individuals, if they wish, invest in Georgia bonds. That is
their own business. But the managers of a savings bank cannot
run any such risk without failing in their duty to thousands of
poor depositors.—_N. Y. Herald, July 17, 1885._
* * * * *
THE ATTORNEY-GENERAL’S DECISION.
The decision of the Attorney-General, as was expected, wisely prohibited
the savings banks of this State from risking any of the hard earnings of
their large number of depositors in such an uncertain security as
Georgia bonds.
The Bank Superintendent, Willis S. Paine, referring in his report of
March, 1886, to this decision, says:
“For some time there has been a determined effort to have the
bonds issued by the State of Georgia accepted as a lawful
investment for savings banks of this State. My predecessor in
office declined to recognize their legal right to invest in
bonds of the State mentioned. Late in 1885 the State issued a
considerable amount of bonds, which were offered to the savings
banks on terms advantageous to them, and there was a desire on
the part of some of the banks to purchase the bonds. The matter
was by me referred to the Attorney-General to determine whether
the State had defaulted. Several hearings were had, at which the
various interests involved were represented by eminent counsel.
The conclusions reached by the Attorney-General were based upon
a consideration of the facts and circumstances relating to the
issue by the State of Georgia of its guarantee of $1,500,000 of
bonds of the Brunswick and Albany railroad, which he holds are
in default of interest, the principal not yet being due. He
reaches the conclusion that at least in the case of the bonds
issued or indorsed in aid of the Brunswick and Albany railroad
it has defaulted, and this brings the case within the
prohibition of the statute of New York regulating investments by
trustees of savings banks. He therefore concludes that the
savings banks of New York may not lawfully invest their deposits
in the bonds of the State of Georgia.”
* * * * *
GEORGIA’S NEW ISSUE.
An attempt was made last summer to have several millions of the new
issue of Georgia bonds listed on the Stock Exchange in a second hand
style, through the instrumentality of Mr. Fred. Wolf, who was presumably
an innocent holder of these bonds. On this occasion I addressed to the
Governing Committee the following protest:
June 22, 1886.
_To the Governing Committee of the N. Y. Stock Exchange_:
DEAR SIRS:—I have just been informed, whether correctly or not,
that, not the State of Georgia, but a person by the name of Mr.
Fred. Wolf, of this city, has applied to your Committee to list
$3,300,000 State of Georgia 4½ per cent. bonds, and sets forth
that said bonds are to take up those of the State maturing in
February, April and July. I am advised that the bonds which
matured, during the two months first named, long since past,
have already been taken up by the State, so there remains but
those which mature on the 1st of July next outstanding of the
class of bonds referred to. At the time I was instrumental in
defeating the State of Georgia from removing a very necessary
restriction imposed by a New York State law from lodging these
same bonds upon the savings banks, the officials of the State of
Georgia exulted over the fact that the said defeat in no way
injured the State of Georgia, as the bonds had already been
disposed of at a satisfactory price to the State, and therefore
no longer belonged to them; thus showing that the State of
Georgia does not make the application for the admission of these
bonds to the Exchange, but clearly shows that they are in
possession of the avails of these said bonds to provide for; not
only those that had matured but those that are due on the 1st of
July next, consequently it takes away the necessity of the State
having the application now made favorably acted upon by your
Committee. Mr. Wolf, therefore, makes the application in his own
behalf, doubtless to enable him to extricate himself from his
own speculative venture in these so-called securities, which he
was in hopes when he took them of turning over to certain saving
banks who, by the Attorney-General’s opinion, were precluded
from buying these identical bonds, which misfortune, from the
statements made by the officials of the State of Georgia, falls
not upon them but the party who has bought the bonds. As the
original plan of lodging these bonds in the savings banks was a
failure and the poor people’s money on deposit there was saved
from wreck thereby, it is now sought to land them upon others,
providing the New York Stock Exchange can be secured to give
character to them by listing them as is now attempted. My firm
represents two seats on the New York Stock Exchange and has
large interest there and I protest against the proposition to
list these Georgia bonds for regular dealings at the Exchange,
as the State of Georgia is not only in default in payment of her
bonds, both principal and interest, and long since past due, but
besides has repudiated eight millions of her bonded debt which
were issued for value received under the great seal of the
commonwealth, properly signed, legally issued and in the hands
of innocent parties who have acquired vested rights therein,
and, therefore, are the victims of a gigantic robbery by the
repudiation of said bonds. It is but fair to assume that a State
which undertakes to blot out by a legislative act, without being
willing to submit any questions at issue to the judiciary—who
alone have the right to decide upon such questions—find _that_
to be so simple a method of paying debts will not unlikely be
tempted to repeat repudiation often in the future. These bonds
now attempted to be foisted on the public cannot, by any
possibility, be expected to have any greater permanency of value
than those that have already received the shameful fate of being
reduced by repudiation to the value of brown paper. I foresee,
therefore, that if the N. Y. Stock Exchange lists this new issue
of bonds, that by fictitious methods quotations may be obtained,
and in all probability the members of the N. Y. Stock Exchange
be induced to deal in them and suffer the cruel loss that has
already been my fate. The State of Georgia, with interest to
date, owes me and my old firm at least five million dollars;
therefore, I have a right, owing to my large interests in the
Stock Exchange, to urge that the application to list these new
Georgia bonds be denied, for I fear that should it be otherwise,
many of the members whose seats are in part security for
transactions, may be tempted to deal in these so-called
“securities” and suffer great loss if not ruin thereby, for when
the time of repudiation takes place the security in their seats
at the Exchange may be made valueless through said loss to
honest creditors. When the State of Georgia wipes out the
disgraceful blot of repudiation which now stains the escutcheon
of the commonwealth, she will then be entitled to have the
facility which the New York Stock Exchange has the power of
granting, to aid her in restoring her credit to rank alongside
others. She will then be entitled to credit on a 3 per cent.
basis similar to the States of New York, Massachusetts, Maryland
and many others, _but not before_.
Respectfully yours,
HENRY CLEWS.
* * * * *
SHALL REPUDIATION BE RECOGNIZED
NEW YORK, June 25, 1886.
_To the Governing Committee of the N. Y. Stock Exchange_:
DEAR SIR:—I send you an exact copy, published in the _Graphic_
newspaper under date of June 15th, 1886, of a bond issued by the
State of Georgia, which you will perceive is an out-and-out
State bond and represents an issue of 1,800 bonds of $1,000
each. The act of authorization of the State was passed upon by
the eminent legal firm of Evarts, Southmayd & Choate, also by
the late Judge Emott as being in conformity with law and in
every respect a regular and legally issued bond of that State.
The innocent holders of these bonds are the following:
The Broadway National $200,000
Bank
The Metropolitan Savings 100,000
Bank
The Brooklyn Trust Co 100,000
Russell Sage 200,000
Henry Clews & Co 486,000
The Union Trust Co 100,000
Ezra A. Boody 200,000
Richard Irvin & Co 133,000
The Commercial Warehouse 200,000
Co. about
The balance is in small lots scattered in numerous hands. None
of these bonds was disposed of for less than 90 cents in money.
The Broadway Bank loaned $160,000 upon theirs, taking them as
collateral. Some other institutions held them as collateral
against advances similar to that of the Broadway Bank. The whole
of this issue was repudiated by the State.
The State of Georgia also notified the Exchange that a large
number of bonds known as Quarterly Gold Georgia Bonds were also
repudiated. The numbers of these bonds were scattered in amongst
an issue of two and one-half millions of that class of bonds,
all of which were long previously admitted to dealings at the N.
Y. Stock Exchange. The N. Y. Stock Exchange having received
notice from the State that they had been repudiated, ordered
them stricken from the list. These bonds are all in the hands of
innocent, _bona fide_ holders, who paid in the neighborhood of
par for them in all instances and the avails therefor were
received by the State.
Those not repudiated of these issues have since and are now
daily quoted at the N. Y. Stock Exchange, the price being at the
present time nominally about 112.
I have only noted a part of the bonds repudiated by the State of
Georgia, so that you may be convinced of the fact that the bonds
are out-and-out State bonds and just as good an obligation
issued under the great seal of the commonwealth of Georgia and
as absolutely binding upon the State as the new bonds which are
now attempted to be listed; and should the latter be listed, the
chances are that they will share the same fate as those noted.
If a State can issue such obligations, and wipe them out by an
act of repudiation with impunity, and the Stock Exchange ignore
such shameful conduct, there will then be no safety in buying
bonds issued by any State, as it is thereby made to appear that
there is no stain left upon her escutcheon, the evidence of
which is that the N. Y. Stock Exchange has backed them up in
their action. Under the Constitution which gives sovereign
rights to States a citizen holding these repudiated obligations
cannot sue a State, therefore there is no redress for a great
wrong done.
I shall be glad to appear before your Committee and give you all
the evidence in the case before you decide upon the application
now before you to admit $3,300,000 Georgia 4½ per cent. bonds.
Very respectfully yours,
HENRY CLEWS.
* * * * *
A REMINDER TO SENATOR EVARTS.
In connection with this Georgia bond affair, even at the expense of
stringing the subject out to a considerable length, I cannot omit the
following communication to Senator Evarts on the subject:
NEW YORK, April 13, 1886.
_Hon. William M. Evarts, Washington, D. C._:
DEAR SIR—It is quite generally understood, from information
lately received here from Washington, that there is soon to be
sprung upon Congress a bill providing for large appropriations
for the improvement of rivers and harbors and other so-called
public improvements in the South. There is a feeling of strong
opposition in financial circles in this city against the justice
of the General Government making such appropriations to many of
the Southern States at the present time. This opposition is
based upon the fact that the State of New York contributes by
taxation about one-fifth of all the revenue raised in this
country which provides for the expenses incurred in carrying on
the Government, so that whatever moneys are spent for the
so-called public improvements, at least one-fifth of the amount
is extracted from the pockets of the citizens of this State,
through taxation; and as many of our citizens have been so
villainously victimized by the repudiation of the Southern
States, especially by the State of Georgia, it is but just and
fair to these victims, therefore, that no appropriations of
money for the purposes named should pass Congress for the
benefit of any State which is at present under repudiation. It
is eminently proper that Congress should take a stand against
this, as the very people who have been so robbed are to pay the
cost. A large number of them have been ruined, as a penalty for
believing in the honor and good faith of Southern States, and
while such claims remain unpaid, it certainly does appear harsh
that these citizens should be taxed by the General Government
and compelled to contribute to funds to be appropriated for the
benefit of States now in default of both principal and interest
for bonds issued by them under proper legislative authority and
bearing the great seal of the commonwealth. The money paid for
these bonds by confiding people has gone into public
improvements in those States. If the Government desires to make
appropriations, they should be made to the holders of these
bonds, and the share to the various States be in their own bonds
in place of money. The States thereby would take the place of
the present holders. When repudiated bonds are all extinguished
it will be time for the Government to begin the appropriation of
money direct. No greater public improvement for the South, as
well as for the credit of the entire country, would equal the
removal from the various States of the blot of repudiation which
now stains their escutcheons, and reflects most injuriously upon
the credit of the General Government itself.
Yours very respectfully,
HENRY CLEWS.
* * * * *
ANOTHER STRONG PROTEST.
September 2, 1886.
_James D. Smith, President of the Stock Exchange_:
DEAR SIR—I beg to hand you herewith a memorial in relation to
the new issue of Georgia bonds, signed by a number of the
largest and most important firms and corporations in this city,
most of whom are connected by membership with the Stock
Exchange, and all of whom, like myself, are victims of the State
of Georgia’s repudiation.
I understand that the subject of admitting this new issue of
these bonds is to come up for consideration at the next regular
meeting of your committee. Will you do me the favor of
presenting this petition at said meeting? Hoping this matter
will receive your favorable consideration and influence, I have
the honor to remain,
Yours very respectfully,
HENRY CLEWS.
_To the Governing Committee of the New York Stock Exchange_:
We, the undersigned, holders of repudiated bonds of the State of
Georgia, have learned that an application has been made for
listing upon your Exchange new issues of bonds of that State.
We respectfully urge upon you that so long as the name of
Georgia remains dishonored by repudiation, you should stamp upon
such application your absolute disapproval, and thus maintain
the well known and uncompromising hostility which the New York
Stock Exchange has always shown against bad faith and dishonest
practice.
August 24, 1886.
RICHARD IRVIN & CO.,
MORTON, BLISS & CO.,
JAS. B. JOHNSTON,
S. W. MILBANK,
HENRY CLEWS & CO.,
HALLGARTEN & CO.,
FULTON BANK OF BROOKLYN, By J. A. NEXSEN, Cashier,
WALTER S. JOHNSTON, Receiver Maine National Bank,
MORRIS K. JESUP,
JAMES R. JESUP,
DREXEL, MORGAN & CO.,
FOSTER & THOMSON,
NATIONAL BROADWAY BANK, By F. A. PALMER, Prest.,
L. VON HOFFMAN & CO.,
RUSSELL SAGE,
C. F. TIMPSON & CO.,
HERMAN R. LE ROY,
SAMUEL RAYNOR & CO.,
THE N. Y. WAREHOUSE & SECURITY CO., By S. C. KNAPP,
Secretary,
COMMERCIAL WAREHOUSE CO., J. F. NAVARRO, Prest.
The petition of these gentlemen was granted, and true to its honorable
record, the Governing Committee of the Stock Exchange refused to have
anything to do with the bonds of the repudiating State of Georgia.
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CHAPTER XXVIII.
ANDREW JOHNSON’S VAGARIES.
“SWINGING AROUND THE CIRCLE.”—HOW MR. JOHNSON CAME TO VISIT NEW YORK ON
HIS REMARKABLE TOUR.—THE GRAND RECEPTION AT DELMONICO’S.—THE
PRESIDENT LOSES HIS TEMPER AT ALBANY AND BECOMES AN OBJECT OF PUBLIC
RIDICULE.—HIS PROCLAMATION OF “MY POLICY” IRONICALLY
RECEIVED.—RETURNS TO WASHINGTON DISGRACED.—THE MASSACRE OF NEW
ORLEANS.—THE IMPEACHMENT OF THE PRESIDENT.
As I have attributed the ill luck of myself and others in certain
business ventures in Southern securities to President Andrew Johnson, it
will be necessary to describe some of the vagaries of that gentleman
which had such a ruinous effect upon the investments of Northern men in
the South.
In common with several other Wall Street men, I had an idea that the
President might be favorably affected by the social influence of the
North, if that were brought to bear upon him in the right way. So when
we heard that he had been invited to attend the laying of the
corner-stone in the erection of a monument to the memory of Stephen A.
Douglas, at Chicago, I got up a paper signed by several Wall Street men
and other prominent citizens, urging the President to accept said
invitation and also invited him to stop at New York, on his way to the
West.
The invitation was graciously accepted, and preparations were made at
once to give him a suitable reception. It was hoped that this
demonstration of our good will would have the effect of smoothing down
the asperities of the President, and that it might remove any harsh
feelings that he entertained towards the members of Congress who
represented the Eastern and Western sections, and hence prove a means of
inducing him to advise the people of the South, over whom he had
considerable influence, to lay aside their sentiments of hostility and
attend to their business interests in a manner that should redound to
the mutual benefit of the two great sections of the country. This was in
1866.
The President left Washington about the end of August, accompanied by
General Grant, Admiral Farragut, Secretary Wells, Postmaster Randall,
and a few others of less note.
When the party arrived in New York it was joined by Secretary of State
Seward.
The preparations for the President’s reception were on a magnificent
scale for that time, and the people turned out _en masse_ eagerly to do
honor to the Executive of the nation. There was a grand procession which
conducted him to the City Hall, where he was received by the officials
of the City and State, and the procession afterwards escorted him to
Delmonico’s, at Fourteenth Street and Fifth avenue, where a dinner was
served in the most sumptuous style, with every mark of honor and respect
befitting the distinguished guest and his numerous friends.
There was an address of welcome pertinent to the occasion, and the
President responded in a very happy style. This was said to have been
one of his best efforts in oratory, in which he was, at times,
exceedingly forcible and persuasive.
He was always pithy and powerful, and there has perhaps never been a
President who produced stronger, more brilliant, and more argumentative
state papers than Andrew Johnson.
The audience at Delmonico’s was thoroughly delighted with him, the
dinner came off in a way that left nothing to be desired, and everything
seemed to indicate that the presidential visit would be a potent
influence in creating a new era of harmony between the two hostile
divisions of the country.
Everything was lovely until the presidential party arrived at Albany,
when it became manifest that the President had set out with the full
intention of giving the journey the aspect of a political canvass, and
of taking occasion to abuse his enemies in the strongest terms, and to
vindicate his policy of reconstruction in opposition to that of
Congress.
The crowd which met him on his arrival at Albany was immense, and on the
whole was disposed to accord the President a kind and courteous welcome.
The President was called upon to make a speech, in which he made violent
attacks upon his supposed enemies, or those who opposed his policy,
thereby sinking beneath the dignity which he was expected to maintain as
President of the United States, to the level of a mere political
demagogue. His utterances in that motley assembly, of course, were soon
met by sharp opposition. There were many, however, who did not treat the
fiery demonstration of the President seriously, and several of the crowd
indulged in the pastime of firing off a few good-natured jokes at the
tailor of Tennessee, who, by a mysterious fate, had been raised to such
a dizzy eminence. These jests were taken seriously by the President,
whose hot Southern blood became so aroused that he forgot the dignity of
his office and station and condescended to bandy words, and exchange
terms of ribaldry with people in the crowd. He then became a butt for
savage ridicule. A small black flag was exhibited which seemed to have
the same effect upon him as a red rag has upon a Texan steer.
The President became furious, and losing entire control of himself,
pointed towards a man in the crowd saying, “Who is that man who dares to
hoist that black flag. Let him come up here and I will tell him what I
think of him.”
This descent of personal dignity on the part of the President was
received by the audience with a feeling of ineffable disgust. He had
stooped beneath the level of the average electioneering stump speaker.
He was greeted with jeers and hooting, and the meeting was turned into a
roaring farce, in which the President played harlequin, to the great
delight of the ignorant element in the crowd, and the terrible
mortification of those who had conducted him thither.
His friends were greatly incensed at his conduct. My business friends
and I were heartily sorry that we had anything to do with this unruly
Executive, who had evidently lost his head through the sudden
acquisition of power.
The President’s journey was continued to Chicago by way of Cleveland,
where he made similar outbursts to those displayed at Albany. By the
time he had reached Chicago he had become a public object of ridicule.
He spoke so vociferously about “my policy” that the very boys in the
streets began to utter these words ironically and jeeringly.
The tour of the President was designated “Swinging around the circle,”
and when he returned to Washington he had become an object of national
contempt, and the majority of the people had entirely lost confidence in
him.
One thing about this time that intensified the popular feeling of
hostility against him was the attitude he assumed concerning the
massacre of New Orleans, which occurred about a month before he started
on his political tour.
The Convention which had formed the free constitution of the State of
Louisiana in 1864 had been ordered to reassemble by its President. The
Confederate sympathizers, who had been greatly encouraged by the acts of
the President to keep alive their old feelings of hostility to the
North, resolved that the Republican Convention should not be permitted
to meet. The ground they urged for this proposed action was that the
Convention proposed to recommend the imposition of Negro suffrage upon
the State. There was a riot and a terrible massacre, in which over a
hundred lives were lost, and several hundred persons were wounded. The
municipal authorities of New Orleans gave aid and comfort to the
rioters.
The Congressional Committee that investigated the circumstances
connected with the riot reported that the President knew that riot and
bloodshed were apprehended. He knew what military orders were in force,
and yet without the confirmation of the Secretary of War, or the General
of the Army, upon whose responsibility these military orders had been
issued, he gave orders by telegraph, which, if enforced, as they would
be, would have compelled our soldiers to aid the rebels against the men
in New Orleans who had remained loyal during the war, and sought to aid
and support, by official sanction, the persons who designed to suppress,
by arrest and criminal process under color of the law, the meeting of
the Convention; and all this although the Convention was called with the
sanction of the Governor and by one of the judges of the Supreme Court
of Louisiana claiming to act as President of the Convention. The effect
of the action of the President was to encourage the heart, to strengthen
the hand, and to hold up the arms of those who intended to prevent the
Convention from assembling.
The President’s opposition to the Reconstruction Bill probably rendered
him more unpopular than any other executive act during his
administration. The bill was passed by large majorities in both Houses
of Congress.
The President’s repudiation scheme was another very unpopular
recommendation, for which he was very strongly reproved by the action of
Congress. He stated in his message of December, 1868: “That the holders
of our securities have already received upon their bonds a larger amount
than their original investments, measured by the gold standard. Upon
this statement of facts, it would seem but just and equitable that the
six per cent. interest now paid by the Government should be applied to
the reduction of the principal, in semi-annual instalments, which in
sixteen years and eight months would liquidate the entire national
debt.”
This clause of the President’s message was condemned by an almost
unanimous vote of both Houses.
The great event in President Johnson’s career, however, was his
impeachment trial, which lasted from March 5 until May 26, 1868. He was
arraigned at the bar of the Senate, which was presided over by the Chief
Justice of the United States, the Hon. Salmon P. Chase.
The counsel of the President were Attorney-General Henry Stanberry, who
resigned his position to defend the President, ex-Judge Benjamin R.
Curtis, William S. Groesbeck, who acted as substitute for Judge “Jerry”
Black, and Hon. Wm. M. Evarts. General Benjamin F. Butler made the
opening argument against the President, accusing him of high crimes and
misdemeanors. Hon. Wm. Lawrence, of Ohio, posted him on the law of
impeachment. The chief charge in the articles of impeachment was the
removal of Mr. Stanton from the office of Secretary of War, in alleged
violation of the Tenure-of-office Act. According to this act Stanton had
a right to hold office during the term of the President by whom he was
appointed, and a month longer. He was appointed by President Lincoln.
The question to be decided then was whether Johnson was serving out
Lincoln’s unexpired term, or whether he was President _de facto_. Judge
Curtis took the latter ground, and argued, therefore, that Stanton’s
term had expired.
At the conclusion of the trial, the Senate was addressed against the
President by General John A. Logan and Mr. Boutwell. Thaddeus Stevens
attempted to read a speech, but was too weak. He handed his manuscript
to General Butler, who read it to the Senate, but it fell comparatively
flat. The Hon. Thomas Williams, of Pennsylvania, read a speech in favor
of impeachment, which was well received. The case on behalf of the
Senate was summed up by Hon. John A. Bingham, who arrayed all the
charges against the President in a very strong and unfavorable light.
His concluding sentences were, “I ask you, Senators, how long men would
deliberate upon the question whether a private citizen arraigned at the
bar of one of your private tribunals of justice, for criminal violation
of law, should be permitted to interpose a plea in justification of his
criminal act that his only purpose was to interpret the Constitution and
laws for himself; that he violated the law in the exercise of his
prerogative to test it hereafter, at such day as might suit his own
convenience, in the courts of justice? Surely, Senators, it is as
competent for the private citizen to interpose such justification in
answer to his crime as it is for the President of the United States to
interpose it, and for the simple reason that the Constitution is no
respecter of persons, and vests neither in the President nor in the
private citizen judicial power. For the Senate to sustain any such plea
would, in my judgment, be a gross violation of the already violated
constitution and laws of a free people.”
The speech of “Our own Evarts” was the _chef d’œuvre_ of his life, and
probably did much to help the President’s narrow escape. As it was, he
was only saved from impeachment by one vote, namely, that of Mr. Ross,
of Kansas.
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CHAPTER XXIX.
THE DIX CONVENTION.
HOW THE WAR DEMOCRAT, GENERAL DIX, WAS ELECTED GOVERNOR BY THE
REPUBLICAN PARTY.—THE CANDIDATES OF SENATOR CONKLING REJECTED.—HOW
DIX WAS SPRUNG ON THE CONVENTION, TO THE CONSTERNATION OF THE
CAUCUS.—JUDGE ROBERTSON’S DISAPPOINTMENT.—EXCITING SCENES IN THE
CONVENTION.—GENERAL DIX DECLINES THE NOMINATION, BUT RECONSIDERS AND
ACCEPTS ON THE ADVICE OF HIS WIFE AND GENERAL GRANT.—HOW DIX’S
ELECTION ENSURED GRANT’S SECOND TERM AS PRESIDENT.
Among the political events of the last quarter of a century in which I
took an active part, in common with some other Wall Street men, I think
the Utica Convention, at which General Dix was nominated for Governor of
this State, is entitled to special notice, particularly on account of
its effect upon national politics.
I was a delegate to that Convention. Just as I was stepping from the
train to the platform at Utica I was met by a gentleman who introduced
himself to me as the Private Secretary of Senator Conkling. He said he
came to convey an invitation to me from the Senator to be his guest
during my stay in that city. He escorted me to the carriage in waiting,
and I was taken to the palatial mansion of the Senator. I was the only
resident guest during my stay—an honor which I highly appreciated.
Several gentlemen were invited that evening to dinner, amongst whom were
Hon. Chester A. Arthur, A. B. Cornell, Wm. Orton and General Sharpe.