The Washington times., 1933-06-28

ment of Commerce recommenda
tion in making a $90,0OO,OO
Chilean loan, later defaulted at g
loss of $76,000,000 to the American
investing public, Benjamin j. But
tenwieser, junior partner, told the
Senate banking inquiry today.
He said Kuhn Loeb had been
unable to appraise the assets OF
the Mortgage Bank of Chile, tc
whom the loan was made. He
said:
I'VE relied on a Department OF
Commerce report which said the
bank conducted it's affairs with
uniform safety and success :"
No Tax Reported
"Greater reliance" was placed
on the action of the Government
of Chile in guaranteeing the
bonds. he added.
Otto H. Kahn, head of the firm,
arrived at the hearing few min
utes late. He shook hands with
Senator Fletcher CD of Florida,
the committee chairman, and sat
down at the long witness table.
His personal physician accompan-
led him. Committee members
were told at the outset that Kahn
suffered from high blood pressure.
Pecora hammered at the wit
ness. He sought to show the firm
had made little or no investigation
of it's own into the Chilean Banks S
resources before making the loans.
ButtenWieser said:
"We made very careful
study of the 7O-year perform
ance of the mortgage bank. It's
maximum losses in any one pc
riod of 10 years was $4,000.
Its bonds sold as well in the
home market as government
bonds"
COMMERCE THE GUIDE
"Did you study the appraisal
basis of the bank?"
"No, we couldn't make such a
study. We relied en- the Depart
ment of Commerce report which
stated the bank conducted its
affairs with uniform safety and
success"
"IS that all you dido"
1--WE made a careful study of
the trade figures, which after
all are the most important fac
tor in the external debt of any
country"
Pecora brought out that the
two main items in a large favor
able Chilean trade balance we're
nitrates and copper. Defending
the $90,OO0,00O loans the witness
declared:
1--WE relied on the record Of
Chile, which for 100 years had
lived UP to its obligations. In
1925, no one could fOresee the
world cataclysm of 1881, which
struck the foreign trade of
Chile and every other country"
READS FROM REPORT
A memorandum from the pri-
vate files of the large banking
house was read by Pecora to
show the disturbed political con-
ditions in Chile when the first
$2O0O0,OOO loan was being negoti
ated.
This memorandum written early
In 1925 told how a military coun,
Gil had dissolved congress and
issued DEGREES having the force
Of law.
PeCora asked:
"Who wrote the memoran-
dum?"
Il cannot tell who prepared
it; / saw it only yesterday. l
believe it is translation Of
paper prepared by our Chilean
counsel"
Pecora emphasized the fact that
Kuhn. Loeb issued the first S20,'
100000 loan in June, 1925, when
a military junta controlled Chile.
"A new congress was to be elected
o month later.
"There was no way OF you
determining whether the new
congress would recognize your
debt?"
"There was no way of deter
mining it. But under all prin-
ciples of international law, we
were advised, the debt would
be recognized. 1t was recOg-
nized. The interest was paid
regularly until six years later.
There was no connection fl
nally, when the bonds we're
defaulted between the default
and the validity of the loans.
The validity of the loans has
never been questioned"
NO BUDGET BALANCE
wasn't your adviser a little
like that given the man in the
Jail by his attorney who said
they can't put you in jail and
the fellow replied, no, but here
am in jail"
Il don't follow the analogy"
Pecora asked whether the de
faCto government of Chile had
balanced its budget.
Il don't think it had"
He cited the United States as a
nation with an unbalanced budget
but with sound bonds. Then Pc
cora developed that the Govern