Evening star., 1939-04-02

In its recent bestowal upon Brazil Of
much American love and more American
money, the State Department added a
new paragraph to what the Senate
Banking and Currency Committee once
termed "one of the most scandalous
chapters in the history Of American in
vestment banking" The Brazilian agree
ments put the South American bond
back into the news and recalled the
wondrous get-rich-quick days of more
than decade ago, when citizens of the
United States from Tacoma to Miami
were helping to pay for Peruvian sewers,
Argentinian schoolhouses and Colombian
street car lines.
During that exciting episode in our
international fiscal history foreign bonds
valued at more than $1OO00,00O 900
were sold in the United States. South
American bonds worth 50 900 900 900 were
in the lot. Many of these bonds for
Latin undertakings failed to produce the
fat returns which their purchasers were
given to expect. In 1889, s9O8 1928 900 of
the South American issues were in de-
fault as to principal, interest or sinking
fund.
The Brazilian share of this overseas
debt is 1857 100000, and it is the fact
that the Brazilian spokesman. DR.. Os-
waldo Aranha informed our State De-
partment of his countrys conditional
determination to revive service on that
dollar debt which projects the Latin bond
once more into the limelight and brings a
flicker Of hope to the holders of the re-
manning 1851 828,8 in defaulted bonds
that they, too, may get back their in
vestment.
And So Precedent Is Set.
Bondholders take encouragement from
the State Departments action in includ-
ing the question Of debt to private citi-
Zens in an exchange of notes between
this and another government, Brazil's
This sets a precedent American policy
forbade such step in the past. 1T would
not be wise for the Government to
undertake directly the settlement OF
private debt situations" White House
statement issued October 20, 1888, reads.
And the bondholders take further en-
couragement from proposals that the
United States, in its drive for con
tinental solidarity conclude economic
cooperation agreements with other
South American countries similar to the
Brazilian agreements. Since Brazil was
required to act on her defaulted bonds
as a condition to American economic
assistance, the bondholderS reason that
then the other countries would face the
same requirement.
Such a distant prospect, of course
gives no cause for a rise in the market
price of any but the Brazilian bonds,
which were issued by the federal govern
ment, nine state governments and three
municipal governments. Service is to
be resumed on these issues on tenn
porary basis July l, under decree law
which President Vargas is expected to
put into effect when DR.. Aranha reaches
Brazil, and on a permanent basis two
years from now. The South American
countries which issued other bonds sold
In the United States and now defaulted
are Chile, in default on bonds valued
at s2ls ,92s 900; Colombia, $143667,Ooo;
Peru, $85, ,662. .500 Bolivia, $57 ,422 900;
Ecuador. $l1,18l,9Oo, and Uruguay, sS,-
821 500.
Issues Widely Sold.
Because of the high-preSSure selling
methods employed by American banking
houses which handled the South Amer
lean loans and because of the eagerness
of the people of the United States to
own exotic securities, the issues we're
widely sold In a special report the
Securities and Exchange Commission
states:
1T has been estimated that between
100000 and 100000 investors are holding
foreign bonds (not all South American
now in default. The average holding is
about $4,000 The Foreign Bondholders'
Protective Council, Inc makes clear the
wide cross-section of investors in these
foreign bonds in its description of the
bondholders who have registered with
the councils Committee for Chilean
Bonds.
"It lists banks, trust funds. schools,
colleges, universities, theolog : X
naries, churches, church societies,
braries, hospitals, memorial homes,
and cemetery associations The coun-
Gil reports further:
Every State in the United States,
one territory of the United States, the
District of Columbia and 80 foreign
countries are represented in the regis
trations so far received"
Hope for high returns and an inno-
cent faith in the credit of foreign gov
ernments contributed to the eagerness
with which persons of all backgrounds
and ranges of intelligence believed the
banking house prospectuses and bought
South American and European bonds
IS years ago. The sale of the bonds
involved "recklessness, ineptitude and
in some cases outright chicanery," the
S. E. c. concluded. The Senate Bank
ing and Currency Committee was even
more thorough going in its condemna-
ton:
THE record of the activities Of in