Year: 1875

Details of the London Scheme for Fund
ing the Old Bonds.


The council of foreign bondholders
of the London stock exchange have for
some years been struggling with the
difficulties presented By the default in
the payment of the interest on the
debts of the southern states of America,
and their action eliminated last spring
in resolutions denouncing Virginia for
not complying with the terms of her
own funding bill of 1870. This at
tracted the attention of capitalists
largely interested in southern seeuri-
ties, and they consulted with lawyer
formerly a resident of Chicago and now
of London, whom the Times calls "the
leading authority on American railway
securities" This gentleman for twenty
five years has been employed by Eng
lish bondholders to enforce their rights
against railways, cities and counties of
Iowa, Illinois and Wisconsin. He had
been the pioneer in all that litigation
whereby the supreme court of the
United States had been got to decide
that municipal and other bonds, when
issued by political corporations, are
binding upon the whole property of the
citizens and can be collected through
the cot1rts. The supreme court of
Iowa had originally held the same way,
but the people made new constitution
and elected new supreme court, which
reversed the former decisions /; and the
aid of the supreme court of the United
States was therefore necessary to protect
the rights of the bondholders. In some
of this litigation, where the courts would
order the mayor and city .codncil to levy
tax and pay debt and those au-
thorities would refuse to do so, because
they were restrained by Injunction from
the state court, the federal court would
put the whole city governmel t in jail
until they did levy the necessary tax.
In some cases the court would direct its
marshal to levy and collect such tax as
was necessary to pay the debt. This
line of decisions governs the policy to
be pursued by the foreign bondholders;
and they further decide that when
bonds are issued, and the law which
authorizes the issue also provides tax
to pay the interest on them and sink
ing fund to pay the principal when due


then such law is a contract between
the state and the bondhoIder, and
can not be repealed or modified,
but that the tax thus provided must be
collected, and the proceeds applied to
the use to which it is pledged. Upon
the principle of these decisions, which
was applied to the southern debts, it
has been arranged to float all the debts
of all these states on the terms pro-
posed. For this purpose the American
bond-funding and banking association
has been organized with sufficient cap
ital to accomplish its objects. Its cap
italists are among the strongest firms in
Europe interested and dealing in Amer
can securities-the Rothchilds, Gill
liatts and Barings, of London, besides
some of the most influential firms of
Germany. They have had the law
above referred to prepared, and they
propose to a state that, if she will agree
to its provisions and surrender to Them
the entire control of its debt, then this
association binds itself to receive these
new bonds and to return to the state
old bonds in exchange as soon as they
can get possession of them. The pro-
posed new bond is TO be made payable
in London in gold coin so as to meet
the legal-tender decisions of the su-
preme court, and the rate of interest
will vary in each state, according to her
ability to pay. The syndicate controll-
ing this association in London hold
large quantities of southern securities.
With their influence in financial circles
they expect to place these new gold
bonds on the market on the most ad
vanrageous terms. They will be per-
fectly secured, the interest will always
be promptly paid in London, and they
expect to sell them at much higher
rate than the present dishonored bonds
can be made to bring. A gold bond
payable in London is considered worth
one-ffth more than a gold bond
payable in New York, and, as a
proof of this, they refer to the fact that
before the war the state bonds payable
in London bearing five per cent,
brought as much as bonds in the same
state payable in New York at six
per cent, and then both bonds were
payable in gold.


The origirators of this scheme, in
which so much legal ability is involved
and which SO great financial infinnce is
supporting, propose to handle the fol-
lowing debts