Year: 1872

THE SYNDICATE LOAN.


When Congress at his earnest request
gave Secretary Boutwell, permission to
convert the $40 Bonds bearing six per
cent. interest into long bonds bearing
only 5, AZ and 4 per cent, they did 1t
both reluctantly and grudgingly. The
leading Bankers and financial oracles had
already proclaimed the proposed loan a
failure, while the National Bankers were
exceedingly adverse to accept this dimi-
mutton of interest, either voluntarily or
through legal enactment.


The Hebrews justly complained that
the Egyptians compelled them to make
bricks without straw, but Congress SEEM
ed to have been SO anxious that this loan
should be a failure that it virtually insist
ed that the Secretary should make bricks
without either straw or clay. In limit
ing the expenditures to be incurred to
one half Of one per cent. which is but
barely the expense of engraving, printing
and issuing the bonds, they cut off as
was generally supposed every chance Of
success.


The conversion of six per cent. loan
into "A five per cent. loan is composed of
two distinct operations. First the sale of
the new bonds, and secondly, either the
purchase in open market, or the recall of
the old. These two distinct operations
must not be lost sight Of in estimating
the Secretary's transaction with the So
called syndicate or combination Of Euro
pean Bankers.


In the first place the new bonds must
be issued and sold, before arrangements
can be made to take up the old. AS the
six per cent. bonds were above par in
gold the Secretary could not purchase
them in open market, but was compelled
to recall certain portion of the 500
bonds. To do this a reasonable notice
must be given to holders. Considering
the fact that nearly the whole of this loan
is held in Europe-it having penetrated
into the most remote villages of Germany
and SWitzerland--the Secretary gave three
months notice. If he had given less than
that he would have done injustice to the
bondholders. But before he was able to |
give notice that in three months from
date he would redeem nearly two hund-
red millions of bonds, he must either
have the cash in the Treasury or undoubt-
ed security.


Thus if the new bonds had been sold
for cash and the money covered into the
Treasury-three months would have clap
sed before it would have been to any ex-
tent paid out, and thus there would have
been double payment of interest for one
quarter. The new bonds would have
borne five per cent.-the old bonds six
per cent, and the gold in the Treasury
would not have brought anything, but
would have greatly disturbed the money
market. The public debt, itself, how
ever, would not have been increased, be-
cause, for every new bond sold the mon
ey would have been placed in the Treas
ury.


The European Syndicate simply said
- we pledge ourselves to take the entire |
loan, SO that you may safely give the
three months notice to bondholders, and
as fast as we can get hold of the old bonds
we shall take up the new." The only
profit which the Syndicate made was the
three months interest, which in any and
every event the United States would have
had to pay. Thus while nothing in real
ity was paid to the negotiators, the for
eign bankers by taking advantage of the
three months notice, received l 1-5 per
cent. for their negotiations. under
stand that for this mastery financial pol
icy and for this marvellous and unexpect-
ed success the Secretary is to be attacked
by the cnvious Democrats and their CO.
adjutors, and for this reason | have talk
en- the pains to give this plain exposition
OF the case. G. NJ.