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 bothmoney 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 reflectedsuch 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 theysupposed 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 thisex-partestatement 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 thedespatch 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 forthe 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 withoutmeans 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 nownon 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 Statetoo dignified to be sued for its debts, ought to makeit also too respectable to cheat its creditors”
REPUDIATION ROBBERY BY THE “SOVEREIGN” STATE OF GEORGIA.“The divine doctrine of State Sovereignty, which makes a Statetoo dignified to be sued for its debts, ought to makeit also too respectable to cheat its creditors”
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, andbesides 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, realizingthatas 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 willnot 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 ajudicial 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 endorsementof 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 AtlantaConstitution, 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 theConstitutionkindly published, and I will thank you to copy as follows: “I desire to say thatI 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 beres 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 isres 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 finalres 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 tobelieve 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 requestedpermission 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.”
Newspapers in Atlanta, Savannah and other parts of Georgia have violently assailedThe Graphicfor 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 whenmy 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? TheGraphichas 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 inand 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.
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 savingsinstitutions 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.
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 Statebonds 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 forwardedto 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 madeinvestigation 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 distributedpro rataamongst 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? andin thatway, 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
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’llsee 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.
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, prudencealone 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 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 notyet 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.”
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, consequentlyit 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—findthatto 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. TheState 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.