Recollections of Forty Years in the House, Senate and Cabinet Part 56

"I shall see Mr. Morton in the course of this day, and have no doubt but that he, as well as Drexel and myself, will be happy to aid you in raising the credit of our common country, and a.s.sist the President and you in this patriotic work. I remain, dear Mr.

secretary, yours, very faithfully.

"Jos. Seligman."

A month later I wrote to Mr. Conant as follows:

"Treasury Department, } "Washington, May 14, 1877.} "Dear Mr. Conant:-- . . . On Friday last I concluded a modification of the present syndicate contract, which provides for the sale of five million four and a half per cent. bonds at par in coin for resumption purposes. A further negotiation is pending as to the renewal and modification of the contract, of which I will give you due notice when completed. In the meantime I wish to keep steadily in view the sale of the balance of two hundred million four and a half per cent. bonds, and, if possible, I wish to make the necessary calls during this month and next.

"You can a.s.sure Messrs. Rothschild of every disposition on the part of the government to meet their views, and to extend the contract with the necessary modifications. Their efforts in maintaining the credit of the bonds and securing this result will be highly appreciated.

"I would like to have you write me at least twice a week as fully as practicable.

"Very truly, "John Sherman.

"Mr. C. F. Conant, London."

As the process of redeeming called bonds required a notice of ninety days, I postponed the termination of the existing contract until after that period. My purpose in terminating the contract was to subst.i.tute for sale the four per cent. bonds of the United States instead of the four and a half per cent. bonds. I believed that the advancing credit of the United States would justify this reduction of the rate of interest. Another reason for this step was that, in addition to refunding at a lower rate of interest, I wished to commence preparation for the resumption of specie payments on January 1, 1879, according to law. This could only be done by the sale of bonds for gold coin. I reserved the remainder of the four and a half bonds, amounting to $100,000,000, authorized by the refunding act, for resumption purposes in case the four per cent. bonds could not be sold at par in coin.

Another reason for a change in the existing contract was that it gave to the syndicate a monopoly in the sale of bonds while I wished to sell the bonds directly to the people. The new contract was as follows:

"This agreement, entered into this 9th day of June, 1877, between the Secretary of the Treasury of the United States, of the first part, and Messrs. August Belmont & Co., of New York, on behalf of Messrs. N. M. Rothschild & Sons, of London, England, and a.s.sociates and themselves; Messrs. Drexel, Morgan & Co., of New York, on behalf of Messrs. J. S. Morgan & Co., of London, and themselves; Messrs.

J. & W. Seligman & Co., of New York, on behalf of Messrs. Seligman Brothers, of London, and themselves; Messrs. Morton, Bliss & Co., of New York, on behalf of Messrs. Morton, Rose & Co., of London, and themselves; and the First National Bank of the city of New York--

"Witnesseth: That the said Messrs. August Belmont & Co., on behalf of Messrs. N. M. Rothschild & Sons, and a.s.sociates and themselves, hereby agree to purchase from the Secretary of the Treasury $10,312,500 of the bonds known as the four per cent. consols of the United States, issued under the acts of July 14, 1870, January 20, 1871, and January 14, 1875, and that Messrs. Drexel, Morgan & Co., on behalf of Messrs. J. S. Morgan & Co., and themselves, agree to purchase $4,062,500 of said bonds, and that Messrs. J. & W.

Seligman & Co., on behalf of Messrs. Seligman Brothers, and themselves, agree to purchase $4,062,500 of said bonds, and that the First National Bank of the city of New York agree to purchase $2,500,000 of said bonds, making a total aggregate of $25,000,000 of said bonds, on the terms and conditions following:

"First. Of the said aggregate amount not more than $5,000,000 shall be sold for resumption purposes, the remaining $20,000,000 to be sold for funding purposes, and subscribed for by the parties of the second part during the months of July and August, 1877.

"Second. The parties of the second part shall have the exclusive right to subscribe in the same proportion to each of the subscribers, for the remainder of the four per cent. consols of the United States, or any portion of said consols authorized to be issued by the acts of Congress aforesaid, by giving notice thereof to the Secretary of the Treasury on or before the 30th day of June, 1878; but the party of the first part reserves the right to terminate this contract at any time after the 31st day of December, 1877, by giving ten days' notice thereof to the parties of the second part.

"Third. That the Secretary of the Treasury shall not sell for resumption purposes exceeding five millions per month during the continuance of this contract, except by mutual agreement of the parties hereto. When subscriptions are made for other than resumption purposes by the parties of the second part, the party of the first part shall issue calls of even date with said subscriptions for the redemption of an equal amount of six per cent. 5-20 bonds of the United States, as provided for in said act of July 13, 1870.

"Fourth. The parties of the second part agree to pay for said four per cent. bonds par and interest accrued to the date of application for delivery of said bonds in gold coin, matured United States gold coin coupons, or any of the six per cent. 5-20 bonds called for redemption, or in United States gold certificates of deposit issued under the act of March 3, 1863, with the understanding that payment to the extent of the amount of any call shall be made within the time during which call shall mature: _Provided_, That if the parties of the second part shall elect so to do, they may have the privilege of making any of said subscriptions payable specifically in uncalled six per cent. 5-20 bonds of the United States, in which case the Secretary of the Treasury may, to the extent of such payments, omit the calls mentioned in condition No. 3.

"Fifth. The parties of the second part shall receive in coin a commission of one-half of one per cent. on all bonds taken by them, as allowed by the act of July 14, 1870, and shall a.s.sume and defray all expenses which may be incurred in sending bonds to London or elsewhere upon their request, or by transmitting bonds, coupons, or coin to the treasury department at Washington, including all cost of making the exchange of bonds, and shall also be charged with the cost of the preparation and issuing of the bonds.

"Sixth. No bonds shall be delivered to the parties of the second part, or either of them, until payment shall have been made in full therefor in accordance with the terms of this contract.

"Seventh. During the continuance of this contract any sales of bonds ordered by the Secretary of the Treasury, by authority of law, shall be made through the parties of the second part, who shall be allowed thereon a commission similar in amount and subject to the same deductions as prescribed in the fifth clause of this contract.

"Eighth. It is also agreed that the parties of the second part shall offer to the people of the United States, at par and accrued interest in coin, the four per cent. registered consols and four per cent. coupon consols of the denominations of fifty dollars and one hundred dollars, embraced in this contract, for a period of thirty days from the public notice of such subscriptions, and in such cities and upon such notice as the Secretary of the Treasury may prescribe prior to the opening of the lists, and further, to offer to the subscribers the option of paying in installments, extending through three months.

"John Sherman, Secretary of the Treasury.

"August Belmont & Co., On behalf of N. M. Rothschild & Sons, of London, And a.s.sociates and themselves.

"Drexel, Morgan & Co., On behalf of J. S. Morgan & Co., of London, And themselves.

"J. & W. Seligman & Co., On behalf of Seligman Brothers and themselves.

"Morton, Bliss & Co., On behalf of Morton, Rose & Co., of London, And themselves.

"The First National Bank of the city of New York, by H. C.

Fahnestock.

"Witnesses as to all:

"R. C. McCormick.

"E. J. Babc.o.c.k."

By this contract the syndicate was to take $25,000,000 of the four per cent. bonds at par, or in exchange of six per cent 5-20 bonds.

Of this sum $5,000,000 in gold coin was to be paid to the treasury for resumption purposes. The eighth section was a new provision, and required the syndicate to offer to the people of the United States, at par and accrued interest in coin, the four per cent.

bonds, for a period of thirty days, in such cities and upon such notice as the Secretary of the Treasury might prescribe.

The result of this contract was not only to save one-half of one per cent. on the annual interest of the bonds redeemed, but to so popularize the loan that within a brief period I was able to terminate the contract according to its terms, and to sell the four per cent. bonds directly to the people at par, without a commission, or the aid of a syndicate.

I wrote to Mr. Conant as follows:

"Treasury Department, } "Washington, May 31, 1877.} "Dear Mr. Conant:--Your letter of the 19th is received. Since its date matters here have changed greatly for the better, and I have made two calls for ten millions each.

"There is a strong, steady demand for our bonds, and I have now no fear but the two hundred millions four and a halfs will be exhausted before the 1st of July, when they will be withdrawn. The prospect of placing the four per cent. bonds, commencing July 1, is very good. I have submitted to the syndicate a proposition in substance requiring them to take twenty-five millions four per cents., during July and August, of which five millions will be for resumption purposes, with a stipulation that if they take fifty millions additional in September and October the contract will be extended to January 1, 1878, five millions a month to be applied for resumption purposes. I do not propose to vary essentially from the proposition.

I have another offer almost as good from other parties, but I hope to combine these two offers into a modified syndicate, and, if possible, reserve the right to sell bonds at par, in coin or 5-20 bonds, to persons who apply directly to me for exchange, giving, however, the syndicate the half per cent. commission. We will considerably reduce the cost of the bonds, I think, to one-tenth of one per cent., so that the contracting parties will have a reasonably fair commission. I am already a.s.sured of many sales of the bonds whenever offered, without the aid of the syndicate, so that I consider myself strong enough to undertake the placing the bonds even without their aid, if they will not agree to reasonable terms. If I can secure the active, hearty co-operation of all the parties who wish to engage in selling the bonds, and they will be content with a reasonable profit, the operation of funding can go on so rapidly that they ought to be satisfied with the profit they will make.

"I have not overlooked the possibility that some movement of coin will be made to meet called bonds in Europe in excess of bonds sold there, but hope to perfect arrangements by which I will secure American bullion to meet this demand, without stopping acc.u.mulations of coin in the treasury.

"The prospects here are favorable for a good crop in all the states of the Mississippi valley, but there will probably be a bad crop in California.

"What we must do is push the loan so that it will be an established success before the meeting of Congress. If you can succeed in inspiring the Rothschilds to aid this purpose I am sure of success.

My proposition has been sent to them, and I was advised would be answered by telegram about this time; but by the 15th I hope to have the arrangements completed.

"If upon receipt of this letter there is anything of striking interest affecting the loan you may cable me.

"All well in the department. Matters are going along quietly and steadily.

"Very truly yours, "John Sherman.

"Hon. Chas. F. Conant, London."

This letter he received about the time the new contract was executed.

I subsequently sent him the following cable telegram:

"Washington, June 9, 1877.

"Conant, London:

"Contract of August 24, 1876, closed new four and a half per cent.

bonds of $200,000,000. New contract twenty-five millions four per cent. bonds taken firm. Particulars by mail.

"Sherman."

Two days later I received a reply, as follows:

"London, June 11, 1877.

"Sherman, Washington:

"Congratulations. Rothschilds request me to say that it is important for this market that the public subscriptions in America for four per cents. should be a success, and this will make the market for London. N. M. Rothschild & Sons hope Secretary of the Treasury will advise that banks subscribe immediately. J. S. Morgan & Co., N. M. Rothschild & Sons, think subscription should be opened soon, in view of preparing London market.

"Conant."