Reminiscences of Sixty Years in Public Affairs, Vol. 2

by George S. Boutwell

It was in the same months of 1871 that I recommended the issue of a four per cent fifty-year bond as the basis of the currency to be issued by the national banks. This proposition, which would have been advantageous to the banks, in an increasing ratio as the value of money diminished, was defeated by the organized opposition of the banks through an effective lobby that was assembled in the city of Washington. Such was the public sentiment in the year 1871, even in the presence of these important facts, that in the month of December I was able to say in my annual report that the debt had been diminished during the next preceding year in the sum of ninety-four million dollars, and that the total decrease from March 1, 1869 to December 1, 1871, was over two hundred and seventy-seven million dollars.

It was in this situation of affairs that Messrs. Jay Cooke & Co. proposed to undertake the sale in London, by subscription, of one hundred and thirty-four million five per cent bonds then unsold. Authority was given to Cooke & Co. to proceed with the undertaking, and when the books were closed, September 1, I was informed that the loan had been taken in full. By the terms prescribed by Cooke & Co., the subscribers deposited five per cent as security for the validity of their subscriptions. The bonds were to be delivered the first day of December.

Upon the receipt of the information that the undertaking had been a success, the bonds were prepared, and the Hon. William A. Richardson, then an assistant secretary of the Treasury, was designated as the agent of the department for the delivery of the bonds. The bonds were placed in safes, on each of which there were three locks. The clerks were sent over in different vessels, and the keys were so distributed among them, that there were not keys in any one vessel by which any one of the safes could be opened.

The success of the subscription gave rise to an unexpected difficulty.

At that time there were outstanding one hundred and ninety-four million ten-forty United States bonds that carried interest at the rate of five per cent.

It was a singular coincidence, and a coincidence probably not due to natural causes, that some five per cent bonds, having fifteen years to run, should be at par, and that other five per cent bonds that might run thirty years should fall below par in the same market. In the three months from August to December, these ten-forties were quoted as low as ninety-seven, or even for a time at ninety-six. Cooke became anxious, if not alarmed, lest the rate should fall below ninety-five, and consequently lest the subscribers should refuse to meet their obligations. Early on the morning of the first Monday in December, I received the information that the bonds were taken as soon as the offices were open. I may mention in passing that Cooke & Co. paid for the bonds as they were delivered, either in coin or in five-twenty bonds.

As bonds were taken, and as payments were made, a difficulty appeared which had been anticipated, but not in its fullness. The proceeds from the sales of the five per cent bonds were pledged to the redemption of the six per cent five-twenty bonds, reckoned at their par value.

It was provided by the statute that whenever five-twenty bonds were called, a notice of ninety days should be given, when interest would cease. Thus it happened that whenever a bond was called it was worth par and interest to the end of the ninety days. Of the called bonds some were in America, and the owners did not choose to present them in London in exchange for five per cent bonds, nor for coin. Hence it happened that the total proceeds of the five per cent bonds, about twenty million dollars were paid in gold coin by Cooke & Co. This coin was deposited in the Bank of England, but upon such terms as were imposed by the governors:

(1) The deposits must be made in the name of William A. Richardson. This was done, but a statement was made by Judge Richardson that the deposit was the property of the United States.

(2) The gold was not to be taken out of the country. This stipulation was in the line of our policy, which was to invest the entire sum in five-twenty bonds, whenever they could be bought at par. The opportunity came in a manner that was not anticipated. The documents referred to are of historical value, and they are therefore inserted as follows: