"The Anglo-French Loan Commission, assisted by their agency, the Morgan group, are working at high pressure. Stories of Allied victories in Europe are sedulously spread abroad in order to enlist the support of public opinion. Despite these efforts the commission found Chicago so invincibly hostile that they were compelled to proceed there in person, but they will probably, in any case, manage to raise a loan, as the Morgan group are quite strong enough for the purpose. The rate of interest they are demanding is very high, as up till now they have financed all English purchases here. By these means, they are, no doubt, making considerable profits, but in order to secure them, they will, of course consolidate their floating debt and unload it on to the public. The only question is to what extent they will be able to do this. Opinion varies as to the size of England's present debt; a prominent banker here, in close touch with the Morgan group, estimated the total to 500,000,000 dollars; if this estimate is correct, a loan of 500,000,000 dollars would only just cover the liabilities hitherto existing.
"The Morgan group certainly had to make two great concessions: first, that the proceeds of the new loan shall not be employed for the purchase of munitions, and second, that Russia shall be excluded from the loan; only by these means could they overcome the opposition of the German-Americans and the Jews. Our Jewish friends here are in no easy position. Their action, or rather inaction, takes the form of what is commonly known as 'egg-dancing,' or 'pussyfooting'; they wish to stand well with all sides, but have not the courage of their convictions, and are very anxious to make money. All this is very easily understood, when one remembers the ambiguous position of these gentlemen. A regular devil's dance around the 'Golden calf' is now going on here. All the European Governments are coming to buy in the American market, and usually paying double for their goods, as they only purchase what they urgently need. One lesson we may learn for future reference from the present state of affairs, and that is that we must not allow ourselves again to be left to the tender mercies of the German-Jew bankers here. After the war, we must have branches of our large banks in New York just as we have in London. All evidence goes to show that New York will then be the center of world-finance, and we should, therefore, take all steps to act on this assumption as soon as possible."
The Foreign Office in Berlin, who naturally wished to avoid a rupture with the United States, accordingly dispatched to me the following telegraphic instructions:
"We have no doubt that in this instance submarine commander believed Arabic intended to ram and had every reason for such belief. However, German Government prepared to give credence to sworn evidence of English officers of Arabic and agree that in reality no such intention existed.
"Attack of submarine thus was unfortunately not in accordance with instructions; communication to this effect will be made to commander. German Government is for sake of final settlement by friendly agreement prepared without admission of responsibility from point of view of international law, to give indemnification for death of American citizens. Your Excellency is empowered to notify American Government of above, and to negotiate with them in case of acceptance concerning amount of compensation, subject to our concurrence. Confidently expect that incident will thus be finally liquidated, as above is limit of possible concessions."
"The American Government during verbal negotiations with me on this matter considered it essential that a phrase expressing Germany's disapproval of the commander's action should be incorporated in the explanation which I proposed to publish. I was not sure whether I was really authorized by the above instructions to comply with this condition, but in view of the fact that it was the only hope of avoiding a breach and further delay in the negotiations would profit us nothing, as we were bound to make some sort of reply to the American demand within a certain definite time, I acted once more on my own responsibility and gave the following explanation to Mr. Lansing:
"The Government of his Majesty the Kaiser, in its orders with which I previously made you acquainted, has so framed its instructions to its submarine commanders as to avoid any repetition of incidents such as that of the Arabic. According to the report of the officer who sank the Arabic and his sworn evidence, together with that of his crew, this commander believed that the Arabic intended to ram the submarine. On the other hand, the Imperial Government does not desire to call in question the good faith of the English officers of the Arabic, who have given evidence on oath that the Arabic had no intention of ramming. The action of the submarine was therefore contrary to orders, and the Imperial Government both disapproves of it and regrets it. A communication to this effect has been made to the officer in question. Under these circumstances my Government is prepared to give compensation for the lives of American subjects drowned, to their great regret, in the Arabic. I am empowered to discuss with you the amount of this compensation."
The above explanation finally resolved the second crisis. The German naval authorities naturally complained of my action, as the "disapproval" stuck in their throats, and I was once more taken to task—a matter which weighed little with me. For I felt that my interpretation of the instructions from the Foreign Office was the only one which could have saved us from war, and that now the road was open for the final settlement of the Lusitania incident and the discussion of the great question of "the freedom of the seas." The outlook for us was most promising. Opinion in America as a result of the solution of the Arabic question was once more favorable to us. A leading American paper, the New York Sun, said at this time in its leading article:
"The successful issue of the conversations with Germany over the submarine campaign cannot fail to be of benefit to an nations, as a proof of the possibilities of diplomacy as against war. It has been a personal triumph for both the participants, President Wilson and Count Bernstorff."
The position of both men has been much strengthened thereby, and what they have already achieved is no doubt only a presage of still greater results in the future.