“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 not yet 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.”
Georgia’s New Issue.
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, consequently it 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—find that to 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. The State 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.