"I am glad to notice your success and will give you every facility that is extended to anyone else.
"Very respectfully,
"John Sherman, Secretary."
The sale in London was fully justified when the called bonds matured, and those held abroad were paid for without the exportation of coin. It was my desire to secure the exchange of four per cent. bonds directly with the holders of the six per cents. For this purpose I invited, by a department order widely circulated, such an exchange, allowing to the holder of any six per cent. bond, whether called or uncalled, the same commission and allowance for interest granted to banks and bankers. By these expedients I hoped for, and succeeded in conducting, the change of bonds without disturbing the ordinary current of business.
The process of refunding the 5-20 six per cent. bonds, by the sale of four per cent. bonds, went on with some fluctuations until the 4th of April, 1879, when all the six per cent. bonds then redeemable were called for payment. This period in the magnitude of business done was far the most active and important while I was Secretary of the Treasury. The struggle between banks and bankers, not only in the United States but in London also, gave rise to many questions which had to be promptly acted upon, chiefly by cable or telegram. The amount involved were so large as to induce caution and care. The principal difficulty in refunding arose out of the provision in the act of Congress that ninety days' notice should be given, to the holder of bonds, by the government, when it exercised its option to pay, after five years, any portion of the bonds known as the 5-20 bonds, payable in twenty years but redeemable after five years. Prudence required the actual sale of four per cent. bonds before a call could be made or notice given to the holders of the 5-20 bonds, designated by description and numbers, of the intention of the government to pay them. When sales were made the money received was deposited in the treasury of the United States, or with national banks acting as public depositaries, which were required to give security for such deposits.
The necessary effort of the deposit of large amount involved in refunding operations was to create a stringency in the money market. I early called the attention of Congress to this difficulty, but had doubts whether the government would be justified in repealing the law requiring ninety days' notice. This provision was a part of the contract between the government and the bondholder, and could only be changed by the consent of both parties. Congress failed to act upon my suggestion. The interest accruing for ninety days at six per cent., or one and a half per cent. on the great sums involved, was a loss to the government but a gain to the banks or bankers that sold the bonds. The syndicate of bankers engaged in the sale of bonds chose the First National Bank of New York as their depositary. The department was indifferent where the deposits were made so that they were amply secured. Other banks and bankers engaged in the sale of bonds chose their own depositaries, and thus an active competition was created in which the department took no part or interest.
This struggle led to charges of favoritism on the part of the department, but they were without the slightest foundation. Every order, ruling and letter was fully discussed and considered by the Secretary and other chief officers of the treasury, and also by General Hillhouse, assistant treasurer at New York, and is in the printed report of the letters, contracts, circulars and accounts relating to resumption and refunding made to Congress on the 2nd of December, 1879.
The charge was especially made that favor was shown the First National Bank of New York, of which George F. Baker was president and H. C. Fahnestock was vice president. It was said that I was a stockholder in that bank, and that I was interested in the syndicate. It is scarcely necessary for me to say, as I do, that these charges and imputations were absolutely false. This bank and the associated bankers sold larger amounts of four per cent. bonds than any others and received a corresponding commission, but, instead of being favored, they were constantly complaining of the severity of the treasury restrictions. Rothschild, the head of the great banking house in London and the chief of the syndicate, especially complained of what he called the "stinginess" of the treasury department. I can say for all the officers of the treasury that not one of them was interested in transactions growing out of resumption or refunding, or did or could derive any benefit therefrom.
The rapid payment of the 5-20 bonds had a more serious effect upon the English market than upon our own. Here the four per cent. bonds were received in place of the six per cent. bonds, no doubt with regret by the holders of the latter for the loss of one-third of their interest, but accompanied by a sense of national pride that our credit was so good. In London the process of refunding was regarded with disfavor and in some cases by denunciation. On the 4th of March Secretary Evarts wrote me the following letter:
"Department of State, }
"Washington, March 4, 1870.}
"Hon. John Sherman, Secretary of the Treasury.
"Sir:—I have the honor to transmit herewith, for your information, a copy of a dispatch No. 928, dated February 12, from the consul general at London, in which the department is advised that there exists dissatisfaction, among certain holders of the 5-20 bonds of the issue of 1867, with the rapidity with which the government is refunding its debt at a lower rate of interest, and that it is the purpose of such holders to demand payment of their called bonds in coin. I have to honor to be, sir, your obedient servant.