LOANS
The first necessity was that of temporary loans for both the state and federal governments.
Temporary loans to states. Patriotic impulse prompted the immediate offering of loans by the banks. In Massachusetts the bankers of Boston tendered the state government a loan up to ten per cent of their combined capital. In Illinois the banks of Springfield offered the state $100,000 on the day Lincoln called for troops. This was supplemented by the Chicago banks’ tender of $500,000. Throughout the early days of the war the banks in all localities were called upon for loans on the credit of the state. These were funded at seven per cent, then the usual interest for such transactions.
Temporary loans to the federal government. The treasury of the United States was in a desperate condition at the outbreak of the Civil War. Lacking resources even for its daily needs, it was totally unprepared for the great
strain immediately placed upon it. Secretary Chase did not have recourse to the bankers, however, until after the battle of Bull Run in July had proved that the war was not to be an affair of “three months.”
On the day that the news of the defeat at Bull Run reached Philadelphia, a young banker recently removed to that city from Ohio, an ardent partisan of Secretary Chase, drew up a paper offering to advance to the Secretary of the Treasury specified sums for sixty days at six per cent interest, returnable in specie or interest-bearing treasury notes. With this proposal he visited the principal banks and financial houses in his city, and raised for immediate government needs nearly $2,000,000 in one day. Chase was interested and grateful, and the fortunes of Jay Cooke, the young banker, were made from that day.
Early in 1862, when the government’s daily needs were increasing enormously, John J. Cisco, assistant treasurer of the sub-treasury at New York, made arrangements for a loan from the city banks of their temporarily idle funds. These were received on deposit for thirty days, subject to withdrawal thereafter on ten days’ notice. At first Cisco by this means secured much specie at four per cent; later, five and six per cent were paid for these advances. This money was largely used for the payment of the interest on the public debt. One banker in New York, it is said, became uneasy after lending the sub-treasury $1,000,000, and demanded its return. Cisco told him to send his carts for it immediately. The next day his faith in the government was restored and he concluded to leave his reserve with the sub-treasurer.
An instance of immediate aid to the government’s foreign diplomats is related in the biography of the late J. Pierpont Morgan. Morgan was in London on business for his house at a time when Charles Francis Adams was endeavoring to prove to the English government that certain vessels fitting in British ports were intended for Confederate privateers.
The officials were slow to accept Adams’ proofs, and he was much alarmed lest the commerce-destroyers should get to sea before he had succeeded in having an embargo placed on their departure. The British authorities finally agreed to detain the ships on condition that Adams should deposit £1,000,000 guarantee to indemnify the government should the owners not prove to be Confederates. Adams was in a dilemma: he could not well refuse such a proposition, but long before he could receive the money from America the cruisers would be at sea. He tried to borrow on his personal credit from London bankers, only to be rebuffed. Young Morgan heard of the situation, sought the ambassador, and promised to deliver $5,000,000 in gold into his hands in two days, asking only his personal receipt in return, while stipulating absolute secrecy concerning his patriotic action. In this wise two of the commerce-destroyers were detained in port, and the integrity of the American ambassador was vindicated.
Secured, or long-time, loans to states. Upon the news of the firing on Fort Sumter and the subsequent call for troops every northern legislature then in session appropriated a fund for war purposes. Indiana, for example, voted $500,000 for arms and equipment, and $100,000 for a contingent fund. Connecticut made an issue of $800,000 of war bonds. These funds were raised in various ways. In Massachusetts and Connecticut they were offered for popular subscription and sold at par. The western states placed their bonds on the New York stock market, where in many cases they sold at a considerable discount. Where the state’s credit was poor, and its banking-system insecure, the bonds could not be placed, and were recalled after being offered. Such was the case with Iowa and Wisconsin. Ohio recalled its bonds, after they had been advertised in New York, when it was learned that the federal government assumed all war expenses, and would refund these to the states.