Fifty years in Wall Street
bought out the first million issued of Brunswick & Albany First
bonds guaranteed by the State of Georgia, in the Berlin and
Frankfort markets at 104, and there were seven millions of bids
therefor, and the one million had to be distributed _pro rata_
amongst the said bidders. In testimony of the correctness of
this statement, I refer you to Mr. Budge, the head active
partner of Hallgarten & Co., and Mr. Schiff the head active
partner of Kuhn, Loeb & Co., of this city, who were interested
with me, and through these two gentlemen the bonds were sold.
After this great success, I ask you, or any fair-minded man, was
not my firm entitled to continue to advance upon Brunswick &
Albany first mortgage bonds endorsed by Georgia? and as the 275
Cartersville & Van Wert bonds, endorsed by the State of Georgia,
were offered to my firm shortly after this signal success as
collateral, were they not also equally justified in advancing
167,000 upon them? and _in that_ way, and in that alone, these
securities came into our hands. I most positively assert that my
firm never had any other pecuniary interests but as herewith set
forth in these two enterprises. At the time of the repudiation
of the State, my firm held
750,000 Brunswick & Albany first mortgage bonds,
endorsed by State of Georgia.
275,000 Cartersville & Van Wert first mortgage bonds,
endorsed by State of Georgia.
587,000 State of Georgia Gold 7s.
350,000 Brunswick & Albany first mortgage bonds.
400,000 Coupons cashed by us on the State of Georgia
securities, but a legal claim
against the State.
800,000 State of Georgia Currency 7s.
——
3,162,000
Also, a judgment of 525,000 obtained in favor of Henry Clews &
Co. in the State courts of Georgia against the Brunswick &
Albany Railroad Company, being an amount due my firm over and
above all securities in our hands. My firm also obtained in the
United States District Court of Georgia a judgment to secure our
advances of 167,000 to the Cartersville & Van Wert Company.
Neither of these judgments have ever been satisfied.
This leaves out entirely the 102,000 Georgia 7s (quarterlies),
as well as many other scattering lots of different issues of
the State of Georgia securities. The past due bonds referred
to by Mr. Hammond were being hawked about, both here and in
London, for the purpose of forcing their payment, and the
holders threatened to use them to interfere with the sale of
the gold 7s which we were about to bring out in this and
foreign markets. I mentioned this matter to Governor Bullock
when on a visit here. He then directed me to buy up such of
these bonds which were in troublesome hands, and as they were
a demand claim against funds then in the State Treasury, all
you have to do, he said, is to charge up the amount which you
paid for said bonds to the State’s account and retain in your
hands the bonds as collateral, and when the State is flush
enough I’ll see that you are paid direct from the Treasury.
These past due bonds belonged to us, and were taken up by our
money and not the State’s; the 98,000 which were cancelled,
which Mr. Hammond refers to, were so cancelled by error, which
I am fully prepared at any time to prove. The depreciation in
Georgia State bonds which Mr. Hammond refers to did not exist
during Governor Bullock’s administration, but was brought
about by his successors in office, as they did all they
possibly could to depreciate the bonds of the State authorized
and issued by the previous Legislature.
I have the honor to remain,
Your obedient servant,
HENRY CLEWS.
* * * * *
GEORGIA SECURITIES AND NEW YORK SAVINGS BANKS.
The efforts that are being made to place Georgia securities in
the savings banks of New York ought to be resisted for two very
good reasons: First, such investment would be contrary to the
law of the State; second, even if it were legal it would be
imprudent and unsafe.
As to the authority of our savings banks to invest in these
securities, it is understood that the opinion of the
Attorney-General has been asked. On this point there is not much
room for question. Savings banks are prohibited by law from
investing in the stocks or bonds of any State that has within
ten years defaulted in the payment of any part of the principal
or interest of its debt. By a constitutional amendment adopted
in 1877, Georgia ratified previous acts of the Legislature
repudiating more than eight millions of its obligations. The
excuse given for this proceeding was that the State’s
obligations had not been lawfully contracted, and therefore were
not binding. On this ground it is claimed that Georgia
securities do not fall within the prohibition put by the law
upon the savings banks of New York. There would be some force in
this view if Georgia were sustained by any judicial decision
holding the bonds invalid. But it took advantage of that
principal which protects a State against suit by a citizen. It
decided the question by its own arbitrary edict It gave its
victimized creditors no voice in the matter. In the absence of
judicial support or warrant, its action can be regarded only as
a repudiation.
But if there were no legal obstacle in the way, prudence alone
should deter any savings institution from investing in the bonds
of a State that has so recently broken its faith and repudiated
its obligations. The managers of a savings bank hold an
exceptional trust. These institutions are the depositories of
the earnings of the poor. The first consideration in their
management is safety. With that end in view the law imposes the
most stringent regulations on their supervision and the
disposition of their funds. Their investments are properly
restricted to the safest and most unquestionable securities.
There is neither authority nor excuse for taking any risk. Let
individuals, if they wish, invest in Georgia bonds. That is
their own business. But the managers of a savings bank cannot
run any such risk without failing in their duty to thousands of
poor depositors.—_N. Y. Herald, July 17, 1885._
* * * * *
THE ATTORNEY-GENERAL’S DECISION.
The decision of the Attorney-General, as was expected, wisely prohibited
the savings banks of this State from risking any of the hard earnings of
their large number of depositors in such an uncertain security as
Georgia bonds.
The Bank Superintendent, Willis S. Paine, referring in his report of
March, 1886, to this decision, says:
“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