DEBT REPUDIATION

Dominion, Volume 24, Issue 147, 18 March 1931, Page 7

DEBT REPUDIATION

An American Example ‘UNANSWERABLE CHARGE’ In the current issue of an American monthly, an outline is given of the way in which the State of Mississippi, some years before the middle of last century, borrowed money in England, which the State legislature decided subsequently not to repay. The article mentions that the world’s greatest creditor, the United States, will probably have to form an organisation soon on the lines of the London Corporation of Foreign Bondholders for the settlement and collection of foreign obligations. “When that time comes, it says, “we should be prepared for the unanswerable charge that one of our own State Governments was a participant m the game of repudiation.” The business began in 1847, when the whole country was short of money and many banks failed. The State of Mississippi chartered the Union Bank of Mississippi, but there was next to no specie in the State, and it was arranged to borrow what was necessary abroad, with the State endorsing the bank’s bonds. Later the State decided to borrow directly on its own credit, and turn the money oyer to the bank in return for stock. Union Bank bonds were sold accordingly in Loudon to the extent of £1,000,000 and the honour of the State was pledged.” After this amount had been received in specie and gold the bank indulged in wildcat banking and failed. A. G. McNutt, who was State Governor when the bonds were sold, signed the bank charter and executed the State bonds. Soon afterward he urged repudiation of the bonds,, a course which was opposed at first, but was finally carried out by a new governor and a new Legislature eleetd on a repudiation platform. In the new State Constitution of 1890. a clause was introduced providing that “no bonds of the Union Bank . . . should ever be redeemed by this State.” “Agitation by the English bondholders has been unavailing.” the article continues. “The State Department at Washington has had the matter on its files for years. Despite the fact that the Supreme Court of Mississippi gave judgment in favour of the bondholders and against the State, no way has been found to collect. “Of this repudiation Theodore Roosevelt. when President, said: ‘lt is one of the blackest pages in our financial history.’ . “Though the London Corporation or Foreign Bondholders understands perfectly well that this is a State default, and not a national one,” the article concludes, “the less informed people of Europe are convinced that the United States, the richest country in the world, is a repudiator.” ’