DEBT REPUDIATION

Hokitika Guardian, 21 March 1931, Page 6

DEBT REPUDIATION

AN A .11 KR It A X EXAMPLE. ‘LXANSWERABLE CHARGE.’ In it he current issue of an ■American monthly, an outline is given of lieway m which -the .Stale, .of Mississippi, some yea rs . before file-' ii.iiddhc -of last century, borrowed uYonOv in England, which the tS'lale legislature decided subsequently nol to repay. The article

mentions that Lhe world's greatest creditor tin* United States, will probably have, to form an organisation soon on the lines of Luc Loudon Corporation of Foreign Bondholders lor the settlement and collection ol foreign obligations. “When that time comes,” it says, "we should he prepared for the unanswerable charge that one of our own state Governments was a participant in the -game of repudiation.” -j

Tile business began in IS-17. when the whole country was short, of money and many banks • failed. The State ol Mississippi chartered the I'oirui 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 over to tlie bank in return for stock. I'nion Rank bonds were sold accordingly in London to the. extent of L‘l ,00!).(>()() and “the honour of the State was pledged.”

.After this amount bad been received in specie- and gold the bank indulged in wildcat banking and tail. d. A. G. McNutt, who. was State Governor when file bonds-.wort* sold, signed j,he bank charter and executed the State bonds. Soon afterward he urged repudiation of the bonds, a course which was opposed at (irs't, but was finally carried otii by a new governor and a new Legislature elected on a repudiat.inn platform. In the new Slate Constitution of I SOB. a clause was introduced providing that- “no bonds of the I'nion Bank ... should ever lie redeemed by this State.”

“Agitation by tin* English bondholders lias been unavailing, ’’ the article continues, “'['lie State Department ii't Washington has bad the matter on its files for years. Despite the fact that the Supreme Court of Mississippi gave .judgment in favour ol 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 historv.’

“Though the London Corporation ol Foreign Bondholders understands perfectly well tlui'f this is a Slate default, and not a national one,” the article concludes, “the inlormed people of Europe are convinced that the United States, flic richest country in the world is a repudiator.”