862.51/2060
The Ambassador in Germany (Schurman) to the Secretary of State
[Received October 16.]
Sir: Concerning the efforts of German municipalities to borrow money in the United States, and especially to the last sentence of my telegram No. 156, dated September 5, 5 p.m.,57 I have the honor to transmit herewith an original copy of a pamphlet recently prepared by the Transfer Committee and entitled: “The American Loan of the Rentenbank Credit Institution and the Negotiations of the Girozentrale”, and to refer to the second section of that document. [Page 175] As is therein set out, it is no secret that the Girozentrale, which is the Bank of the Deutscher Sparkassen und Giroverband, has been in negotiations with the National City Bank for some months past with a view to floating a loan in America, the proceeds of which would be apportioned among certain Communes in Germany. According to the press, the National City Bank had expressed its readiness in principle to place this loan, but, before doing so, was anxious to know what the attitude of the American market would be to the loan of the Credit Institution of the Rentenbank.
At the same time, I desire to ask attention to press reports here, which describe the successful floating in New York of a recent loan of about ten million dollars to the City of Bremen and which, according to the evening edition of the Boersen Courier of September 23rd, was oversubscribed. The same journal contained the following statement in connection with the placing of further loans to the United States:
“In view of the success of the Bremen loan in New York, it is probable that a Bavarian State loan of about 25 million dollars will be floated. It is said that a syndicate composed of the Guaranty Trust Company, et al., will offer this loan on about October 1, 1925. It is further stated that an American banking group will arrange a loan of five million dollars for the city of Posen (now Poland).”
With the situation as described in my confidential despatch No. 295, dated September 15, 1925, in mind, I have the honor again respectfully to emphasize the inherent dangers of this policy, and again to point out that American financiers are running risks that do not seem to me to be justified, in advancing these large amounts to German municipalities. I am told that the reason why the bankers are ready to handle municipal and state loans is that these bonds find a more receptive market in the United States than do bonds of industrial or commercial concerns. The reason for this lies in the fact that the muncipalities and states, in most instances, can advertise the fact that, as a result of inflation, they have wiped out practically all, or nearly all, of their indebtedness. (They, of course, do not mention that this was a species of repudiation).
While I realize that the factor just mentioned would unquestionably add to the attractiveness of an issue, I still believe that the other factors involved (those set out with my despatch No. 295), are of much more serious import, and therefore I desire again to go on record as discountenancing the granting of loans by American capitalists to German Communes and Communal associations.
I have [etc.]
- Not printed.↩