862.51 D 88/–
The Secretary of State to Harris, Forbes & Company
Sirs: I beg to acknowledge the receipt of your letter of November 14, 1925,77 regarding your interest in a proposed loan of $3,000,000 to the City of Duisberg for the purposes and under the terms set forth therein.
Since the flotation of the German external loan provided for by the Dawes plan, offerings of German loans in the American market have aggregated, according to the information before this Department, about $200,000,000, and it appears that a considerable volume of additional German financing is now in contemplation. In addition to the public offerings referred to above, the Department is informed that a large amount of private bank and commercial credits has been extended to German interests during the past year.
In these circumstances the Department believes that American bankers should examine with particular care all German financing that is brought to their attention, with a view to ascertaining whether the loan proceeds are to be used for productive and self-supporting objects that will improve, directly or indirectly, the economic condition of Germany and tend to aid that country in meeting its financial obligations at home and abroad. In this connection I feel that I should inform you that the Department is advised that the German Federal authorities themselves are not disposed to view with favor the indiscriminate placing of German loans in the American market, particularly when the borrowers are German municipalities and the purposes are not productive.
Moreover it cannot be said at this time that serious complications in connection with interest and amortization payments by German borrowers may not arise from possible future action by the Agent General and the Transfer Committee. In this connection, your attention is called to a public statement by Mr. Gilbert on November 11, 1925, to the effect that the Transfer Committee is not in a position to give assurances concerning the payment of interest or amortization on German loans floated abroad.77a While the Department of State does not wish to be understood as passing upon the interpretation or application of the provisions of the Dawes plan, or upon their effect, if any, upon loans such as the one now under consideration by you, it believes that in the interest of yourselves and of your prospective clients you should give careful consideration to this question.
[Page 187]While the foregoing considerations involve questions of business risk, and while the Department does not in any case pass upon the merits of foreign loans as business propositions, it is unwilling, in view of the uncertainties of the situation, to allow the matter to pass without calling the foregoing considerations to your attention. In reply to your inquiry, however, I wish to state that there appear to be no questions of Government policy involved which would justify the Department in offering objection to the loan in question.
I am [etc.]
Assistant Secretary