SALE OF FOREIGN BONDS OR SECURITIES IN THE UNITED STATES WEDNESDAY, JANUARY 27, 1932 UNITED STATES SENATE, The committee met at 10 o'clock a. m., pursuant to call of the chairman, in the committee hearing room in the Senate Office Building. Present: Senators Smoot (chairman), Metcalf, Harrison, King, George, Connally, and Gore. Present also: Senator Johnson. The CHAIRMAN. The committee will come to order. I have a letter from the Secretary of State, dated January 20, 1932, reading as follows: MY DEAR SENATOR SMOOT: I have received the request of the Senate Finance Committee for a telegram of June 19, 1931. Mr. White's testimony stated correctly the substance of th's telegram as to the Barco concession. The telegram is available for examination in executive session to your committee if they desire to check the accuracy of Mr. White's testimony. It would not be in the interest of the United States in its foreign relations to publish the telegram itself. Sincerely yours, HENRY L. STIMSON. The CHAIRMAN. Another letter from the Secretary of State, dated January 20, 1932: The Hon. REED SMOOT, Chairman Senate Committee on Finance, United States Senate. MY DEAR SENATOR SMOOT: In compliance with a request embodied in a note, dated January 15, 1932, from the Haitian minister to the United States, I inclose for the Senate Committee on Finance a copy of the above-mentioned note with a translation. Sincerely yours, HENRY L. STIMSON. The inclosure is a copy of the translation of the note from the Haitian minister, dated January 15, 1932, and I ask that that be incorporated in the record at this point. Unless you desire it read, Senator Johnson. If you do, I will read it. Senator JOHNSON. I will read it subsequently. I have not read it as yet, but I will read it subsequently. (The translation of the letter from the Haitian minister is as follows:) LEGATION OF THE REPUBLIC OF HAITI, Mr. SECRETARY: In the course of the inquiry which is being conducted by the Finance Committee of the United States Senate, a statement of extreme gravity was made by the representative of an important New York banking house. It consisted in the affirmation that commissions are generally paid to the governments of Latin America which contract loans in the United States of America. According to this statement, the exorbitant profits allowed to the syndicates which make these loans thus serve to cover, in part, these illicit commissions. It is not too much to say that such a declaration is an attack on the honor of all the American Governments that have contracted loans in the United States. It is in particular an attack on the Republic of Haiti. Your excellency will realize that my Government, of course, believes that it is to its most imperative interest, for the safeguarding of its dignity and its moral credit at home as well as abroad, that the most complete light be thrown upon the conditions under which the Haitian loan of 1922 was contracted in the United States, upon the profits which were made on this occasion by the National City Bank of New York which handled the matter (and) upon the commissions which may have been paid to the persons who participated in the negotiation of this loan. Commenting upon the statement made before the Finance Committee of the Senate by Mr. Mitchell, president of the National City of New York, an American newspaper, the New York Telegram, stated: "Haiti gave the National City its largest spread, 14.71 per cent on a $1,743,000 loan, on which the syndicate profits were $256,395.30." My Government, which is composed of men who can not allow their integrity and honesty to be called in qeustion, earnestly desires that the inquiry of the Senate of the United States should establish very definitely (1) the amount of profits made by the National City Bank on the issue of Haitian bonds in 1922 of a nominal value of $23,660,000, the commissions, whether illicit or not, which may have been paid to those who participated in the negotiation, the names of these persons; (2) the causes of the depreciation of these bonds on the United States market, although interest and amortization payments have been made on them regularly in advance. I am certain that your excellency will apprepriate the legitimacy of the step I am taking, and that you will be good enough to transmit this letter to the Hon. Senator Reed Smoot, as you did that of the Ambassador of Chile. Please accept, Mr. Secretary, etc, etc. DANTES BELLEGARDE The CHAIRMAN. Another letter from the Secretary of State dated January 21, 1932: MY DEAR SENATOR SMOOT: I inclose herewith a copy of a note addressed to me on the 20th instant by the ambassador of Peru, which he has requested that I transmit to you. Sincerely yours, HENRY L. STIMSON. It is just a short note, so I will read it so it will go into the record at this time. Senator JOHNSON. Yes, please. The CHAIRMAN. This is the letter from the ambassador of Peru to the Secretary of State: JANUARY 20, 1932. YOUR EXCELLENCY: My Government has followed closely the proceedings of the investigation undertaken by the Senate Finance Committee with regard to South America loans placed in the United States. Acting under special instructions, I now have the honor to request that your excellency be so good as to convey to the investigating committee my Gov. ernment's earnest hope that the inquiry into all the transactions connected with the issuances of Peruvian loans in the United States during the latter years be as thorough as possible, so that the responsibility of all those who participated in the said transactions affecting Peru's vital interests may be closely defined. May I venture to renew my former verbal request to the effect that an authenticated copy of the evidence taken by the Senate Finance Committee in regard to Peruvian loans placed in the United States be furnished to the em 1 bassy, if available, at the earliest date convenient for transmission to my Government. Thanking your excellency in advance, I have the honor to renew the assurances of my highest consideration. His Excellency HENRY L. STIMSON, M. DE FREYRE Y S. Secretary of State, Department of State, Washington, D. C. The CHAIRMAN. There are some further letters that I wish placed in the record at this point, and I will hand them to the reporter. (The letters referred to are here printed in the record in full, as follows:) Hon. REED SMOOT, MIAMI BEACH, FLA., January 25, 1932. Chairman Senate Finance Committee, United States Senate, Washington, D. C. SIR: I beg to suggest that the investigation into Cuban loans be extended to include the $50,000,000 forced upon Cuba by J. P. Morgan & Co. during the Zayas administration, immediately prior to the present Machado régime. The above loan marked the commencement of unscrupulous banking deals with Latin-America, and it is significant that Ambassador Crowder played an important part in the negotiations. Not only could Cuba have gotten along without this loan but an interest of 5 per cent was charged for the money, while Cuba was paid for such part of the loan which was idle in the vault of Morgan & Co. a paltry 11⁄2 per cent. A great part of this money is still unpaid, and the depreciation affecting all Latin-American bonds has lowered their price so that a large loss is entailed to the investing American public. Should you decide to extend your investigation to this prior loan, I am willing to furnish you all particulars connected with the transaction. Respectfully yours, Hon. REED SMOOT, ALFRED BETANCOURT. CUBAN PATRIOTIC LEAGUE, Washington, D. C., January 25, 1932. Chairman Senate Finance Committee, United States Senate, Washington, D. C. SIR: Remarking that officials of the Chase Securities Corporation have been summoned to appear before your committee on Wednesday next, for investigation of Cuban loans floated in this country, we beg to submit the following information: The Chase Bank has loaned to Cuba $10,000,000 in 1927, and $50,000,000 in 1928. Of the above, two $10,000,000 installments were floated in the New York market. The balance of $40,000,000 was floated also, but as part of a bond issue of $80,000,000 made by the Cuban Government in 1930. Of this latter issue, as already stated, the Chase Bank floated $40,000,000 in the New York market and loaned the Cuban Government $20,000,000 on the remaining $40,000,000 in bonds. The Chase Bank has consequently loaned the Machado government $60,000,000 floated to investors in the United States and $20,000,000 which is still due the Chase Bank, guaranteed with a collateral of $40,000,000 in bonds. This loan has been extended repeatedly, inasmuch as the Cuban Government has been unable to meet it. Fat commissions and exorbitant interest is charged at each renewal. The above bonds, issued at 98, are now currently quoted at 38. The interest and commissions on all of these loans will bear plenty of investigation. With the exception of the first $10,000,000, the balance of the Chase loans were made with Machado's son-in-law as manager of the Chase Habana branch. Machado's son-in-law was paid a $500,000 commission by presidential decree when the $50,000,000 loan was made. It is not known where the money went to. It is a replica of the episode of Dictator Leguia's son of Peru. The perquisites in the later deals are unknown. By that time the dictatorship and press censorship was complete. Ambassador Harry F. Guggenheim, aided by Grosvenor Jones, of the Washington Department of Commerce, subsequently worked on a $300,000,000 refunding project for Cuba for some time. Complete details are given in a pamphlet issued by the Cuban Information Bureau under the title "Ambassador Guggenheim and the Cuban revolt" which has been sent to you ere this. Cuba's indebtedness, when Machado went into office six years ago, was but $97,000,000. It is now over $270,000,000. We attach a circular issued by the secretary of this organization which was sent to all Members of Congress, the President of the United States and his Cabinet, as well as to all banks, banking firms, and brokers in 1930, prior to the $80,000,000 loan floated in accord with the Chase Bank. The loans made by this bank were issued with perfect knowledge of the following facts: 1. That the Machado Government was illegal and despotic; that these loans were to be paid by the people of Cuba, who had had no say in the issuance thereof. 2. That there was a large deficit in the Cuban budgets, which started back in 1926. Machado was and is sustaining an immense army and bureaucracy to hold power and his budget outlay was and is more than Cuba can bear. Taxes are unbearable. The loans allowed him to remain in office by covering his budget deficits and the Chase Bank was thus merely handing out money which the Cuban people would have to pay and which was being utilized for their detriment and the suppression of their liberties. 3. A large part of the money advanced by the Chase Bank was pilfered by the Machado administration. It was chiefly used to build a 680-mile road at a cost of over $100,000,000 which could have been built for 40, or, at the utmost, 50 millions. The capitol, originally bid out for $3,500,000, cost over $20,000,000, although it is considerably larger than the original project. In any event, it is a monument to the extravagance of the Machado dictatorship, financed by the Chase Bank. 4. The money which is now being paid to the Chase Bank is sorely needed by the Cuban population. Widespread misery reigns in Cuba to an incredible degree; it is directly imputable to the Machado régime and in nowise to the price of sugar. Salaries of Government employees are three months in arrears, that the Chase Bank may be paid. The market price of 38, which represents an immense loss to American investors, is proof that Cuba is at the end of the rope and can not pay. But for the Machado iron rule, a moratorium, highly beneficial to the Cuban people, would have been already declared. 5. The Chase Bank has actually given the Machado dictatorship a two years' lease on life. It has permitted the wholesale murder and exploitation which has characterized the Machado despotism. Prior to these Chase loans, J. P. Morgan & Co. made a loan of $9,000,000 to the Machado government. It was given to the said bankers as remuneration for Mr. Thomas W. Lamont's remarks, at a banquet given to Machado in New York, in the month of April, 1927, as follows: "We do not care by what means, but we would like to see such a good administrator remain in power." That was the actual birthplace of the Machado dictatorial régime. This money was used to take up credits of the previous Zayas government, which Machado and his partners had bought out at from 35 to 45 per cent of their face value, after depreciating them by suppressing the budget appropriations designed for their amortization. Machado and his clique made over $6,000,000 profit in the deal. Machado went into office in Cuba absolutely penniless. He had only debts and a plenty. He is now reputed to be worth over $50,000,000 and possesses valuable concessions, industrial enterprises, landed estates, and suburban properties, plus a fat bank account. His firm of Mestre & Machado have been doing all the governmental supplying for years. I can be reached at any time at my present Miami Beach address: 5369 Pine Tree Drive, Miami Beach, Fla. My telephone is 5-1773. Respectfully yours, CUBAN PATRIOTIC LEAGUE, President. CUBA'S FINANCES Any and all money advances to the present Cuban dictatorship of General Machado by American bankers, can only be viewed by the Cuban people as an act inimical to their sovereignty, despotically usurped by the prevailing régime. The Machado dictatorship is financially on its last legs. The entire country, as the result of low-price sugar, crop restrictions, single seller and general maladministration by the wily general, is in a chaotic economical condition. Machado's rule can be prolonged only through further contributions of American capital. Machado reelected himself, without opposition, to a new period commencing May 20, 1929, after illegally modifying the Cuban constitution and lengthening the presidential term of office to six years. Congressmen now in office have not been elected; their terms of office have been "prorogued" or extended by a framed-up constitutional convention. The most prominent men in Cuba have voiced the views of the people; that no constitutional government exists in Cuba after May 20, 1929, that thereafter all contracts and legislative acts, as well as governmental decrees, are null and void, vitiated by a fundamentally illegal régime. Any contract entered into with such régime is bound to create future trouble. The Machado dictatorship has been convicted, before the United States Senate committee investigating the sugar lobby, of persistent and malignant efforts to arouse Latin-American enmity towards the American people and its government and of opposition to American legislation through underhanded methods. re Such dictatorship, plainly antagonistic to the American Nation, now quires American funds to keep on going; to continue tyrannizing the Cuban people. Bankers are looking on this loan with longing eyes. It is the equivalent of furnishing ammunition to your own enemies. Notwithstanding an enormous additional tax burden imposed upon the people, the Machado administration in four years has borrowed from American bankers $69,000,000. The national debt of Cuba (Machado's manifesto of May 20, 1929) was only $97,000,000. This represents an increase of more than 70 per cent. All that the Cuban people have to show for these enormous expenditures are a thoroughly useless $20,000,000 capitol, a few park improvements, and 149.4 miles of Central Highway. (New York American of November 3, 1929.) The highway, 700 miles long, was let out on bid for $52,000,000. $54,000,000 have already been spent (Diario de la Marina, October 12, 1929) for barely 150 miles of 20-foot road. An American company offered to build the entire road in 14 months for $35,000,000. The Cuban people are actually starving under the spendthrift and criminal administration of Machado. Hundreds of men have been assassinated; thousands have been deported. The press is muzzled; there is no security whatever for life, property, and individual liberty, guaranteed under the Cuban constitution and American laws. Graft and despotism are rampant. Ample funds have been sent into the United States to prevent a disclosure of such facts before the American people. A legal régime does not require a $4,500 a month lobbyist to hold back the facts, while pretending to disclose them. There is no security for the American public or American bankers, unless it is desired that the United States Government will ultimately act as a collection agency for precarious loans. The very men heading Cuban finances are "stool pigeons " of the dictator. The president of the Habana Clearing House and Habana manager of the Chase National Bank is Machado's son-in-law. Prior to his marriage he was a $200 a month majordomo in the presidential palace. By his own admission, contained in the attached clippings, he is a "loyal and willing tool" of Machado and a "servant in whatever capacity he desires to utilize" his services. Such are the men surrounding the despot, aiding in an unequivocal attempt to wreck the Republic of Cuba. Can American business men commit themselves to uphold such conditions? Is it either patriotic, or even businesslike to entrust American money to such lawless and ungrateful an administration? Professor Emeritus Albert Bushnell Hart, of Harvard University, wisely states that "A foreign war would be hardly more damaging to the United States than a system of accepted responsibility for irresponsible, self-designated and despotic dictators in the Latin-American Republics." |