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¶ As early as Aug. 3, 1914, Morgan & Co. received a cablegram from Rothschild Freres of Paris suggesting a loan of $100,000,000 to France. Morgan answered that because of exchange conditions, they could not make the loan and would not do so, in any event, without the U. S. Government's consent. In answer to an inquiry from Morgan & Co. Secretary of State Bryan then announced that loans by U. S. bankers to any belligerent nation would be inconsistent with the country's "true spirit of neutrality." Two months later Mr. Vanderlip told French Ambassador Jusserand that National City Bank would head a syndicate to grant "credits" to the French Government provided the U. S. Government did not object. Counselor Robert Lansing of the State Department, after an interview with President Wilson, notified representatives of Morgan & Co. and the National City Bank that while the U. S. would object to the sale of foreign war bonds to the public, it would neither approve nor disapprove "credits" made directly to belligerents to facilitate purchases in the U. S. First intimation of scandal in last week's hearing was that this change of U. S. policy had been concealed from the public. The Morgan partners promptly offered newspaper clippings to show that the news had been printed in the Press at the time.
¶ In August 1915, prompted by an inquiry from the late James B. Forgan, president of Chicago's First National Bank, about the Government's attitude toward the flotation of a British loan in the U. S. to help pay for Allied purchases, Secretary of the Treasury McAdoo wrote to President Wilson urging that permission be granted. Said he : "The high prices for food products have brought great prosperity to our farmers, while the purchases of war munitions have stimulated industry and have set factories going to full capacity throughout the great manufacturing districts, while the reduction of imports and their actual cessation in some cases, have caused new industries to spring up and others to be enlarged. . . . The balance of trade is so largely in our favor and will grow even larger if trade continues that we cannot demand payments in gold alone, without eventually exhausting the gold reserves of our best customers which would ruin their credit and stop their trade with us."
Five days later President Wilson, reversing his previous policy, agreed that belligerents might float public loans in the U. S.
¶ Cause of this action was an exchange crisis precipitated when the British Treasury, under the strain of heavy purchases in the U. S., allowed the pound sterling to fall below par.
Said Senator Clark: "I think that when Morgan & Co. stepped out from under and permitted the sterling exchange to flop, pressure was brought to bear on McAdoo."
Said Banker Morgan: "I want to deny in the most clear manner that I can that such a thing was ever thought of by us or done by us at any time in any way. That is one of the discreditable actions which is foreign to our history and it is foreign to our tradition, and we never did such a thing in our lives." Fortunately for the Morgan partners, a cablegram showed that they had offered the British a credit of up to $100,000,000 to help keep sterling from slipping.