March 18, 1863 – Confederate commissioner John Slidell and representatives of Emile Erlanger, head of France’s most influential bank, negotiated a loan to the Confederacy for $15 million to help finance the war.
The loan was to be secured by the Confederate sale of 20-year war bonds that could be exchanged for cotton, the South’s most lucrative commodity. The cotton was to be sold to bondholders at 12 cents per pound while the market rate was 21 cents per pound, making the potential margin for profit enormous.
Confederate officials complained about Erlanger’s insistence on high interest rates and a five percent commission; some even accused him of extortion. Nevertheless, they approved the loan in the hope that France would recognize Confederate independence.
The Confederates were desperate to raise money, and with depleted specie reserves, the government had turned to bond sales. When these sales further drained the specie out of the South, the government printed paper money that quickly depreciated and caused prices to soar. It was hoped that this loan would not only finance the war but help stabilize the southern economy.
The first bond issue took place on March 19 in London, Amsterdam, Paris, and Frankfurt. By day’s end, the bonds were heavily oversubscribed at 90. The enthusiasm caused by this issue quickly raised the bond price 95.5 percent. This allowed agents to purchase some badly needed supplies for the war effort.
However, Federal agents in Europe began spreading rumors that Confederate securities were a poor risk and bid up the cost of war supplies so high (using gold the Confederacy did not have) that the Confederates could no longer afford to buy them. They also played on investors’ fears by alleging that President Jefferson Davis had supported bond repudiation in his home state of Mississippi before the war.
The bond price soon plummeted due to fears that the Confederacy would repudiate its debts if it won the war; military defeats this summer also worked to drive the prices down. Many investors lost fortunes, but Erlanger cleared $6 million in interest and commissions, leaving the Confederacy with $9 million in European currency to pay for the war. This was about the best deal the credit-starved Confederacy could hope for.
Faust, Patricia L., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 246; Foote, Shelby, The Civil War: A Narrative: Volume 2: Fredericksburg to Meridian (Vintage Civil War Library, Knopf Doubleday Publishing Group, Kindle Edition, 2011), p. 156; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 329-30; Thomas, Emory M., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 259; Time-Life Editors, The Blockade: Runners and Raiders (Alexandria, VA: Time-Life Books, 1983), p. 122-24