Monday, March 18, 2013
March 18, 1863: The Erlanger Loan
On this day 150 years ago, the Confederacy, through its agents in the French banking house of Emile Erlanger & Company, marketed $15,000,000 worth of Confederate bonds backed by cotton. Erlanger received the bonds at 77 cents on the dollar (i.e. 77% face value) and sold them in foreign financial markets at 90 cents on the dollar (90% of face). In addition, Erlanger received a 5% commission for selling the bonds.
The bonds could be exchanged for cotton during and after the war at a price below the current market value. This feature of the loan was meant to encourage blockade running in order to redeem the bonds for cotton. The market value of the bonds went up and down dramatically during the war, reflecting the Confederacy's declining military fortunes. When the South finally lost the war the bonds became worthless, but by that time Erlanger had reaped huge profits. Erlanger & Company held no bonds by the time their value collapsed, and of their original $15,000,000 face value, the Confederacy had received only $6,000,000 to aid in the war effort.