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  • Online publication date: December 2014

4 - The Loan of 1847


The year 1847 opened with the United States still at war and the administration and Congress grappling with the best way to finance the ongoing conflict. Despite the administration's urging, Congress dismissed tax increases and elected to cover the deficit by borrowing. The Loan Act of 28 January 1847 authorized the Treasury to borrow an additional $23 million. The sale of the loan in three instalments (contracts) assured the military sufficient resources for the conquest of Mexico. The successful sale resulted from several factors. Secretary Walker was now willing to give serious consideration to the bankers’ views. Their cooperation resulted in a series of treasury notes and bonds suitable for market conditions. The most prominent feature was the convertibility of the short-term treasury notes into long-term twenty-year bonds. The issues were also sold during a period of high prosperity. Finally, the marketing of the treasury notes and bonds brought a new, highly capable investment firm, Corcoran & Riggs, to the forefront of government finance.

The need for the loan arose from the inability of the American government to force the Mexicans to the peace table. A series of victories in the spring and summer of 1846, and the occupation of north-east Mexico, California and New Mexico failed to have the desired effect of ending Mexican resistance. Although the territories demanded by Polk as an indemnity were occupied, legal title remained elusive. The administration needed a peace treaty recognizing its gains. Failing this, an expensive and bloody campaign from Vera Cruz into Mexico's heartland would be required.

Despite the defeats, the Mexican government and people were determined to resist. General Mariano Paredes's government fell in late July 1846, but was replaced by one even more anti-American. The new government, dominated by a coalition of supporters of Santa Anna and radical democrats led by Valentin Gomez Farias, promised the country a vigorous defence and vowed not to yield any territory. On 17 September the new government appointed Santa Anna commander-in-chief of the Mexican army and a few days later he left for the north to oppose Taylor. Clearly any peace acceptable to the Americans had to be won by conquest.