When Congress reconvened on 2 December 1861, caution and concern had replaced the bravado that characterized the emergency session the previous summer. The war continued, but optimism waned. The Union army had suffered a series of losses throughout the fall; the troops seemed disorganized and the leadership bereft of talent. The Confederate army had triumphed in most land battles, some of which ended with humiliating defeats for the Yankees. Confederate soldiers camped in Virginia, not far from Washington, DC. General George McClellan, in whom the Union had placed its hopes for a quick and decisive victory, drilled and marched, but did not attack. ‘McClellan is a dear luxury’, Secretary Chase complained in his diary that winter. ‘Fifty days, fifty miles, fifty millions of dollars – easy arithmetic, but not satisfactory’.

Chase's December 1861 Annual Report to Congress outlining the state of the Treasury reiterated his commitment to ‘Dutch finance’ he wanted to depend on borrowed funds to finance the ‘extraordinary’ costs of war, while levying minimal taxes to pay the ‘ordinary’ expenses of government, including the interest payments on the war loans, and the establishment of a sinking fund to help pay down the principal on the debt. But from whom could the Union borrow these funds? Banks had suspended specie payments. Chase's refusal to market bonds below par had ‘broken’ the relationship with the capitalists upon whom he had relied upon that fall to lend the Union the ‘extraordinary sum’ of $150 million. In January 1862, ‘several prominent New York City bankers, headed by James Gallatin, met with Chase and Congressional leaders … to argue vehemently for suspension of the Independent Treasury Act, use of state banks as public depositories, and new loans offered at prevailing market rates [meaning below par], and heavier taxation’. Prepared to deal with those he disliked in order to keep funds coming into the Treasury coffers, Chase was surprised when congressional Republicans refused to acquiesce to the demands of these ‘finance capitalists’. Many in Congress believed that marketing the bonds below par would signal a lack of faith in the government's credit; with the prospect of a prolonged conflict, this would greatly hamper the Union's ability to raise money. Also, they did not wish to repeat the mistakes of the past and accept the notes of state chartered banks for the purchase of bonds.