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111 8 } The Five-Million-Dollar Loan If the road to hell is paved with good intentions, Michigan laid down a superhighway in 1837. Along the way, there was enough intrigue, low comedy, high drama, and dirty politics to fill a good-sized novel. There was even a trunkful of cash from which some money came up missing. The story of the five-milliondollar loan and Governor Mason’s role in the saga would be talked about for years to come. In 1837, writes a biographer, “Mason found himself opposed to men who were as clever as himself, and far less scrupulous. They were old hands at technical games which were almost mysteries to him. They were . . . people who were out to skin him at great profit to themselves. They knew Mason was committed to a gigantic public improvement program. They were going to get theirs, and use Mason to get it.”1 The Michigan constitution had provided the chief executive and his legislature with their marching orders with respect to internal improvements. Michigan moved slowly at first with regard to the constitutional mandate, but along with official statehood came a rush to make up for lost time. Governor Mason outlined a sweeping program of internal improvements and recommended a loan of five million dollars to pay for it. Whether the product of hubris or just plain bad judgment, the ambitious program was far beyond the state’s capacity to fund, and five million dollars was an enormous sum for a young state, “which at this time had barely 175,000 in population, was almost wholly agricultural in character, and with a total assessed value of less than 43 million dollars.”2 Mason, then twenty-five years old, had no expertise or experience in the business he was asked to transact. A bill authorizing a loan not to exceed five million dollars was introduced in the House on January 27, 1837, and passed 112 the boy governor several days later without a recorded vote. Whigs as well as Democrats supported the measure. The Senate passed the same legislation by a comfortable margin, and the bill was sent to Mason for approval. The act directed the governor to negotiate loans on the best and most favorable terms that he could obtain; the vagueness of that provision is only exceeded by the wide latitude given to the governor. The act also authorized the issue of state bonds, which were to bear interest not exceeding 5.5 percent and were not to be sold below par. As security, the state pledged its good faith and credit; the expected proceeds of the railroads and canals would go into a sinking fund to pay off the bonds. The proposed loan represented about 12 percent of the state’s total equalized valuation. There are several things wrong with this picture. Entrusting the execution of the loan to one man, without benefit of a board of advisers, was a grave mistake. With affairs of state to attend to, Mason should not have been placed in such a position. In addition, the amount of the loan was out of proportion to the total equalized value of the state. With no funds of its own, the state became a borrower when money was scarce elsewhere, that is, in the banking houses of the East. The thinking seemed to be that if the state just borrowed the money, the future would take care of itself. As a kind of collateral, the state was putting up public works projects whose completion would be far in the future. Admittedly, Michigan’s timing was bad, given the speed with which the Panic of 1837 overtook the nation as banks began failing left and right. Shortly after the legislature adjourned, Governor Mason went to New York to explore the bond market. He went first to John Delafield, president of the Phoenix Bank, a man with good financial connections, who had earlier negotiated a small loan of one hundred thousand dollars for the state. By this time, the financial situation was becoming worrisome, and Mason learned that New York banks were not in a position to handle a loan of five million dollars. Mason agreed to let Delafield contact London financial houses that had satisfactorily managed similar issues in other states (notably, Ohio and Indiana). Governor Mason returned to Detroit, secure in the belief that Delafield would act in the state’s best interest. But the first wave of financial dislocation was being felt in...

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