George Peabody sold bonds in London. The bonds were issued by states to fund infrastructure projects. I’m sure these projects were done with complete transparency and accountability with zero corruption. Sure.
Eventually, the states learned that they had to raise taxes to pay on the bonds. Taxpayers didn’t like being forced into higher taxes due to past decisions in which they had no say. States eventually caved to taxpayers and repudiated debts. George Peabody, who was the beginning of what became the House of Morgan, had not yet invented the IMF to deal with these states.
A hallmark of merchant bankers was that they vouched for the securities they sponsored. At first, Peabody merely sent letters to Baltimore friends, scolding them about the need for Maryland to resume interest payments. Then he tired of persuasion and rewarded reporters with small gratuities for favorable articles about he state. At last, in 1845 he conspired with Barings to push Maryland into resuming payment. They set up a political slush fund to spread propaganda for debt resumption and to elect sympathetic legislators, they even drafted the clergy into giving sermons on the sanctity of contracts. By means of a secret account, the two firms transferred 1000 pounds to Baltimore, 90 percent from Barings and 10 percent from Peabody–a strategy Barings duplicated in Pennsylvania. Most shocking of all, Barings bribed Daniel Webster, the orator and statesman, to make speeches for debt repayment.