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through canals, through railroads and these
great enterprises were going to make ev-
erybody rich. All you had to do was to
invest in them and sit back and reap the
profits. The people who lost were not only
the investors, but they were people of the
State of Maryland and, sad to say, those
who came from another generation, the one
behind the investors and the one behind
them and they had to pay for the mistakes
of their forefathers because you cannot get
something for nothing. You have to pay
for it. So when the last Constitution came
to be written and the one before it came
to be written, they wanted to be sure that
the mistakes that had been made would not
occur again and so they wrote into the
Constitution one safeguard after another.
Sometimes these safeguards worked out.
Sometimes they were good. Sometimes they
did not work out and they, therefore,
worked either to prevent the State from
making1 progress or they had to find a way
to get around it. We have, as you will note
from your examination of the Commission's
Report, constitutional prohibitions involv-
ing the incurring- of state debt. Now, one
of these prohibitions or safeguards, it is
really not a prohibition but a safeguard is
this, and I put it in very simple language,
an over-simplification, if you will, they pro-
vided that when you borrow money in the
State of Maryland and you issue the state's
bonds to secure that indebtedness, then and
there you must provide a tax with which
to pay back the principal over a period of
years which is amortization and that tax
must also include the interest that you must
have. They did this in order to hold back
wild expenditures of money for speculative
investment, construction, building or plans
or ideas and the purpose was to require the
legislature in doing so to provide the neces-
sary tax and when you have to provide the
necessary tax with interest, then you do go
slow because every legislator knows that as
you impose this tax, the people back home
know about it. So that as they incurred
this indebtedness, and as they incurred in-
terest in the State of Maryland, there was
one sure tax. That tax was the tax on real
estate, so that every time Maryland pro-
vided a bond issue, the legislation providing-
for the bond issue carried with it, tax on
real estate sufficient to pay the principal
over the period of time it was to be amor-
tized and interest as the interest accrued
which, of course, declined as the payments
on principal were made. So you had a sure
basis for the payment of your indebtedness.
Now, when you are ready to sell bonds,
you go out into the marketplace. The mar-
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ketplace is the public. Bond issues are pur-
chased in open bidding by syndicates of
bankers, investment houses; these invest-
ment houses, these syndicates are made up
sometimes of 30, 40 or 50 banks in one
group and 40, 50 or 00 banks in another
group or investment houses, sometimes
fewer, sometimes a third syndicate. Then on
the day when the bidding is open, out to the
third, fourth, fifth or sixth decimal point,
you determined who is giving the State of
Maryland the most money for its bonds or,
in reverse, who is requiring the State to
pay the least interest.
Or, putting- it still another way, does the
investor get a larger yield or a smaller
yield? There evolved in connection with
our bond issues a form of bond where each
year there was a particular bond require-
ment for that particular year as to how
much by serial number, by grouping would
be amortized, what the interest rates would
be, and sometimes the interest rates for the
first few years were different from the in-
terest rate for the latter years. All of this
depended on many tangibles and intan-
gibles. Much of it depended on what the
marketplace demanded when you went into
the market. It depended on what world con-
ditions were, what conditions were in our
own country and what, indeed, were the
conditions on the day when you went into
the marketplace. But over and above all
of this, what you got for your bonds de-
pended on how good your credit was and is.
Moreover, how g-ood your credit is affects
you in a number of ways. If you have the
best credit there is, you are going to get a
better price for your bonds. If you have a
credit which is not the best, but almost the
best, you may pay more in interest and get
less for your bonds and so on down, de-
pending on how you are rated.
Now, these ratings are not made in the
State House, they are not made in An-
napolis. These ratings are made in New
York by two of the big organizations deal-
ing in this field of bonds where they spend
tremendous time and money investigating
every facet of the state or of the county
or of the city that is coming- into the mar-
ketplace. If you have the best rating of all,
you have a triple "A" rating, therefore, it
would mean, depending again on the con-
ditions of the time when you go into the
marketplace, you would then get the best
price for your bond and pay the lesser in-
terest. If you had a double "A" rating,
obviously, although sometimes the margin
in price may be almost so small that only
where a large issue is concerned would it
amount to a great deal, sometimes your
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