Mexican Revolution: Loans of the Revolution

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Mexican Revolution Article Review
This article examines the motivations and the extent of involvement of the French bank Paribas and US bank Speyers in underwriting loans to the Mexican government in 1912 and 1913 during the Revolution. The author sheds light on previously overlooked or unknown factors of the loan dealings, such as conflict of interest, information asymmetry between, and the role of state-owned companies in influencing the lending decisions of these banks. The author details the dealings of Francisco Madero's government, which contracted a $2 million one-year loan from a New York bank, Speyers, in 1912. After General Victoriano Huerta overthrew Madero's government in 1913, he borrowed a further $6 million from a syndicate headed by Paribas and renewed Speyers' $2 million credit line. The government defaulted and lost the war the following year, leaving Speyers holding bad loans for a country lacking a centralized government for the next four years. The article is split into five sections.
The first section details the deterioration of Mexico's political stability and economic issues leading to the outbreak of the Revolution in 1910 to the default in 1914. In this section, the author discusses the political and economic environment that cultured the factors that led to the ousting of Diaz's government. The author notes that Diaz was a dictator who had ruled the country for over 20 years and promoted an economic policy that impoverished the peasantry and suppressed the people. The article details how the rebellion started in Morelos by Emiliano Zapata and eventually gained traction throughout the country. It also explains how Francisco Madero came to power on the promise of widening political representation but was not keen on redistributing wealth. The article also details the Revolution's early years, Madero's government, and his subsequent assassination.
The second section analyses the reasons and the contractual terms of the loans the banks advanced to the Revolutionary government. Weller points out that one of the reasons why Mexico could access international loans was because of its reputation. Loan underwriters suffered their perceived status when their clients defaulted. The author shows how the government fostered that it was becoming stable and even sought much larger loans ($20 million). Though the banks rejected the government's request, they underwrote a $6 million loan in 1912. The credit was costly, and the author alludes that the underwriters were aware of the adverse terms of the loans, but they proceeded anyway.
The third section highlights archival evidence that shows the conflict of interest of the parties dealing in the transactions. The author points out that the bankers understood Mexican politics were dangerously volatile and chose to advance small and expensive loans. Unpublished information materials show that the contractual terms had to be arranged 'in favor of the banks. Paribas structured a scheme in which it sold its bonds in the market at a relatively higher price and profited from the whole scheme when it eliminated its exposure before the debt defaulted. The scheme orchestrated by Paribas saw the government honor its obligations for a few month...