Baring Brothers believed the depression had bottomed out during the summer of 1842, and anticipated an economic rebound following the signing of the Treaty of Nanking on September 27, 1842, that ended the First Opium War and opened five ports in China to British merchants. This event had been preceded by the signing of the Webster-Ashburton Treaty in August 9, 1842, (Daniel Webster, then Secretary of State, as a Senator from Massachusetts had always kept a close watch on trade issues) settling U.S. and British border claims in the northeast as well as establishing the 49th parallel as the boundary between the U.S. and Canada from Lake Superior to the Rocky Mountains (while the Oregon boundry was still left unresolved). In addition, it initiated a new tariff agreement that promised to stabilize customs duties and thus encourage commercial trade. With Anglo-American relations being the least confrontational since the 1837 Panic, the Barings mounted a quiet campaign to help restore the credit of the U.S. in Europe by raising the issue of fiscal responsibility to a moral argument throughout the legislatures and newspapers of America. Ward, the Baring’s top American representative, was to be responsible for the improvements in Illinois’ affairs. In contrast to many of the states, Ward’s efforts paid off as Illinois took early steps to avoid repudiation of its debts and eventually to re-establish the State’s credit. When Ogden had been Chicago’s Mayor, he had personally thwarted early repudiation efforts, while other Ogden associates were also engaged in early attempts to preserve the State’s credit. One such person was Isaac Arnold, Mahlon Ogden’s law partner, who was one of the callers for a public meeting in Chicago held on January 18, 1841, (he was also the chairman of the resolution committee) to promote direct taxation in order to raise sufficient revenue to pay the interest on the state debt and insure continued construction (by Ogden, among other contractors) of the canal. Arnold also succeeded in the U.S. Supreme Court in having declared unconstitutional a new bankruptcy law which had been passed in February 1841 by the Illinois legislature that would also have, in effect, suspended the collection of debts in defaulted mortgages.
Nonetheless, these efforts had failed to prevent the inevitable collapse of Illinois’ finances in June 1842:
“As if by magic the right man seemed to spring up at the right time; for it was in June of that year  that Arthur Bronson, of New York, and a large owner of real estate in Chicago, came West to look after his property… While Mr. Bronson was being interviewed by leading citizens as to the best means to procure funds for the completion of the canal, various plans were being proposed [by] such men as William B. Ogden, Justin Butterfield, Michael Ryan, and the Hon. Isaac N. Arnold.”
It was not by magic, but rather the increased involvement of the Barings, reinforced by the new Boston interest in the canal, that had brought Bronson, once again, to Chicago not so coincidentally in the same month that the State went bankrupt. Encouraged by both the ending of the Opium War (that would further lessen their control of America’s China trade) and the imminent completion of the through railroad network to Buffalo, the Boston owners of the B&W and Western Railroads were now joining the Barings once again to capitalize on a public financial crisis to expand their private investment in the West. Boston money had begun its substantial investment in Chicago.
Prior to his trip to Chicago in June, Bronson had forwarded the initial proposal of the canal bondholders to Arnold. Arnold, having just been “coincidentally” elected to the Illinois’ General Assembly, had become, without any advantage of seniority, the Chairman of the Committee on Finance, that had primary control over the canal operations. During Bronson’s visit, he conferred with Ogden, Arnold, and Justin Butterfield, Illinois’ U.S. District Attorney, in putting together a financial package that would be acceptable to the canal’s bondholders. Butterfield, like Arnold, was also an attorney originally from New York, who had relocated to Chicago in 1835 and had formed a practice with James H. Collins. All three of Bronson’s conferees were, therefore, former New Yorkers and allied to his interests via their relationships with Ogden. In order to get something built to validate the bondholders’ real estate investments, the group of four developed a cheaper, but unproven “shallow-cut” plan as an alternative to the original deep, through-cut canal that still required over $3 million to complete. The canal’s dimensions were changed from 60’ wide by 6’ deep to 40’ wide and 4’ deep. This reduction in the overall depth of the canal brought concern among the canal’s engineers about the ability of the Des Plaines and Calumet Rivers’ feeders to supply sufficient water at the summit between the two river systems for usable navigation, now that the deeper, through-cut canal had been abandoned. A committee of three engineers from the Chicago Mechanics’ Institute proposed to solve this problem with a design that involved using steam-powered pumps to supply water from the South Branch to the summit via the Des Plaines River.
In essence, the bondholders would be asked to loan an additional estimated $1.6 million needed to complete the shallow-cut project. Repayment of the loan would be secured by the proceeds from all sales of canal lots as well as by the income from the canal’s operation. In addition, the bondholders were also to be given more control in the canal’s construction and finances, for these were to be placed under the control of a new three-man Board of Trustees, two of whom were to be named by the bondholders, while the remaining one was to be appointed by the state. In effect, although Illinois was to surrender control of all canal operations and revenues to the canal bondholders until all secured loans and interest had been met, the state realized it had no alternative. With over $5 million already poured into the stalled project, the difference between a finished and unfinished canal was the salvation of the state’s finances. In addition to the revenues to be generated by the canal’s eventual operation, a completed canal would increase property values and corresponding tax income, while encouraging further investment and settlement within Illinois.
Butterfield drafted the bill which Arnold proceeded to introduce in the General Assembly that fall. He was persistently forced to defend the giveaway nature of the bill and was never more articulate in his support than at Chicago’s Mechanics’ Institute on November 16, 1842, in his speech titled, “The Legal and Moral Obligations of the State to Pay Its Debts, the Resources of Illinois, and the Means By Which the Credit of the State May Be Restored.” Neither Ward nor Barings could have asked for a better performance. As Chairman of the Finance Committee, Arnold “rendered most efficient service” and eventually succeeded in gaining a small majority to pass the Canal Bill on February 21, 1843. The law authorized the Governor to negotiate a $1.6 million loan following the exact guidelines originally established by the Barings/Boston/Bronson group. Upon the signing of the loan agreement, all canal revenues and lands were to be placed under the control of the three member Board of Trustees, who would be authorized to make “such changes and alterations in the original plan of said canal as they may deem advisable, having due regard for economics, etc.” Of special interest to Ogden, Section 17 of the Act provided that the old contractors would be given priority to the new contracts once construction resumed.
In March 1843, Governor Ford authorized Charles Oakley and Michael Ryan, State Senator from La Salle (the other terminus of the canal) and Chairman of the Senate’s Committee on Canal and Canal Lands, to negotiate the loan with the representatives of the bondholders. While they found Bronson and David Leavitt, president of New York City’s American Exchange Bank, to be understandably amenable to these provisions, the European representatives, Barings and Magniac, Jardine, & Co., expressed severe reservations about their ability to market any further American issues in Europe and approached the endeavor with extreme caution. In addition to a number of additional and clearly specified guarantees, the European representatives required complete verification by their own agents of the present state of the canal, its finance, and the plans for its completion. Lawrence, Sturgis, and Ward, therefore, chose two other Boston men, Captain William H. Swift, the resident engineer of the Western Railroad, and John Davies, former Governor of Massachusetts, to inspect the canal and substantiate its financial condition. To this end, they traveled to Chicago in November 1842, the trip from Boston to Buffalo being expedited by the recent completion of the chain of railraods in upper New York. On March 1, 1844, they submitted their final report to Ward confirming the information presented initially by Oakley and Ryan.
While Bronson and Leavitt achieved the necessary loan commitments from Eastern investors, it took Barings more than nine months to overcome the hesitancy among the Europeans who no longer trusted American securities following the 1837 Crash. This distrust had been aggravated in 1843 when Illinois’ General Assembly finally bowed to public pressure and repealed the interest tax that had been originally passed to generate sufficient income to pay the interest on the bonded foreign debt. A sign of fiscal responsibility from Illinois was needed to reassure European investors, and was initiated by Chicago’s new Democrat Congressman John Wentworth who had been elected in the 1842 November election. Following the 1840 census, two new Congressional districts had been formed in Illinois, one that contained the northwest portion of the state, centered around Galena, and the other comprised of the northeast portion, centered around Chicago. Therefore, Wentworth was the first resident north of Springfield to be elected to Congress. While Wentworth sent to Springfield a petition signed by prominent Chicago landowners requesting the legislature to reinstate the interest tax, Ward had Leavitt, Davies, and Oakley travel to Springfield in the fall of 1844 to help Arnold and Governor Ford convince the legislature to pass the taxation bill. Ward’s pressure on Illinois to restore its credit rating also included orchestrating a meeting called by 500 of Chicago’s leading citizens on the Public Square on February 12, 1845, at which resolutions supporting Governor Ford’s tax bill were passed, so that construction of the canal could resume.
These combined pressures eventually succeeded in getting the tax bill and a supplementary canal bill passed on March 1, 1845, allowing the canal loan agreement finally to be signed on March 10, 1845, handing complete control of canal construction, operations, and any income over to the Boston/Barings/Butler (Arthur Bronson died from pnuemonia in November 1844) interests. They now had control over a contiguous route from Boston to Chicago and that, once the canal was completed, continued on to New Orleans. Thus, having succeeded in his sole objective of resolving the canal issue, Arnold had no reason to run for re-election following the March 3 adjournment of the General Assembly, and so returned to his Chicago law practice with Mahlon Ogden. The Board of Trustees who assumed control over all canal operations consisted of Leavitt, representing the New York interests, Swift, agent for the Barings and representing the Boston parties, and Jacob Fry, the State-appointed trustee. Soon after their appointment, the Board retained Ogden’s good friend Arnold, having just returned from Springfield, as their attorney. Everything had gone according to the plan. Construction on the canal had resumed in October 1845, and with it, Chicago’s economic future had brightened accordingly. Anticipating this upswing in the city’s business community, Ogden had brought William E. Jones from Charles Butler’s New York American Land Company to be his partner in his real estate firm, now named Ogden & Jones. That same year Jones married Ogden’s younger sister, Caroline, who had also moved to Chicago. “All in the family” continued to be the preferred business practice among the Butler/Ogden clan.