Der Spiegel’s new English-language site has “an intruiging article”:http://service.spiegel.de/cache/international/spiegel/0,1518,330728,00.html about foreigners — including a US strawberry-farmer, who have bought up German government bonds issued in the 1920s and are now trying to get the German government to pay the … billions. I have a vague memory that Piero Sraffa became fabulously rich (or his college did) because he bought up then-worthless Japanese government bonds during WW2 on the — correct — assumption that any postwar Japanese goverment would honour them. The Germans, unsurprisingly, don’t seem keen:
bq. But investors like Fulwood [the strawberry-farmer] don’t want to wait any longer: He’s the first to take on Germany’s Bundesbank, or central bankk, to force the government to pay up. On September 10, Fulwood filed suit in the 13th Judicial District, Hillsborough County, in Tampa, Florida.
bq. According to court documents, the strawberry farmer isn’t exactly asking for small change, either: Fulwood is demanding $382.5 million for 750 bonds.
bq. Other bond owners are also preparing to launch legal battles. In the United States, a group of investors has formed, seeking to turn 2,000 of the old bonds into cold, hard cash. In Italy, say insiders, the grandchild of former Ethiopian emperor Haile Selassie holds 20,000 of the bonds. And a U.S-based lawyer claims to represent the heir to Japan’s emperor, who allegedly owns “countless boxes filled with these bonds.”
Is this real? Or is it like those people who claim to own Manhattan?
{ 8 comments }
dsquared 12.09.04 at 8:54 pm
It was Sraffa rather than his college, and IIRC he bought the Japanese government bonds immediately after the war rather than relying on successor states.
These bonds did exist, and the German government does, in principle, recognise them as liabilities. But in order to get paid, you would have to prove that yours were honestly gotten and held, and not among the vast amounts of stolen ones. The chances of doing so are very slim, and you would almost certainly have to prove your case in a German court rather than an American one. It’s just not true that the German courts would enforce a judgement of this kind from a court in Tampa, Florida; it’s doubtful that the New York courts would, which might be a better bet if you were hoping to attach any German sovereign assets.
My guess is that this guy’s been made the victim of a con game; there was a brokerage in the 1990s that was hawking these bonds around Florida and which got shut down by the SEC. I suspect that the bonds themselves weren’t destroyed and now somebody else is having a go.
Mrs Tilton 12.09.04 at 11:10 pm
It’s just not true that the German courts would enforce a judgement of this kind from a court in Tampa, Florida
Not not true either; just very unlikely. If you want to know the circumstances under which a German court will recognise the judgement of a foreign court, it’s all there in the ZPO.
That ordre publique bit, if nothing else, is likely to whap the strawberry farmer in the crutch. German courts have, in the past, refused to enforce debt contracts that indexed interest to the pay of German civil servants, on the grounds that the contracts violated public policy by expressing distrust in the soundness of the deutsche Mark.
As for the New York courts, well; I’d want to take a very close look at what provisions of the bond, if any, purport to waive sovereign immunity.
Best success to the farmer, but my guess is that he is now the proud owner of paper that would look very impressive framed and hung on the wall of his den.
Jason McCullough 12.09.04 at 11:44 pm
“German courts have, in the past, refused to enforce debt contracts that indexed interest to the pay of German civil servants, on the grounds that the contracts violated public policy by expressing distrust in the soundness of the deutsche Mark.”
It’s illegal to bet on inflation? Am I missing something?
a different chris 12.10.04 at 12:54 am
>prove that yours were honestly gotten and held
Ah, the State. They issue a bond saying the bondholder was entitled to such and such, and now they won’t pay up. Don’t try that at home.
It seems to me that the burden is on the Issuer to prove that the weren’t “honestly gotten.”
But: to do that would mean identifying the real owner of the bonds.
And: if they did identify that person
Then: he/she or his inheritors would, ahem, be entitled to the money!
Maybe, like Jason, I’m missing something?
Mrs Tilton 12.10.04 at 1:32 am
It’s illegal to bet on inflation? Am I missing something?
Nope, you’re not.
Or rather, if you are going to bet on inflation and hope to have the bet deemed enforceable, you’d better choose your words carefully.
nick 12.10.04 at 3:12 am
Ah, the State. They issue a bond saying the bondholder was entitled to such and such, and now they won’t pay up. Don’t try that at home.
Sections of the right-wing media are already muttering about defaulting on T-bills sold to those evil SE Asian bankers. Expect that muttering to increase in volume over the next few years.
Andrew Boucher 12.10.04 at 6:24 am
nick: I think the strategy could be more subtle. It could be first to have the SE banks buy bonds from the government agencies and then let *these* default.
dsquared 12.10.04 at 9:58 am
Chris is right that this is a fairly scabrous dodge on the part of the German state to get out of paying up, although I tend to think that anyone who bought Weimar Republic bonds in 1926 ought to have had an idea that something might go wrong. Keynes would certainly not have been long these bonds for the account of King’s College.
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