Some years ago, I made one of my better financial decisions when I purchased a bond certificate from a long-extinct government that will, despite all its sunny promises of paying me interest on the nose every six months, never distribute a cent. All I have is, literally, a worthless piece of paper.
The bond in question was issued by the Imperial Russian Government in 1909, and came on the heels of a losing war (the Russo-Japanese of 1904-05) and a wave of workers’ strikes, peasant uprisings, and army mutinies. The country was virtually bankrupt, with no less than 12 percent of its budget being devoted to interest payments on previous loans.
Yet the green shoots of recovery were becoming more evident to perceptive investors, which is why French and British bankers were happy to participate in the 1909 issue. A series of lavish harvests subsequently increased revenues, and the country’s economy, once so backward, began to expand rapidly, attracting ever more foreign investment. I don’t know who originally bought the bond certificate I now own, but I imagine he must have been a pretty shrewd character. After all, until the outbreak of war in 1914, Russia was regarded as the place in which to invest — and my fellow got in early.
It did him no good, of course. You see, in Ye Olde Days, twice a year bondowners used to clip the coupons attached to their certificates and take them to the bank to receive their interest payment. Indeed, if you look at the coupons on my bond, my predecessor diligently cut them off every January and July, but the last one he clipped was dated January 1918. That means that he must have submitted his previous coupon just a few short months after the 1917 October Revolution, which brought Lenin and Trotsky to power. Perhaps he was paid this one last time, but probably not. Afterwards, certainly, all bets were off as the new revolutionary government cancelled the previous regime’s debts. Investors in this bond issue were left holding a very expensive bag.
A pity for them, I guess, especially for those who thought long-term: the State Loan was to have been amortized completely by January 1959 at the latest. Their loss was my gain, however, as I managed to purchase the certificate from a scripophily store in London for about $40 ten years ago, and it’s now worth about $80. (For those who are wondering what “scripophily” is, it’s the hobby of collecting old stock and bond certificates.)
No matter how pleased as punch I am with myself for my investment genius, I am but a neophyte compared to those who purchased New York City municipal bonds shortly after the Civil War, as illuminated recently in a fascinating story in The New York Times.
Originally issued to raise money to build a road to a new racetrack in the Bronx, the bonds have been paying 7 percent interest for the last 135 years, without missing a single installment (unlike those Russians). There are 39 bondholders left, with one holding notes due to mature in March. The owner will be entitled to collect its face value of $1,000 from Bank of New York Mellon, which has been mailing out the checks since 2000 on behalf of the city. The other 38 bondholders’ notes mature sometime between now and 2147.
Of course, since their issue, the real value of the interest paid annually ($70) has somewhat declined: Back then, it was enough for a down payment on a house in a middle-class neighborhood. On the other hand, in this day and age, a seven-percent guaranteed return and a $1,000 refund aren’t anything to sneeze at.
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