Nation Of Bondholders

It turns out you can trace America’s 2008 financial crash, in a roundabout way, to 18th-century Prussia. The Seven Years’ War left the kingdom in financial shambles: Just to afford the fighting, Prussia’s king, Frederick the Great, had hired private minters to ramp up currency production. So in 1769, Frederick the Great landed on a novel strategy to keep money flowing into his borders. He organized cash-poor nobles into cooperatives, and began offering, to the highest bidders, bonds based on the value of their land. European investors snapped them up, giving Prussia the injection of cash it needed. It was, as the journalist Robin Wigglesworth writes in his new book, A Fabulous Debt: The Epic History of How Bonds Built the Modern World, possibly the world’s first mortgage bond sale. A Fabulous Debt is a rollicking look at the development of the bond market, perhaps the least appreciated—but, Wigglesworth convincingly argues, the most important—financial market in the world today. Wigglesworth connects overzealous use of bonds both to the Great Recession and to America’s massive ballooning $40 trillion national debt. Paired with another recent book, David I. Backer’s As Public as Possible: Radical Finance for America’s Public Schools, which chronicles the crushing consequences of the bond market on public schools, a picture emerges of bonds as a little-noticed, and increasingly popular, lever for inequality. Whether we realize it or not, bonds interlace nearly every facet of our lives. They are basically IOUs that pay out on fixed terms, and that governments and other large institutions issue to raise money. If you have an investment portfolio, it probably contains a slice of bonds sold by the U.S. Treasury. The interest rates of Treasury bonds tend to define the entire market: when the Federal Reserve raises interest rates on its long-term bonds, as it did recently, your auto lender and your credit card company will probably soon hike their rates, too. But bonds show up in increasingly far-flung corners of the economy, too. Bonds likely fund your local public school or bridge improvement project, and they facilitate the resale of your home mortgage. Summer camps issue bonds to raise money, and so do hospitals and local, state, and national governments. All kinds of consumer debts can be re-packaged as bonds, and sold to ever more distant bidders.

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