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How Mississippi Defaulted On $7 Million Worth Of Bonds In 1841


It's easy to get self-righteous about reckless governments that borrow up to their eyeballs and then stick it to their creditors. Today, it's Greece or Puerto Rico. But back in the 19th century, when England was banker to the world, guess who were the improvident international deadbeats - us, Americans, most notoriously, the state of Mississippi. Thirty years ago in London I interviewed a gentleman whose job entailed sending the occasional letter to the treasurer of Mississippi reminding him that in the view of British bondholders Mississippi was still on the hook for some bonds - $7 million worth of bonds that the state defaulted on in 1841. Professor Clifford Thies, an economist at Shenandoah University, has written about Mississippi's antebellum debt. And he joins us from Winchester, Virginia. Welcome to the program.

CLIFFORD THIES: Good to be on the program.

SIEGEL: And how was it that Mississippi borrowed what, for the time, was a very big amount of money and then stop paying its bondholders?

THIES: Well, there was enormous potential in Mississippi and the other states of the United States. But they ran ahead of themselves. They weren't able to realize the value, except for passage of time. And so they ran into difficulty meeting their payments.

SIEGEL: After the Civil War in 1875, an amendment was added to the Mississippi Constitution formally repudiating this debt. Is it common for states or countries to say we won't pay? It would be unconstitutional for us to do that?

THIES: It is actually rather common although never as blatant as in the case of Mississippi. At this time there are, like, four countries going into default. Greece gets the attention. There are several others. And we just deal with this on an ongoing basis. We have institutions like the IMF today.

SIEGEL: And those days, of course, no such international institutions.

THIES: No, in those days this was a matter of gunboat diplomacy. So England, primarily, but other European powers like France would use their military might to motivate repayment.

SIEGEL: Yeah, I think you wrote that - was it John Quincy Adams who, in Congress, proposed a resolution to make sure that the U.S. government would not come to the defense of Mississippi if somebody sent gunboats to try to collect from them?

THIES: Yes, some of the northern politicians, being Whigs and investors, they were not sympathetic to Mississippi. And they thought, well, we'll just look the other way if you English were to invade that state.

SIEGEL: You know, the gentleman from London whom I spoke of ran the Council of Foreign Bondholders which closed up shop in the late 1980s after they'd actually gotten a better response from Moscow on some old czarist railroad bonds than they did from Jackson, Mississippi. But that man estimated that with accrued interest, $7 million worth of the bonds from 1841 would have been more than $10 billion by '87 - I guess a lot more than that by now.

THIES: Oh, we call this the power of compound interest. If the Indians took that $24 that the Dutch gave them from Manhattan, they would have not only enough money to buy back Manhattan, they could buy the entire United States (laughter).

SIEGEL: By the way, we tried calling the state treasurer of Mississippi today, and we fared no better than the British bondholders did in recent decades.

THIES: Well, the British bondholders are getting a return on their investment, finally. And that is the certificates, as collectibles, are worth something.

SIEGEL: They're decorative.

THIES: Yes, they're worth almost the face value, not billions of dollars. And you can get those bonds. If you are interested, you can get a really fine looking piece of wall decoration and piece of American history.

SIEGEL: And you could frame it and hang it on the wall and expect absolutely no money from the state of Mississippi for it.

THIES: A constant reminder that the lender is also participating in risk.

SIEGEL: That's economist Clifford Thies talking to us from Shenandoah University in Winchester, Virginia. Professor Thies, thanks a lot for talking with us.

THIES: Thank you much. Transcript provided by NPR, Copyright NPR.