Foreign Bondholders And American State Debts

This paper analyzes the Corporation of Foreign Bondholders (CFB), an association of British investors holding bonds issued by foreign governments. The CFB played a key role during the heyday of international bond finance, 1870-1913, and in the aftermath of the defaults of the 1930s. It fostered coordination among creditors, especially in cases of default, arranging successfully for many important debt restructurings, though failing persistently in a few cases. While a revamped creditor association might once again help facilitate creditor coordination, the relative appeal of defection over coordination is greater today than it was in the past. The CFB may have had an easier time than any comparable body would have today.

As the Great Depression tightened its grip on the United States, millions of dollars in foreign securities went into default, many of them in the hands of private American boldholders. In this richly detailed account of efforts to stem the tide of bond defaults, Gene Sessions chronicles the activities of J. Reuben Clark, Jr., and the federally sanctioned Foreign Bondholders Protective Council that he headed. Clark was a conservative international lawyer who believed himself to be a literal prophet of God and who found acquiescence to the bond defaults unacceptable. As head of the Council, he led a heroic effort through the darkest days of the 1930s to reinvigorate the failing debts and ensure that the world as it then existed would continue to treat responsibility for repaying such obligations as nearly sacred. Surprisingly, Clark won some major victories and retired to his home in Utah convinced that, at the very least, the world had learned a serious lesson from its ill-conceived foreign lending habits. The author suggests that, although events since then may have proven Clark wrong, he still personifies the old order dying hard, its warriors contesting change every step of the way. Sessions's study fills a void in the literature that has come forth, particularly in the last decade, on the international debt crisis. Relying heavily on unpublished archival sources, he presents a careful analysis of the causes and effects of the great 1930s crash in the foreign lending market, investigating not only the foreign lending scene of the time but also the ways in which American politicians, financiers, investors, and their advocates tried to adjust to painful economic and social realitiesrelated to the collapse of the foreign bond market. In the book's last chapter, Sessions discusses the diminishing career of the still-extant FBPC since World War II in light of recent developments in the foreign debt situation.