It's kind of similar to people who had uninsured art in safe deposit boxes in the World Trade Center on 9/11.
In the old days you took $10,000 to your bank or broker and got a bunch of certificates. Then, as coupons become due, you detached them from the bond (they were actual, paper coupons) took them to your bank and deposited them like checks. Then, when the bonds came due, you presented them to the bank for redemption. If you sold the bonds, workers in the bank's vault a/k/a the cage handled shipping certificates from the seller's bank to the buyer's.
But bearer bonds stopped being issued in the early 80s. Now, the issuer's transfer agent keeps an electronic registry of who owns what and who is due interest payments. When you sell bonds, the transfer is made electronically on the books. There should be very few bearer bonds still outstanding.
Also, they got wet, it's not like they went up in smoke. Bottom line, I wouldn't expect losses from destroyed certificates to be a big number like tens of billions. If they can't salvage them, sounds like it could impact some people, and could be a legal scramble to see who ends up on the hook between DTCC, the banks, the customers, and their insurance companies.
How did they prevent fraud with bearer bonds? (The wikipedia page is remarkably silent.) Since no records of ownership are kept, the only evidence of ownership is the bond itself. And given their value there is a large incentive to make fraudulent ones.
Issuers don't have ownership records, but they do know the identity of every bond issued through the bond's serial number.
So the only way to create a fraudulent copy, would be to copy an existing bond and it's serial number. Of couse, since the original bonds were as good as cash, they were/are kept under pretty tight security.
Not impossible of course, but it did make it difficult to make counterfeit bonds. Also, many bonds had unique security features associated with the bond itself, similar to currency.
" Italian police said on Friday they had seized about $6 trillion worth of fake U.S. Treasury bonds and other securities in Switzerland, and arrested eight Italians accused of international fraud and other financial crimes."
(I know, not exactly what you were getting at, but it's actually one step better - not just creating forgeries of authentic bonds, but creating absolutely new entities)
Same way they prevent fraud with cash - paper certificates with features that are hard to copy. Also, the company has a record of what was issued and isn't going to pay off the same bond twice, or one that doesn't match what it issued. Doesn't stop people from trying -
After reading this article, I'm almost in tears when I realize what the mitigation step would have been for protecting those bearer bonds from moisture: Tupperware containers.
I realize you're just being funny, the thing I don't get is why the 'vault' isn't air tight. I looked at renting a space that had been a bank, the old vault was literally welded open because it was air tight and if the door closed and locked it would take longer to re-open then a person could survive on the air inside.
[+] [-] RockyMcNuts|13 years ago|reply
In the old days you took $10,000 to your bank or broker and got a bunch of certificates. Then, as coupons become due, you detached them from the bond (they were actual, paper coupons) took them to your bank and deposited them like checks. Then, when the bonds came due, you presented them to the bank for redemption. If you sold the bonds, workers in the bank's vault a/k/a the cage handled shipping certificates from the seller's bank to the buyer's.
But bearer bonds stopped being issued in the early 80s. Now, the issuer's transfer agent keeps an electronic registry of who owns what and who is due interest payments. When you sell bonds, the transfer is made electronically on the books. There should be very few bearer bonds still outstanding.
Also, they got wet, it's not like they went up in smoke. Bottom line, I wouldn't expect losses from destroyed certificates to be a big number like tens of billions. If they can't salvage them, sounds like it could impact some people, and could be a legal scramble to see who ends up on the hook between DTCC, the banks, the customers, and their insurance companies.
[+] [-] Datonomics|13 years ago|reply
[+] [-] politician|13 years ago|reply
[+] [-] rogerbinns|13 years ago|reply
[+] [-] refurb|13 years ago|reply
So the only way to create a fraudulent copy, would be to copy an existing bond and it's serial number. Of couse, since the original bonds were as good as cash, they were/are kept under pretty tight security.
Not impossible of course, but it did make it difficult to make counterfeit bonds. Also, many bonds had unique security features associated with the bond itself, similar to currency.
[+] [-] ghshephard|13 years ago|reply
Indeed, there is. :-)
http://www.reuters.com/article/2012/02/17/us-usa-bonds-forge...
" Italian police said on Friday they had seized about $6 trillion worth of fake U.S. Treasury bonds and other securities in Switzerland, and arrested eight Italians accused of international fraud and other financial crimes."
(I know, not exactly what you were getting at, but it's actually one step better - not just creating forgeries of authentic bonds, but creating absolutely new entities)
[+] [-] RockyMcNuts|13 years ago|reply
http://www.reuters.com/article/2012/02/17/usa-bonds-forgery-...
[+] [-] ghshephard|13 years ago|reply
[+] [-] SilasX|13 years ago|reply
[+] [-] unabridged|13 years ago|reply
But there can't be that many left to cash, all of them have to be over 30 years old now which is one of the longest coupon lengths.
[+] [-] Maxious|13 years ago|reply
[+] [-] benblack86|13 years ago|reply
[+] [-] ChuckMcM|13 years ago|reply
[+] [-] jamesmcn|13 years ago|reply
[+] [-] ablerman|13 years ago|reply
[+] [-] jamesmcn|13 years ago|reply
[+] [-] dfc|13 years ago|reply
If you are interested in how financial markets operate and have not heard of DTCC I highly recommend you take a look at their "about us" page.[1]
[1] http://www.dtcc.com/about/business/index.php
[+] [-] ericHosick|13 years ago|reply
Also great for travel if you have anything in your luggage that might break or leak.
[+] [-] unknown|13 years ago|reply
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[+] [-] Hominem|13 years ago|reply