It sounds like something out of a summer caper flick: Two men carrying Japanese passports were apprehended trying to enter Switzerland from Italy via commuter rail in June. The men looked out of place on the train, which tends to carry low-income manual laborers. That was enough to raise the suspicions of the Italian authorities, who detained the passengers and rifled through one of their briefcases. Inside was what appeared to be $134 billion in U.S. Treasury bonds labeled with denominations of $500 million and $1 billion. (This despite the fact that the Treasury has never produced bonds in denominations greater than $100,000.) Later this summer, history seemed to repeat itself when Italian authorities intercepted another cache of false T-bills from the Philippines destined for the United States worth an alleged $116 billion. Why on earth would anybody create fake Treasury bonds"”in such eye-popping denominations?
From a purely practical standpoint, huge denominations have one big advantage for crooks: They don't take up much space. The $134 billion in false bonds were stashed in the false bottom of a briefcase. A comparable amount of counterfeit currency would take a lot more trouble to camouflage and smuggle about.
The idea isn't usually to cash them, since any bank would require the kind of verification that would bust the counterfeiters. Rather, peddlers of bunk bonds find people to whom they can peddle the phony paper. They promise a handsome chunk of the purported value in exchange for an upfront investment or they use the bogus bonds as collateral for loans from private investors. Once the cash is in hand, the con men make like Keyser Söze and vanish.
There's no single agency that tracks these kinds of schemes, so it's hard to get a handle on the size of the market for fake Treasury bonds. Edwin Donovan, a spokesman for the Secret Service, which investigates such cases, calls the racket an "old scam that's been prevalent in Europe for a long time." Articles like this one detail the circulation of nearly identical schemes in the Pacific Rim. Fake bonds have a long history on this side of the pond, too. This New York Times article from 1870 recounts the discovery of a similar crime. Detection is further complicated by the fact that many people who are taken in may be too embarrassed to report their fictitious investment to authorities.
What's interesting is the amount of speculation that these cases generate on both sides of the Atlantic. This summer, the U.K.'s Telegraph breathlessly predicted that these counterfeit bonds would succeed at nothing less than toppling the greenback from its position as the world's reserve currency. The somewhat flimsy reasoning was that if counterfeiters could successfully introduce billions in fraudulent Treasuries into circulation (which doesn't happen thanks to advanced computers that catch even well-executed fakes), then the entire market for U.S. debt would collapse.
This is entirely the point, some conspiracy theorists insist. They say that the high quality and staggering quantity of the fakes point to a state-sanctioned operation of a rogue regime trying to destabilize the one commodity that's keeping America solvent in an era of record-high deficits: its debt issuance. North Korea is a popular suspect, although not the only one. Countries with emerging economies also are fingered as possible perpetrators.
American analysts who work in the government bond market dismiss this theory as well as the notion that these discoveries cause serious tremors in the market. "Securities like these"”with extremely large denominations"”would be nearly impossible to pass through rigorous bank fraud detection systems," Richard Yamarone, director of economic research for Argus Research Corp., told TBM via e-mail. "Anytime you are the world's reserve currency, there is a risk to "?attacks' like these "¦ I don't believe the discovery of these illicit securities will have a meaningful influence on the financial markets."
Paradoxically, other conspiracy theorists say that the forgers' painstaking attempts to make the documents look authentic combined with the staggering sums mean that the documents are real. (Keep in mind, if the bonds in the June caper had been authentic, then those two men were America's fourth-largest creditor.) Glenn Beck, Fox News' poster child for the tin-foil-hat set, launched into a spirited exercise in speculation on his show following the June bust, laying out cloak-and-dagger suspicions about pools of "shadow debt" issued"”illegally"”by the Fed, without so much as a nod to the much likelier possibility here: That this is just a scam. For all of the Tom Clancy-style plot twists about a secret government debt program and sovereign nations trying to unload their T-bills without triggering a global panic, the bottom line is that the documents recovered in the recent busts are fake, just like all the others before them were proven to be.
One of the big reasons Beck and others of his ilk claim the bonds could be the real deal is that the amounts are so astronomical. Why would scammers create such enormous dollar denominations? Just the fact that this is a legitimate question posed by the conspiracy-mongers should illustrate the flawed logic here. It's pretty obvious: The con men want their marks to believe they've got a treasure trove on their hands for the same reason that spam messages never say you've won only a few grand in that Canadian lottery or that a male enhancement pill will only increase your endowment and stamina by a little bit. Crooks want you to believe that the stakes are so unbelievably high that they can't possibly miss out. That's the way scams work.
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