Skip to comments.UK Taxpayers Still Paying £2bn War Loans to Secret Bankers
Posted on 08/03/2014 8:16:24 AM PDT by Citizen Zed
It's a century since the outbreak of the First World War but British taxpayers are still paying for their country's part in it and a handful of banks is cashing in on hundreds of millions of pounds.
Every year £136m is shelled out in coupon payments to holders of the government debt War Loans used to fund the role of troops from the British Empire in WWI.
And the owners of 99% of the £1.94bn (2.4bn, $3.26bn) WWI debt still around are a secret group of financial institutions.
The UK government's Debt Management Office (DMO) told IBTimes UK that there are over 120,000 War Loan holdings in existence yielding their 3.5% bi-annual coupon payments.
Over 100,000 are worth less than £1,000 in nominal value and held by ordinary members of the public.
"But this large number of holders accounted for only around 1% of the total nominal in issue. So, most of the nominal amount in issue is held by a relatively few financial institutions," said a DMO spokesman.
The DMO declined to reveal the names of the institutions with the five largest holdings of the 3.5% War Loan following a Freedom of Information request, citing various exemptions under the law.
But it did say that the top five holders are nominee companies that own 47.6%, or £923m, of the amount outstanding.
(Excerpt) Read more at ibtimes.co.uk ...
Old as dirt.
And with the same consistency.
And now you know why wars are really fought.
and there it is...
Perpetual securities—a bad idea.
I guess I’m missing something. Don’t these bonds ever mature and pay off the principal? Don’t these bonds have any provision for being called, or refinanced? Is the principal balance way too large to ever be paid off, so they are paying interest only forever? What the heck?
The government was happy to borrow the money, happy to unilaterally change the terms of the loan, but now they want to welch?
Remember that when the government decides that immigrant children need you Social “Security “ check more than you do.
The British have what are called consols that are still paying interest issued in the mid-18th century. I believe Austen novels mention those, what were referred to as the Funds, since there few investment securities back in her time. The interest is so low that it is not worth while to issue new debt to retire these old bonds.
One of the issues is the gov’t would have to buy back the bonds at par but they trade at below par so it is not worth while for the government to issue new debt to retire this old debt.
I learned that, albeit from after “The Great War”, from Daddy Warbucks (Ovaltine commercials notwithstanding.)
“One of the issues is the govt would have to buy back the bonds at par but they trade at below par “
If they trade at below par, they could buy them back on the open market at below par.
And this story tell you all you need to know about wars. It’s a money making racket. Always, completely, and fully. All the other crap is just what is used to rah rah regular people into supporting it and fighting in it.
If you read through the article, it says that the bonds that weren’t turned in were converted by the UK government to perpetual bonds. Some time in the 19th century, the UK was considered stable enough that it issued “perpetual gilt” bonds. These didn’t start out that way.
So a government converts a bond into a perpetual bond? That means exactly one thing. Not that the government is stable, instead it says that the right people were holding those bonds.
Well, you are certainly welcome to believe that, but you should be aware that the belief is commonly known as “vulgar Marxism,” that is, a belief that all human actions, particularly those of governments are motivated primarily or exclusively by crass monetary reasons.
IMO a great many more wars have been caused by competition for status, pride, hurt feelings, misplaced or real idealism, hatred for enemies, etc. If you’ve ever been around someone involved in a bitter lawsuit or divorce, you have probably seen what I mean. People get focused on showing up or defeating the other side, and continue the dispute long after it stopped making any financial sense.
My reading of history is that government stumble into these wars and then run around in circles trying to figure out how to pay for them.
I wouldn't jump to those conclusions. If the interest rate is low enough, the government thinks that it's getting a good deal--low carrying rate. As to the people owning the bonds, whether the deal is "good" depends on the level of interest rates. After all, would you feel like a favored insider if you were offered a perpetual bond paying, say, 1 percent per year? I wouldn't.
There are relatively simple formulas in finance for computing the present value of a stream of payments. It turns out that the longer the maturity, for a given value, the lower the payment. So, the payment stream for a perpetual is lower than that for a 30 year bond, or a 10-year bond.
From the government's point of view, the lower the payment, the better. You see the same thing with homeowners, or businesses, who will tap the bond market when rates seem low compared with prospects of inflation. So, from the government's short-term point of view, it might be that lowering the current payments, and hence their deficit that year, is all they care about.
Personally, I think that debts should be paid off over the lifetime of those incurring them, so I don't like perpetuals, or 100-year mortgages. But, I wouldn't read any cronyism or plot into it... just bad planning and irresponsibility.