412 BUSINESS, ENTREPRENEURSHIP, & THE LAW Vol. III:II
exchange for a new contract that reduced the interest that the government was
obligated to pay.
149
In essence, Hamilton proposed a bailout of the securities to
further strengthen investor confidence, as the offer to buy them at face value was
substantially higher than the securities‘ market value before his report was
submitted.
150
Indeed, many of the speculators stood to gain nearly an eighty-five
percent profit, as it was not unusual for financially troubled veterans to have sold
their securities for fifteen cents on the dollar.
151
New securities would be issued
by the federal government to ―. . .be exchanged for outstanding obligations at their
specie value at the rate of 100 to 1.‖
152
Similar to Paulson, Hamilton was proposing a wide scale bailout of the
United States financial system to promote stability and attract further
investment.
153
However, with Hamilton, the scale in context was much larger.
gaining the rich, it lost the affections of the people – the certain consequence of permitting this ‗shower
of gold‘ to fall upon the rich alone?‖ Id. The situation looked even more repulsive as the government
buyout of the speculators‘ securities would in turn be paid for by the original veterans, as they would be
forced to pay federal taxes covering the purchase. The issue continued to boil over as many thought
that rich northern speculators were particularly preying upon the poorer veterans of the south and ―were
urging refunding in order to obtain a huge unearned profit.‖ See MYERS, supra note 127, at 61.
Hamilton, a former veteran himself, put aside thoughts of the unfortunate situation to see the drastic
financial consequences that would come from not honoring the correct holder of the security. Id. The
security itself stated that ―the amount thereon specified should be paid to the bearer, thereby creating,
said Hamilton, a contractual relationship that made them as much the property of bona fied purchases
‗as their houses or their lands, their hats or their coats.‘‖ Id. The Continental Congress had previously
assured foreign investors that purchased such securities that they would be paid as the securities‘
holder. Id. ―If the federal government now attempted to discriminate in the name of equity between
different types of creditors, Hamilton was prepared to renounce all hope that foreigners would ever
again trust their money to the perfidious republicans across the Atlantic.‖ Id.
149
―In exchange for the security afforded by the funding system, Hamilton proposed to take what
he called ‗a stout Slice‘ from the accrued interest owing the public creditors . . . Roughly, this deduction
amounted to an interest rate of 41/2 instead of 6 per cent upon the national debt.‖ MILLER, supra note
124, at 236. Two-thirds of the new deal would bear a six percent interest rate from 1791 as the final
one-third would not begin accruing interest until 1800. MYERS, supra note 127, at 61. ―The arrears of
interest would be paid in securities bearing only [three] percent.‖ Id.
150
As the government redemption, or bailout, of the securities became more certain, the prices to
buy such securities skyrocketed to a twenty percent premium. MYERS, supra note 127, at 62. ―Since
1787 there had been much speculative buying and selling of Continental and Confederation certificates
of indebtedness and bills of credit on the prospect that they might be redeemed by the new Federal
government. Speculation reached its climax while the funding program was under debate.‖ MORRIS,
supra note 137, at 286-87. ―Since Hamilton‘s report had been submitted to Congress, the speculators
had been busy buying all the securities in sight, even going to the length of chartering ships to carry
their agents to the southern states before the news of Hamilton‘s report reached that region.‖ MILLER,
supra note 124, at 239.
151
JOHN S. PANCAKE, THOMAS JEFFERSON & ALEXANDER HAMILTON 161 (1974).
152
MYERS, supra note 127, at 61.
153
Jerry Bowyer of Forbes.com believed that Hamilton‘s Report on Public Credit and Paulson‘s
bailout plan were exceedingly analogous. Jerry Bowyer, Ron Paul Vs. Alexander Hamilton, FORBES,
Oct. 3, 2008, http://www.forbes.com/2008/10/03/bailout-constitutional-hamilton-oped-cx_jb_1003
bowyer.html. Bowyer explained that:
[W]e‘ve been here before. As George Washington was taking the oath of office,
U.S. credit markets were in full meltdown. America faced a credit crisis in which
debt obligations were being purchased by banking houses at [twenty-five] cents
on the dollar. Paulson‘s predecessor was a guy named Hamilton, and Bush‘s
predecessor was a guy named Washington. Hamilton wrote up a plan (called
―Report on the Public Credit‖) in which he proposed that the Treasury
department buy the troubled securities from the private sector, thus restoring the
collapsing credit market . . . Hamilton‘s case was simple. When any part of a