The Billions in Fake Treasury Bonds We All Wished Were Real

Those U.S. Treasury bonds worth $134.5 billion seized by Italian authorities from two suspicious Japanese businessmen last week are, alas, transparent fakes, according to the Treasury Department. And it was shaping up to be such a great story.

Authorities with Italy's financial police—the Guardia di Finanza—detained two well-dressed men bearing Japanese passports at Ponte Chiasso, near Italy's border with Switzerland, on or about June 8. The men were on a cheap commuter train ordinarily used, according to AsiaNews, by manual laborers who commute to work in Switzerland. They were carrying a suitcase with a false bottom containing 249 U.S. treasury bearer bonds with a face value of $500 million each, and 10 additional bonds with a value of more than $1 billion, which would have made the pair the U.S.'s fourth largest creditor.

The story, which was first reported by AsiaNews and turned up in the Italian press, bubbled a bit online, but never took off in the U.S. media, owing both to the lack of detail and the preposterousness of the situation. Who are these men? Are there really bearer bonds out there floating around in billion-dollar denominations? Has the Treasury Department ever issued "Kennedy bonds," which is how the Italian police described some of the seized bonds? No one knew.

So you got this kind of delightful speculation, from Bloomberg's William Pesek:

Other than the U.S., China or Japan, no other nation could theoretically move those amounts. In the absence of clear explanations coming from the Treasury, conspiracy theories are filling the void.

On his blog, the Market Ticker, Karl Denninger wonders if the Treasury "has been surreptitiously issuing bonds to, say, Japan, as a means of financing deficits that someone didn't want reported over the last, oh, say 10 or 20 years." Adds Denninger: "Let's hope we get those answers, and this isn't one of those ‘funny things' that just disappears into the night."

The implications of such a scheme—Bush was secretly selling off-the-books debt to Japan to finance his war—are exquisite. Massive criminal fraud, the collapse of the dollar when foreign investors learn that they don't really know what it's worth, more reasons to hate Bush—and the whole tissue of lies was being unraveled due to some plucky Italian cops in Ponte Chiasso. Why, again, did those cops become suspicious of those men in the first place? Again—no one knows! But we do know that, under Italian law, the government of Italy gets 40% of any undeclared money moved across the border, which in this case comes out to about $38 billion.

But of course they are not real. The bonds were supposedly issued in 1934, and the Treasury didn't issue $500 million or $1 billion denominations back then. There is no such thing as a "Kennedy bond." A Treasury spokesman said he could tell by looking at pictures of the bonds on the internet that they were fake.

Meyerhardt said Treasury records show an estimated $105.4 million in bearer bonds have yet to be surrendered. Most matured more than five years ago, he said. The Treasury stopped issuing bearer bonds in 1982, Meyerhardt said.

Still, the bonds appear to be one of the largest counterfeit attempts in history. Though the notion that anyone capable of a sophsiticated forgery would be stupid enough to think that they could unload bonds in those denominations without attracting attention or suspicion is confusing. Who on earth would try to sell or redeem a fake billion dollar bond?

Well, there are people that stupid. In 2001, Phillipine authorities seized $2 trillion in fake Treasury bonds. A year before that, they seized $60 billion. A month before that, they seized $50 billion.

Curiously, in those cases no one got all Da Vinci Code. Probably because it was before the Internet completely took over our brains.