Managing Problem Debts

Abstract

AbstractThis chapter focuses on debt crises in the nineteenth century. Lending to sovereigns, then as now, posed risks, especially when governments defaulted on loans contracted abroad. Foreign investors had limited recourse against the sovereign. Defaults spiked in the 1820s, 1870s, and 1890s. Ultimately, however, the market emerged stronger from each crisis. Existing solutions to deter opportunistic sovereigns were revamped, from pledging collateral to external financial control. New institutions, such as investment banks acting as gatekeepers and bondholder committees representing the interests of investors, further supported the operation of the market. The steamship and telegraph provided improved access to information about foreign countries, which was then digested and disseminated by specialized investment services. Investors learned to diversify away some of the risk in their portfolios, with help from managed investment funds.