to do so). (3) The Bank of England handled five more such issues over next five years. d) The South Sea Company and the National Debt: Rival to the Bank of England. i) The South Sea Co. was formed in 1711: (1) ostensibly it was set up as a commercial company with aim of monopolizing British trade in the Pacific, whose international trade was then largely controlled by the Spanish: especially the lucrative silver-silk route from Mexico to the Philippines to China (2) it must also be noted here that it began its life as fully chartered joint-stock company; i.e., with a charter of incorporation, making it a separate legal entity under the law. and with limited liability for its shareholders (limited to the amount that each had agreed to pay for each of their shares) ii) Its real goal was to take over all of the outstanding national debt: (1) all outstanding debt issues, short term and long term, that were held by the Bank of England and not the East India Co. -- and the public more generally; (2) then to use that constant stream of government interest to finance its operations, its overseas trade, if any. iii) The South-Sea Company’s Conversion of short-term debt in 1711: (1) The government's problem: the current war of the Spanish Succession (1702-13) had ballooned government debt from £16.4 million to £53.7 million, much of it at high rates of interest. (2) The South Sea Co. took over large part of the government’s short-term floating debt: by purchasing or converting £9.47 million, from a series of six short-term loans, paying from 6.25% to 9.0% or more, into South Sea Company stock (buying much of it discounted from par value), as perpetual stock’ ‘5% meaning that it would maintain that fixed rate of return (unless redeemed). (3) holders of such South Sea Company stock would have to sell it through a broker to some third party to get their capital back (with gains or losses). (4) The South Sea Company, as the new holder of these government debt instruments, received the interest income from these loans and debentures, which it then used to finance its trading activities and to pay the 5% annual dividend to the
to do so). (3) The Bank of England handled five more such issues over next five years. d) The South Sea Company and the National Debt: Rival to the Bank of England. i) The South Sea Co. was formed in 1711: (1) ostensibly it was set up as a commercial company with aim of monopolizing British trade in the Pacific, whose international trade was then largely controlled by the Spanish: especially the lucrative silver-silk route from Mexico to the Philippines to China (2) it must also be noted here that it began its life as fully chartered joint-stock company; i.e., with a charter of incorporation, making it a separate legal entity under the law. and with limited liability for its shareholders (limited to the amount that each had agreed to pay for each of their shares) ii) Its real goal was to take over all of the outstanding national debt: (1) all outstanding debt issues, short term and long term, that were not held by the Bank of England and the East India Co. -- and the public more generally; (2) then to use that constant stream of government interest to finance its operations, its overseas trade, if any. iii) The South-Sea Company’s Conversion of short-term debt in 1711: (1) The government's problem: the current war of the Spanish Succession (1702-13) had ballooned government debt from £16.4 million to £53.7 million, much of it at high rates of interest. (2) The South Sea Co. took over large part of the government’s short-term floating debt: by purchasing or converting £9.47 million, from a series of six short-term loans, paying from 6.25% to 9.0% or more, into South Sea Company stock (buying much of it discounted from par value), as ‘5% perpetual stock’ meaning that it would maintain that fixed rate of return (unless redeemed). (3) holders of such South Sea Company stock would have to sell it through a broker to some third party to get their capital back (with gains or losses). (4) The South Sea Company, as the new holder of these government debt instruments, received the interest income from these loans and debentures, which it then used to finance its trading activities and to pay the 5% annual dividend to the
07BANKIR.docx