Hamilton, Madison and the Restoration of United States Credit

Abstract:

Opponents charged that Hamilton's plan to refinance the federal government's debtgenerated "enormous profits" for undeserving speculators. In a real options approach to valuingthe defaulted debt, the data are consistent with the view that price fluctuations were responses tosurprises in price-relevant information. Speculators apparently paid fair-market prices and thusdid not make abnormal profits after taking account of the uncertainty about when, if ever, debtwould be redeemed and how much would be paid per dollar of face value.

Hamilton, Madison and the Restoration of United States Credit:An Option Approach to Defaulted Government Debt, by Richard J. Sweeney, McDonough School of Business, Georgetown University