Memories May Fade, But Fine Print Doesn't
This story was written by CBS News producer Stephanie Lambidakis for CBSNews.com.
For more than a half century, the Laband family of Orange County, California, has been waging an unsuccessful legal fight to force China to make good on a promise that was etched in gold. The promise came in the form of bonds sold by China, backed by gold reserves along with the full faith and credit of China's government.
From 1900 to 1938, the Labands and thousand of other Americans eagerly snapped up the bonds as a sound investment and a patriotic way to help China, an ally, build its economy.
But since 1939, China hasn't paid a nickel to the Labands or the 15,000 other mostly working-class families who counted on the interest payments for economic survival. By their tally, The People's Republic of China owes them collectively at least $260 billion.
The Chinese government formally repudiated the payments in 1983, claiming it does not recognize the debts of pre-Communist governments. Tired of being ignored by China and snubbed by the federal government, the bondholders have gone to Congress.
Today, the families plan to show a House Foreign Affairs subcommittee the ornate bonds and the fine print that says in four languages that the debt is binding "upon the Government of the Republic of China and its successors."
Pierre Laband, 60, is among the bondholders who travelled to Washington at their own expense. His father, Walter Laband, started buying the bonds in 1913 and depended upon the 5-percent interest payments to help make ends meet. He is outraged that China still refuses to pay.
Jonna Bianco, the President of the American Bondholders Foundation, told CBS News that the bondholders helped build China's economic might, and at a time when Americans are hurting economically, "We need to hold people's feet to the fire. We need to hold China accountable."
Bianco is pressing Congress to approve two non-binding resolutions that would hit China where it hurts: its high-flying credit rating. If approved, the measures would demand that China disclose in SEC filings that it defaulted on the long-ago bonds. "China defaulted on a very large debt," Bianco says. "When we default, it goes on our credit ratings. Certainly, we've seen that with the subprime mortgage, WorldCom and Enron disasters."
The bondholders believe they're on solid legal ground. "China has flouted its international legal obligations to honor the sovereign debt incurred by its predecessor government, as well as its obligations as a member of the World Trade Organization to abide by international financial norms," said David H. Laufman, the Washington, D.C., attorney representing the American Bondholders Foundation.
Laufman points out that China, when threatened economically, has paid its bond debts before. In 1987, China settled with the British Government when it blocked China's state-owned enterprises from Britain's capital markets. He says that without pressure from Washington, China will "continue to thumb its nose at American bondholders."
By Stephanie Lambidakis