Holford Bonds facts for kids

The Holford Bonds were a series of real estate bonds that caused a lot of political trouble in Arkansas for many years, starting soon after the state was founded in 1836.

Arkansas's Early Banks

Arkansas became a state in 1836, just before a big financial crisis called the Panic of 1837. The state's first constitution said that two banks should be created. One was the State Bank of Arkansas, which was supposed to lend money to people. The other was the Real Estate Bank of Arkansas, which was a special kind of bank that lent money using land as security. This type of bank was common in other states like Florida and Mississippi at the time.

Both banks officially started in 1838. However, by 1840, the State Bank had already failed. Its bonds, which are like promises to pay back money, were then given to the Real Estate Bank.

The Real Estate Bank's Troubles

The Real Estate Bank couldn't sell these bonds easily. Instead, it used them as a promise to pay back a loan of $121,000 from a company in New York called the North American Banking and Trust Company. This deal was a bit questionable because the bonds were used for less than their actual value, which went against their original rules.

Without waiting for Arkansas to pay back the loan, and in a way that wasn't fair, the New York company sold these bonds to a banker in London, England, named James Holford for $325,000. After this, they became known as "The Holford Bonds." The New York company soon failed, having taken a lot of money from Arkansas through this deal. Holford then tried to get his money back by suing the state of Arkansas for $250,000 in both Arkansas and New York courts.

What Happened to the Bonds?

Later, the Real Estate Bank also failed. The ownership of the bonds then went to the state of Arkansas. The big question became: Was the state legally required to pay back these bonds at their full value, or even at all? This was because the bonds were now part of deals that seemed legally doubtful and unfair. This whole situation made the state very wary of banks. In 1846, an amendment was added to the state constitution that stopped Arkansas from creating any more banks.

The Holford Bonds and Reconstruction

During the Reconstruction of the United States period after the Civil War, paying back these bonds became a major issue for the Republican government in Arkansas. The bonds were connected to a lot of land in the state. The government, which included people from the North called carpetbaggers, was looking for ways to pay for new roads and buildings. However, many of these projects were not managed well, and some money didn't go where it was supposed to.

On April 6, 1869, the Arkansas legislature passed laws to pay back the bonds, plus 30 years of interest. But people quickly argued that there had been unfair deals and broken promises when the New York company sold the bonds.

The Brooks-Baxter War

In 1874, Governor Baxter refused to sign a bill that included paying back the Holford Bonds. This decision helped start a conflict known as the Brooks–Baxter War, a political and sometimes violent struggle for control of the state government.

It wasn't until 1884 that the "Fishback Amendment" was passed. This amendment, named after its author William M. Fishback from Fort Smith, Arkansas, was added to the Constitution of Arkansas. It officially said that the state would not pay back the Holford Bonds.