Why are bogus Treasury bonds such a big deal?

It sounds like something out of a summer caper flick: Two men carrying Japanese passports were apprehended trying to enter Switzerland from Italy via commuter rail in June. The men looked out of place on the train, which tends to carry low-income manual laborers. That was enough to raise the suspicions of the Italian authorities, who detained the passengers and rifled through one of their briefcases. Inside was what appeared to be $134 billion in U.S. Treasury bonds labeled with denominations of $500 million and $1 billion. (This despite the fact that the Treasury has never produced bonds in denominations greater than $100,000.)  Later this summer, history seemed to repeat itself when Italian authorities intercepted another cache of false T-bills from the Philippines destined for the United States worth an alleged $116 billion. Why on earth would anybody create fake Treasury bonds—in such eye-popping denominations?

From a purely practical standpoint, huge denominations have one big advantage for crooks: They don't take up much space. The $134 billion in false bonds were stashed in the false bottom of a briefcase. A comparable amount of counterfeit currency would take a lot more trouble to camouflage and smuggle about.

The idea isn't usually to cash them, since any bank would require the kind of verification that would bust the counterfeiters. Rather, peddlers of bunk bonds find people to whom they can peddle the phony paper. They promise a handsome chunk of the purported value in exchange for an upfront investment or they use the bogus bonds as collateral for loans from private investors. Once the cash is in hand, the con men make like Keyser Söze and vanish.

There's no single agency that tracks these kinds of schemes, so it's hard to get a handle on the size of the market for fake Treasury bonds. Edwin Donovan, a spokesman for the Secret Service, which investigates such cases, calls the racket an "old scam that's been prevalent in Europe for a long time." Articles like this one detail the circulation of nearly identical schemes in the Pacific Rim. Fake bonds have a long history on this side of the pond, too. This New York Times article from 1870 recounts the discovery of a similar crime. Detection is further complicated by the fact that many people who are taken in may be too embarrassed to report their fictitious investment to authorities.

What's interesting is the amount of speculation that these cases generate on both sides of the Atlantic. This summer, the U.K.'s Telegraph breathlessly predicted that these counterfeit bonds would succeed at nothing less than toppling the greenback from its position as the world's reserve currency. The somewhat flimsy reasoning was that if counterfeiters could successfully introduce billions in fraudulent Treasuries into circulation (which doesn’t happen thanks to advanced computers that catch even well-executed fakes), then the entire market for U.S. debt would collapse.  

This is entirely the point, some conspiracy theorists insist. They say that the high quality and staggering quantity of the fakes point to a state-sanctioned operation of a rogue regime trying to destabilize the one commodity that's keeping America solvent in an era of record-high deficits: its debt issuance. North Korea is a popular suspect, although not the only one. Countries with emerging economies also are fingered as possible perpetrators.