Economic Development and ‘Hypothecation’ Issues In Arkansas Bond Defaults

Louella Moore, Arkansas State University - Jonesboro

ABSTRACT: Arkansas is the only state to have defaulted on its bonds three times. This paper tells the story of these three defaults with emphasis on the bank bond debacle which was intimately tied to initial statehood and economic development. The bank bond case illustrates the need for common sense regulation to prevent self-dealing in the governmental sector. Further, the concept of ‘hypothecation of bonds’ which was central to the bond crisis highlights difficult accounting problems in distinguishing debt from equity and handling market value changes in debt instruments which are still relevant in modern accounting standard setting processes.

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