1 00:00:02,720 --> 00:00:15,800 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:18,440 --> 00:00:21,599 Speaker 2: Hello and welcome to another episode of the Odd Thoughts podcast. 3 00:00:21,800 --> 00:00:23,200 Speaker 2: I'm Tracy Alloway. 4 00:00:22,880 --> 00:00:24,640 Speaker 3: And I'm Joe. Why isn't thal Joe? 5 00:00:24,680 --> 00:00:27,960 Speaker 2: You know what I like to say about bonds go on. 6 00:00:28,760 --> 00:00:32,560 Speaker 2: I think there's this perception that bonds are all about 7 00:00:32,960 --> 00:00:38,519 Speaker 2: finance and legalities. They are these contracts and borrowers have 8 00:00:38,600 --> 00:00:41,280 Speaker 2: to stick to the contract, lenders have to stick to 9 00:00:41,320 --> 00:00:45,760 Speaker 2: the contract. But actually I like to look at bonds 10 00:00:45,840 --> 00:00:49,600 Speaker 2: as more stories. Yeah, and I know we've been talking 11 00:00:49,760 --> 00:00:52,960 Speaker 2: on this podcast a lot about norms and the idea 12 00:00:53,000 --> 00:00:55,040 Speaker 2: that a lot of the way the US operates is 13 00:00:55,080 --> 00:00:58,520 Speaker 2: based on norms and habits that have developed over time. 14 00:00:59,040 --> 00:01:01,880 Speaker 2: Bonds are kind of the same way. It's all about 15 00:01:01,920 --> 00:01:07,440 Speaker 2: the narrative of who owes, whom, what and why, and 16 00:01:07,480 --> 00:01:08,920 Speaker 2: that can change really quickly. 17 00:01:09,400 --> 00:01:09,560 Speaker 4: You know. 18 00:01:09,600 --> 00:01:12,160 Speaker 3: It's actually interesting about you saying this. I was thinking 19 00:01:12,200 --> 00:01:14,800 Speaker 3: back to our episode that we did with a Sujit 20 00:01:15,120 --> 00:01:19,640 Speaker 3: end up about creditor and creditor violence, and perhaps one 21 00:01:19,680 --> 00:01:23,319 Speaker 3: way to think about that whole phenomenon is the exploitation 22 00:01:23,680 --> 00:01:26,880 Speaker 3: of rules above norms. Right, So you have all of 23 00:01:26,920 --> 00:01:30,559 Speaker 3: these norms about how debt is paid back, et cetera. 24 00:01:31,200 --> 00:01:35,000 Speaker 3: And there's like extra alpha to be squeezed by actually 25 00:01:35,040 --> 00:01:38,080 Speaker 3: redoubting to the courts and the rules that are literally 26 00:01:38,120 --> 00:01:41,880 Speaker 3: written down in a fight between creditors about who gets 27 00:01:41,920 --> 00:01:44,800 Speaker 3: the cash flows, et cetera. And it really is about 28 00:01:44,800 --> 00:01:48,280 Speaker 3: this tension of like what's written on paper, what's technical, 29 00:01:48,320 --> 00:01:51,120 Speaker 3: what does these words mean, et cetera versus Come on, 30 00:01:51,400 --> 00:01:53,080 Speaker 3: that's not how we deal with bonds. 31 00:01:53,160 --> 00:01:56,160 Speaker 2: That's right. You can use the rules if you're really clever, 32 00:01:56,360 --> 00:01:58,760 Speaker 2: to try to achieve your aims right and change the 33 00:01:58,840 --> 00:02:02,320 Speaker 2: story on some of these. So we should talk about 34 00:02:02,360 --> 00:02:05,520 Speaker 2: that because there is a lot of discussion about what 35 00:02:05,560 --> 00:02:09,400 Speaker 2: the Trump administration could do when it comes to sovereign debt. Obviously, 36 00:02:09,560 --> 00:02:12,200 Speaker 2: people have been talking about the potential Mara Lago accord, 37 00:02:12,480 --> 00:02:16,280 Speaker 2: which includes a possible debt swap. Again, all of that 38 00:02:16,360 --> 00:02:20,639 Speaker 2: is hypothetical at the moment, but beyond that, there are 39 00:02:20,639 --> 00:02:22,960 Speaker 2: some other things going on, and it certainly seems like 40 00:02:23,080 --> 00:02:25,000 Speaker 2: nothing is off the table when it comes to the 41 00:02:25,040 --> 00:02:28,239 Speaker 2: Trump administration. So we should we should. 42 00:02:27,919 --> 00:02:30,520 Speaker 3: Discuss Yeah, but can I just say one thing, which 43 00:02:30,639 --> 00:02:34,560 Speaker 3: is my ethical reservations here of doing any episode. It 44 00:02:34,639 --> 00:02:38,040 Speaker 3: feels like the entire world now operates in this system 45 00:02:38,440 --> 00:02:41,280 Speaker 3: in which people both outside of the White House and 46 00:02:41,480 --> 00:02:45,080 Speaker 3: inside the White House, the various people trying to like 47 00:02:45,160 --> 00:02:48,040 Speaker 3: curry Trump's favor on a given day try to wish 48 00:02:48,120 --> 00:02:50,920 Speaker 3: cast their ideas about policy into the ether. And they 49 00:02:50,919 --> 00:02:52,880 Speaker 3: put out a tweet and they say it's a negotiation. 50 00:02:52,919 --> 00:02:55,400 Speaker 3: They say it's not a negotiation. They say there should 51 00:02:55,400 --> 00:02:58,320 Speaker 3: be applause, et cetera. And there is this incredible mailstream 52 00:02:58,320 --> 00:03:01,280 Speaker 3: of noise where it's all about trying to manifest some 53 00:03:01,480 --> 00:03:04,520 Speaker 3: outcome that so and so person desires. And I have 54 00:03:04,600 --> 00:03:08,560 Speaker 3: some ethical questions about this sort of contribution to the 55 00:03:08,600 --> 00:03:12,760 Speaker 3: noise by introducing the idea of like further taking seriously 56 00:03:12,800 --> 00:03:14,919 Speaker 3: the idea of debt swaps, which to me sounds like 57 00:03:15,000 --> 00:03:18,639 Speaker 3: default into the world. But yes, this is one thing 58 00:03:18,680 --> 00:03:21,680 Speaker 3: that in this great manifestation of ideas people are talking about. 59 00:03:21,760 --> 00:03:24,519 Speaker 3: So I suppose we should talk about it. 60 00:03:24,600 --> 00:03:28,040 Speaker 2: You always say you want to take Trump literally and seriously, so. 61 00:03:28,600 --> 00:03:30,000 Speaker 3: I only take them literally anymore. 62 00:03:30,080 --> 00:03:33,280 Speaker 2: Okay, here's our disclaimer. This is not an actual policy 63 00:03:33,320 --> 00:03:36,000 Speaker 2: suggestion for the Trump administration. But we are going to 64 00:03:36,000 --> 00:03:36,440 Speaker 2: talk about it. 65 00:03:36,440 --> 00:03:37,200 Speaker 3: People are talking about it. 66 00:03:37,320 --> 00:03:39,680 Speaker 2: Let's talk about how realistic it is. And we have 67 00:03:39,800 --> 00:03:42,480 Speaker 2: the perfect guest. We're going to be speaking with mittwu Galotti, 68 00:03:42,640 --> 00:03:45,640 Speaker 2: law professor over at the University of Virginia and one 69 00:03:45,680 --> 00:03:48,200 Speaker 2: of our favorites when it comes to all the ins 70 00:03:48,240 --> 00:03:52,880 Speaker 2: and outs, the technicalities the legalities of sovereign debt. So Midwo, 71 00:03:52,960 --> 00:03:55,840 Speaker 2: thank you so much for coming on all thoughts, I'm. 72 00:03:55,760 --> 00:03:59,120 Speaker 5: So excited to be here. I shouldn't be excited about 73 00:03:59,120 --> 00:04:02,800 Speaker 5: all that. No crazy things that are being discussed, but 74 00:04:03,680 --> 00:04:08,400 Speaker 5: from an academic perspective, this is just heavenly, even though 75 00:04:08,440 --> 00:04:09,960 Speaker 5: I might be jobless soon. 76 00:04:10,920 --> 00:04:11,119 Speaker 4: Right. 77 00:04:11,280 --> 00:04:14,920 Speaker 2: So markets have been crazy, but the upside is, I 78 00:04:14,920 --> 00:04:18,200 Speaker 2: guess we get to talk about bond contracts. When did 79 00:04:18,240 --> 00:04:21,960 Speaker 2: you first become aware of the mar A Lago accord? 80 00:04:22,040 --> 00:04:24,040 Speaker 2: When did people start talking about it? 81 00:04:24,640 --> 00:04:27,880 Speaker 5: So I actually think that I heard about it on 82 00:04:27,880 --> 00:04:30,080 Speaker 5: one of your podcasts. 83 00:04:29,400 --> 00:04:33,160 Speaker 3: Oh God about it's wowerful. 84 00:04:33,120 --> 00:04:36,800 Speaker 5: And then I dug into it and looked at one 85 00:04:36,880 --> 00:04:42,600 Speaker 5: of the proposals in particular interested me, which was sort 86 00:04:42,600 --> 00:04:49,440 Speaker 5: of swapping out short term US treasuries for longer term, 87 00:04:49,839 --> 00:04:55,080 Speaker 5: low interest US treasuries, which was talked a lot about 88 00:04:55,080 --> 00:04:58,480 Speaker 5: it as a debt swap with our allies, but really 89 00:04:58,600 --> 00:05:03,520 Speaker 5: was just an extension maturities at a low rate when 90 00:05:03,880 --> 00:05:06,800 Speaker 5: the market might not actually be giving you the low rate. 91 00:05:06,920 --> 00:05:11,320 Speaker 5: And that has become I mean, that was I think implausible. 92 00:05:11,360 --> 00:05:14,200 Speaker 5: When you guys talked about it, it was just sort of, oh, 93 00:05:14,279 --> 00:05:19,520 Speaker 5: here's some crazy ideas. People are now emailing and asking 94 00:05:20,080 --> 00:05:23,880 Speaker 5: sort of respected market people, how could this happen and 95 00:05:24,600 --> 00:05:29,960 Speaker 5: what would the legal barriers be and what are the ramifications. 96 00:05:30,560 --> 00:05:33,800 Speaker 3: So what's basically going on in the last several weeks 97 00:05:33,880 --> 00:05:36,240 Speaker 3: is that this very theoretical idea, which by the way, 98 00:05:36,279 --> 00:05:39,280 Speaker 3: Trump himself actually I don't think he's ever used he's 99 00:05:39,279 --> 00:05:41,880 Speaker 3: certainly never used the term mar Alago court. But there's 100 00:05:41,960 --> 00:05:45,320 Speaker 3: the people around him, some influential thinkers talking about this 101 00:05:45,360 --> 00:05:48,039 Speaker 3: could be some endgame here where there's some sort of 102 00:05:48,040 --> 00:05:51,159 Speaker 3: rethinking about the US dollar and the dead And now 103 00:05:51,320 --> 00:05:53,719 Speaker 3: it's come to the point where people who are serious 104 00:05:53,760 --> 00:05:56,839 Speaker 3: in markets, they're coming to mewtwo Gladia and they say, 105 00:05:56,839 --> 00:05:58,720 Speaker 3: what's up, help me understand this? 106 00:05:59,480 --> 00:06:00,880 Speaker 4: Yes, I think so. 107 00:06:01,440 --> 00:06:06,040 Speaker 5: You know, we talked about Trump and taking him seriously 108 00:06:06,200 --> 00:06:10,120 Speaker 5: and taking the kinds of things that he has done 109 00:06:10,320 --> 00:06:13,760 Speaker 5: in the past seriously, and what he's willing to do, 110 00:06:14,320 --> 00:06:19,120 Speaker 5: and restructuring distress debt is something that he has done 111 00:06:19,160 --> 00:06:23,040 Speaker 5: a lot of, and he talked about it prior to 112 00:06:23,240 --> 00:06:27,279 Speaker 5: his first presidency when he talked about, oh, the US 113 00:06:27,400 --> 00:06:29,560 Speaker 5: debt not a big deal. We could just inflate it 114 00:06:29,560 --> 00:06:34,560 Speaker 5: away or something like that. A debt swap using the 115 00:06:34,760 --> 00:06:41,240 Speaker 5: power of US governing law is really not that insane, 116 00:06:42,160 --> 00:06:46,200 Speaker 5: both in historical contexts and in what we could do. 117 00:06:46,800 --> 00:06:50,440 Speaker 5: It is insane in terms of norms that have been 118 00:06:50,800 --> 00:06:54,480 Speaker 5: built carefully over the last sixty seventy years. 119 00:06:54,880 --> 00:06:56,080 Speaker 4: But Trump is not. 120 00:06:56,240 --> 00:06:59,320 Speaker 5: Alexander Hamilton, I think yes, to. 121 00:06:59,279 --> 00:07:03,240 Speaker 2: Put it mildly, explain this further. You said earlier a 122 00:07:03,320 --> 00:07:07,360 Speaker 2: debt swap could be basically the equivalent of extending maturities 123 00:07:07,440 --> 00:07:12,000 Speaker 2: on existing treasuries. But like I would hope that there 124 00:07:12,120 --> 00:07:16,880 Speaker 2: is some clause in the bond documents that would rule 125 00:07:16,920 --> 00:07:18,920 Speaker 2: that out. Am I wrong? 126 00:07:19,040 --> 00:07:23,400 Speaker 5: I guess I'm wrong, alas you are wrong. So really, 127 00:07:23,520 --> 00:07:28,880 Speaker 5: anybody and everybody who holds US treasuries should go and 128 00:07:28,960 --> 00:07:33,040 Speaker 5: look at the contract terms for their US treasuries and 129 00:07:33,160 --> 00:07:38,440 Speaker 5: ask the question, do my contract terms restrict the US 130 00:07:38,440 --> 00:07:44,480 Speaker 5: Treasury Department from saying to me tomorrow, you know we 131 00:07:44,520 --> 00:07:47,320 Speaker 5: need a little more money, So we're just extending the 132 00:07:47,360 --> 00:07:51,920 Speaker 5: maturity of your debt by another twenty years at the 133 00:07:52,000 --> 00:07:55,720 Speaker 5: interest rate that you lent to us. Is there anything 134 00:07:55,800 --> 00:07:59,160 Speaker 5: restricting that I don't think you'll find anything. 135 00:08:00,520 --> 00:08:03,080 Speaker 3: This blows my mind because to me, if I'm a 136 00:08:03,080 --> 00:08:07,200 Speaker 3: holder of US treasuries and a creditor or I'm lender, 137 00:08:07,280 --> 00:08:08,960 Speaker 3: the creditor says, you know what, I'm just paying you 138 00:08:09,040 --> 00:08:11,000 Speaker 3: back a long time, to me, that sounds like default. 139 00:08:11,440 --> 00:08:14,640 Speaker 3: And you're saying that in the research that you've done, 140 00:08:14,840 --> 00:08:18,040 Speaker 3: this would not say trigger credit default shops, because to 141 00:08:18,080 --> 00:08:21,360 Speaker 3: my mind, my assumption would be, oh, this breaks the 142 00:08:21,480 --> 00:08:25,320 Speaker 3: entire system. This is a default, and we can't have 143 00:08:25,400 --> 00:08:27,600 Speaker 3: a default on the risk free assets. And you're saying 144 00:08:27,600 --> 00:08:30,080 Speaker 3: that actually in the wording of the document is not there. 145 00:08:30,520 --> 00:08:32,920 Speaker 5: So we have to be clear and I have to 146 00:08:32,960 --> 00:08:36,559 Speaker 5: be geeky here in my law professor mode, there are 147 00:08:36,960 --> 00:08:39,960 Speaker 5: at least three different types of default. So there's a 148 00:08:40,080 --> 00:08:43,920 Speaker 5: default on the contract. Something you could sue somebody for 149 00:08:44,360 --> 00:08:47,480 Speaker 5: breach of contract. It would not be a breach of contract. 150 00:08:47,880 --> 00:08:51,640 Speaker 5: US government is allowed to do this. Then there's default 151 00:08:51,760 --> 00:08:55,320 Speaker 5: in terms of would it trigger the handful of credit 152 00:08:55,360 --> 00:08:58,120 Speaker 5: default swaps that are written on US Treasury. Well, that 153 00:08:58,320 --> 00:09:03,200 Speaker 5: sort of depends on the credit rating agencies decide, and 154 00:09:03,640 --> 00:09:07,960 Speaker 5: based on what we saw in Greece twenty twelve, they 155 00:09:08,080 --> 00:09:11,760 Speaker 5: probably would say it was a default for credit default swaps. 156 00:09:11,760 --> 00:09:16,160 Speaker 5: But that doesn't apply to everyone. So those are the 157 00:09:16,280 --> 00:09:19,760 Speaker 5: two big default scenarios. 158 00:09:19,840 --> 00:09:21,760 Speaker 3: What do you mean that doesn't apply to everyone. 159 00:09:21,520 --> 00:09:22,080 Speaker 4: Well, they don't. 160 00:09:22,200 --> 00:09:26,120 Speaker 5: The default for a credit default swap really only applies 161 00:09:26,160 --> 00:09:29,840 Speaker 5: to the people who are holding credit defaulse protection on 162 00:09:30,080 --> 00:09:32,400 Speaker 5: US Treasury, so they would be able to get their 163 00:09:32,440 --> 00:09:36,640 Speaker 5: money back from somebody who had provided them insurance. But 164 00:09:36,720 --> 00:09:40,800 Speaker 5: the rest of US dupes like me would just have 165 00:09:40,920 --> 00:09:45,120 Speaker 5: to sit with the US extending the maturities. Now, the 166 00:09:45,200 --> 00:09:49,600 Speaker 5: details are important, but if you are willing to let 167 00:09:49,640 --> 00:09:52,200 Speaker 5: me bore you with them, I can sort of sketch 168 00:09:52,240 --> 00:09:56,920 Speaker 5: out the scenarios always Okay. My students asked me this 169 00:09:57,120 --> 00:09:59,800 Speaker 5: in class a couple of days ago, so I had 170 00:09:59,840 --> 00:10:02,760 Speaker 5: to sketch it out for them. So I said, step one, 171 00:10:03,320 --> 00:10:06,640 Speaker 5: the US Treasury Department and the Secretary of the Treasury 172 00:10:07,200 --> 00:10:13,559 Speaker 5: have authority to manage the maturities of US treasuries. What 173 00:10:13,640 --> 00:10:18,600 Speaker 5: does manage the maturities mean? It really does mean, you know, 174 00:10:18,760 --> 00:10:23,760 Speaker 5: issuing bonds of different maturities, managing your yield curve. But 175 00:10:23,880 --> 00:10:31,760 Speaker 5: could it include unilaterally extending the maturities? Seems implausible, but 176 00:10:31,880 --> 00:10:37,000 Speaker 5: this government has pushed its legal authority in many ways. Now, 177 00:10:37,040 --> 00:10:41,040 Speaker 5: what is most likely to happen that the US Treasury 178 00:10:41,200 --> 00:10:45,520 Speaker 5: if they ever went down this path because they needed 179 00:10:45,640 --> 00:10:49,280 Speaker 5: money and rates had gone up and they wanted to 180 00:10:49,480 --> 00:10:51,839 Speaker 5: take advantage of the fact that their old borrowing was 181 00:10:51,880 --> 00:10:54,400 Speaker 5: at low rates, what they would do. I think the 182 00:10:54,440 --> 00:10:58,680 Speaker 5: pattern we have seen is that they would extend the 183 00:10:58,760 --> 00:11:03,959 Speaker 5: maturities and then Congress would quickly pass a law confirming it. 184 00:11:04,720 --> 00:11:07,640 Speaker 5: That's what we've seen in all of the other Trump 185 00:11:07,720 --> 00:11:12,439 Speaker 5: executive orders, plus Congress quickly passing a law, and then 186 00:11:12,960 --> 00:11:16,560 Speaker 5: there would be lawsuits. There would be lawsuits left and 187 00:11:16,679 --> 00:11:20,880 Speaker 5: right saying this is a violation of the Constitution because 188 00:11:20,880 --> 00:11:24,720 Speaker 5: remember there's no contractual protection. So now you have to 189 00:11:24,760 --> 00:11:29,040 Speaker 5: say you've somehow taken my property and I have an 190 00:11:29,160 --> 00:11:35,480 Speaker 5: implicit moralistic right to having my money paid back at 191 00:11:35,480 --> 00:11:37,600 Speaker 5: the time when you said you would pay it back. 192 00:11:38,040 --> 00:11:43,520 Speaker 5: Now that's really tough, and we have historical precedent for this, 193 00:11:43,720 --> 00:11:48,560 Speaker 5: going back to the nineteen thirties when we were in 194 00:11:48,679 --> 00:11:53,280 Speaker 5: deep trouble because of gold. We didn't have enough gold 195 00:11:53,480 --> 00:11:58,160 Speaker 5: to pay everyone in case. They invoked their gold clauses, 196 00:11:58,200 --> 00:12:03,560 Speaker 5: which entitled whole of certain US treasuries to get paid 197 00:12:03,640 --> 00:12:06,920 Speaker 5: in gold. If they had gotten paid in gold or 198 00:12:07,000 --> 00:12:10,800 Speaker 5: asked to get paid in gold, US would have essentially 199 00:12:10,880 --> 00:12:17,520 Speaker 5: gone broke. So the President back by Congress abrogated the 200 00:12:17,559 --> 00:12:21,560 Speaker 5: gold clause protection in contracts, and it was thought that 201 00:12:21,800 --> 00:12:24,600 Speaker 5: surely the Supreme Court would say this is not allowed. 202 00:12:24,640 --> 00:12:29,040 Speaker 5: You cannot just take away people's contractual rights. And the 203 00:12:29,080 --> 00:12:32,880 Speaker 5: Supreme Court, in one of the most famous cases of 204 00:12:32,920 --> 00:12:37,640 Speaker 5: that era, said it was okay. And the markets. I 205 00:12:38,840 --> 00:12:40,920 Speaker 5: don't want to say this, but I'm gonna say it 206 00:12:40,960 --> 00:12:46,240 Speaker 5: because it's true. The markets didn't crash. Yeah, I think 207 00:12:46,240 --> 00:12:49,440 Speaker 5: it's around nineteen thirty five. I'm going to mess up 208 00:12:49,480 --> 00:12:53,560 Speaker 5: which year Congress did the abrogation and then when the 209 00:12:53,600 --> 00:12:57,720 Speaker 5: Supreme Court decision came out. But the predictions were this 210 00:12:57,760 --> 00:13:01,840 Speaker 5: will destroy the US ability to ever borrow in the future, 211 00:13:02,480 --> 00:13:05,800 Speaker 5: and that did not happen. There's some famous articles about this. 212 00:13:21,520 --> 00:13:24,960 Speaker 2: What's your read then on why this didn't happen, like 213 00:13:25,080 --> 00:13:27,480 Speaker 2: why did the market seem to just go like, Okay, 214 00:13:27,559 --> 00:13:29,280 Speaker 2: this is unusual, but fine. 215 00:13:30,160 --> 00:13:35,720 Speaker 5: So my read, with no proof, is that there are 216 00:13:35,840 --> 00:13:41,760 Speaker 5: these rare instances where the market thinks, you know, this 217 00:13:42,000 --> 00:13:46,960 Speaker 5: abrogation of contractual rights, while it looks like a violation 218 00:13:47,720 --> 00:13:51,040 Speaker 5: of the rule of law in every which way possible, 219 00:13:52,160 --> 00:13:58,079 Speaker 5: is necessary to make us all better, and therefore, instead 220 00:13:58,120 --> 00:14:02,120 Speaker 5: of penalizing the government does it, we're going to reward 221 00:14:02,200 --> 00:14:07,480 Speaker 5: them and we're going to lend even more. Arguably Greece 222 00:14:07,559 --> 00:14:15,200 Speaker 5: in twenty twelve, where Greece also legislatively abrogated contractual rights 223 00:14:16,120 --> 00:14:20,040 Speaker 5: and did something very similar, is a similar situation where 224 00:14:20,080 --> 00:14:25,800 Speaker 5: the market didn't penalize them anywhere near the amount that 225 00:14:26,040 --> 00:14:32,240 Speaker 5: many sages on Wall Street were saying would happen. Now. 226 00:14:32,280 --> 00:14:35,040 Speaker 5: I'm not saying that that's what would happen now, I mean, 227 00:14:35,120 --> 00:14:37,840 Speaker 5: this administration seems crazy. 228 00:14:38,920 --> 00:14:42,720 Speaker 3: What about Fourteenth Amendment Section four that says the validity 229 00:14:42,760 --> 00:14:45,080 Speaker 3: of the public debt of the United States authorized by law, 230 00:14:45,120 --> 00:14:47,840 Speaker 3: including debts and curd for payments of pensions and bounties 231 00:14:47,840 --> 00:14:51,960 Speaker 3: for services and suppressing insurrection or rebellion, should not be questioned. 232 00:14:52,000 --> 00:14:54,600 Speaker 5: Oh, I love it that you're bringing up the Fourteenth 233 00:14:54,640 --> 00:14:57,520 Speaker 5: Amendment and the debt language of the fourteenth Amendment that 234 00:14:57,600 --> 00:14:59,320 Speaker 5: my students don't even know exist. 235 00:15:00,120 --> 00:15:01,760 Speaker 3: The only reason I know about this is because it 236 00:15:01,800 --> 00:15:03,040 Speaker 3: comes up a lot during the dead Sertes. 237 00:15:03,320 --> 00:15:05,680 Speaker 2: Joe carries around a copy of it in his podcast 238 00:15:05,800 --> 00:15:06,600 Speaker 2: at all times. 239 00:15:07,360 --> 00:15:10,920 Speaker 5: Okay, this language is so important for a variety of 240 00:15:11,000 --> 00:15:15,280 Speaker 5: reasons relating to multiple debt crises around the world, but 241 00:15:15,320 --> 00:15:17,640 Speaker 5: I won't go into those. Let's just look at the 242 00:15:17,840 --> 00:15:23,640 Speaker 5: language about the validity of the US debt. Arguably, that 243 00:15:23,920 --> 00:15:29,320 Speaker 5: language goes back to the eighteen hundreds at least, when 244 00:15:29,600 --> 00:15:37,400 Speaker 5: often small municipalities would say a certain debt was illegally 245 00:15:37,520 --> 00:15:42,240 Speaker 5: issued by this government in place that did not have 246 00:15:42,480 --> 00:15:46,040 Speaker 5: the proper authorization to issue it. So if that's the 247 00:15:46,160 --> 00:15:51,600 Speaker 5: meaning of validity, that it's about the original issuance, the 248 00:15:51,720 --> 00:15:55,120 Speaker 5: Trump administration could say, we're not challenging the validity. We 249 00:15:55,200 --> 00:15:59,560 Speaker 5: think your debt is very valid. We're just extending the maturity, 250 00:15:59,680 --> 00:16:02,120 Speaker 5: and we do promise to pay you. Let's say they 251 00:16:02,120 --> 00:16:05,440 Speaker 5: extend the maturity by one hundred years. We promised to 252 00:16:05,480 --> 00:16:07,720 Speaker 5: pay you in one hundred years. 253 00:16:07,600 --> 00:16:13,000 Speaker 2: When we're all dead. Yes, Okay, I hesitate to ask 254 00:16:13,160 --> 00:16:16,160 Speaker 2: this question for some of the reasons that Joe laid 255 00:16:16,160 --> 00:16:20,160 Speaker 2: out earlier. But we've established that there's a lot of 256 00:16:20,200 --> 00:16:23,480 Speaker 2: creativity embedded in the rules of bonds, or at least 257 00:16:23,480 --> 00:16:26,880 Speaker 2: you can use those rules rather creatively to achieve whatever 258 00:16:26,960 --> 00:16:30,880 Speaker 2: aims you're trying to achieve. One of the things that 259 00:16:30,960 --> 00:16:34,359 Speaker 2: has come up recently is the idea of maybe collecting 260 00:16:34,600 --> 00:16:37,920 Speaker 2: on historical debt. Oh yeah, that was never paid to 261 00:16:37,960 --> 00:16:40,720 Speaker 2: the US, you know it. I called it the equivalent 262 00:16:40,840 --> 00:16:44,520 Speaker 2: of like looking in your sofa under the cushions for 263 00:16:44,640 --> 00:16:49,040 Speaker 2: spare change. How viable would something like that be? 264 00:16:49,960 --> 00:16:54,440 Speaker 5: Okay, legally that is much more viable. So this has 265 00:16:54,560 --> 00:16:57,720 Speaker 5: come up in the context of there's a recent book, 266 00:16:58,000 --> 00:17:02,640 Speaker 5: very recent by a senior US Treasury official about the 267 00:17:02,680 --> 00:17:09,199 Speaker 5: negotiations between Andrew Mellon and Winston Churchill about the debts 268 00:17:09,280 --> 00:17:13,560 Speaker 5: that were owed to the United States by Great Britain 269 00:17:14,320 --> 00:17:16,800 Speaker 5: after World War One. So I think it's about four 270 00:17:16,840 --> 00:17:21,600 Speaker 5: point four billion or so that was owed, and Great 271 00:17:21,640 --> 00:17:26,240 Speaker 5: Britain resisted paying, and the US tried to get it paid, 272 00:17:26,400 --> 00:17:28,800 Speaker 5: and then finally we kind of gave up, and then 273 00:17:28,840 --> 00:17:31,200 Speaker 5: we had World War Two and all sorts of things. 274 00:17:31,640 --> 00:17:35,760 Speaker 5: Those debts have never been written off. Officially they are 275 00:17:35,880 --> 00:17:42,879 Speaker 5: still official debts of now the United Kingdom to the US. 276 00:17:43,600 --> 00:17:45,760 Speaker 5: They had interest rates on them. I think the interest 277 00:17:45,840 --> 00:17:50,960 Speaker 5: rate was three percent. If you compounded that amount to 278 00:17:50,960 --> 00:17:56,600 Speaker 5: today's values, that would be many trillions of dollars worth. Okay, 279 00:17:56,680 --> 00:18:00,600 Speaker 5: so that's old. But how would you engineer this. That's 280 00:18:00,640 --> 00:18:03,919 Speaker 5: a debt that is owed by the United Kingdom to 281 00:18:04,000 --> 00:18:08,439 Speaker 5: the US. The US owes the United Kingdom because the 282 00:18:08,520 --> 00:18:13,040 Speaker 5: United Kingdom, by the Treasury Zone estimates, holds upwards of 283 00:18:13,240 --> 00:18:19,199 Speaker 5: seven hundred billion in US treasuries, those can be and 284 00:18:19,280 --> 00:18:23,680 Speaker 5: the legal term is set off. Two sets of debts 285 00:18:24,880 --> 00:18:27,399 Speaker 5: can be set off against each other. It is a 286 00:18:27,560 --> 00:18:31,560 Speaker 5: technique that is used every day in the markets. 287 00:18:32,800 --> 00:18:35,399 Speaker 4: It's just who would have thought. 288 00:18:35,119 --> 00:18:39,159 Speaker 5: That it could be applied in this context, But it 289 00:18:39,240 --> 00:18:43,760 Speaker 5: can be, and in fact, in the Russia Ukraine contexts, 290 00:18:43,920 --> 00:18:47,480 Speaker 5: the Biden administration thought very hard about using set off 291 00:18:47,520 --> 00:18:50,840 Speaker 5: techniques to get funding to Ukraine. So this is an 292 00:18:50,840 --> 00:18:55,680 Speaker 5: idea that's out there current. But applying it to the 293 00:18:55,800 --> 00:18:58,479 Speaker 5: UK debt and then maybe even applying it to the 294 00:18:58,480 --> 00:19:02,120 Speaker 5: French debt from World War One would be truly radical, 295 00:19:02,160 --> 00:19:05,560 Speaker 5: but maybe it wouldn't destroy the markets in the same 296 00:19:05,560 --> 00:19:09,320 Speaker 5: way as the first swap that we discussed. 297 00:19:09,400 --> 00:19:13,720 Speaker 2: That's a very big maybe. But okay, so theoretically the 298 00:19:13,840 --> 00:19:18,640 Speaker 2: UK debt could cancel out some US debt. I think 299 00:19:18,680 --> 00:19:22,160 Speaker 2: this is a really good example of where norms come 300 00:19:22,200 --> 00:19:25,920 Speaker 2: into play, because Okay, after World War One, the US 301 00:19:26,000 --> 00:19:28,719 Speaker 2: knew that the UK owed it a bunch of money, 302 00:19:29,280 --> 00:19:32,800 Speaker 2: but the UK was arguing, well, this is actually emergency 303 00:19:32,840 --> 00:19:35,439 Speaker 2: war funding and it's not fair if we have to 304 00:19:35,480 --> 00:19:39,040 Speaker 2: pay it back, and ultimately the US just decided, you 305 00:19:39,080 --> 00:19:42,240 Speaker 2: know what, it was better to keep the UK as 306 00:19:42,280 --> 00:19:47,960 Speaker 2: an ally not annoy them over this particular loan, and 307 00:19:48,000 --> 00:19:50,800 Speaker 2: so they just never did anything about it. But obviously 308 00:19:50,840 --> 00:19:54,199 Speaker 2: relations between the US and the UK are changing, not 309 00:19:54,280 --> 00:19:57,439 Speaker 2: as friendly as they used to be perhaps, and so 310 00:19:57,560 --> 00:20:00,520 Speaker 2: that opens up the question of whether the how youse 311 00:20:00,560 --> 00:20:03,120 Speaker 2: around these loans and bonds can start to change. 312 00:20:03,440 --> 00:20:06,879 Speaker 3: No, well, this sort of anticipated the question that I 313 00:20:07,080 --> 00:20:09,840 Speaker 3: was going to go to, which is like, say more 314 00:20:09,880 --> 00:20:12,960 Speaker 3: about like why it was just accepted that these debts 315 00:20:12,960 --> 00:20:13,960 Speaker 3: were not collected upon. 316 00:20:14,840 --> 00:20:19,920 Speaker 5: Well, I'm not sure there is extensive writing about the negotiations. 317 00:20:19,960 --> 00:20:23,320 Speaker 5: I think they went all the way up to the 318 00:20:23,440 --> 00:20:28,840 Speaker 5: nineteen seventies, and for those who study financial history. Post 319 00:20:28,840 --> 00:20:32,840 Speaker 5: World War two was a truly horrible time in Europe. 320 00:20:32,920 --> 00:20:39,480 Speaker 5: The US was trying to help European countries recover. The 321 00:20:39,600 --> 00:20:44,120 Speaker 5: UK in particular, had taken the position after World War 322 00:20:44,200 --> 00:20:47,800 Speaker 5: One that the US should try to collect this money 323 00:20:48,040 --> 00:20:52,920 Speaker 5: from Germany, because really Germany owed the money to the 324 00:20:53,040 --> 00:20:58,160 Speaker 5: UK and France in reparations, and sort of the consensus 325 00:20:58,280 --> 00:21:03,040 Speaker 5: was world War One reparations were a stupid idea and 326 00:21:03,160 --> 00:21:08,000 Speaker 5: resulted in World War Two. This is Canes and all 327 00:21:08,040 --> 00:21:12,240 Speaker 5: of that work, but generally, in the interest of letting 328 00:21:12,840 --> 00:21:18,200 Speaker 5: Europe recover, I think the US decided better not to 329 00:21:18,280 --> 00:21:22,479 Speaker 5: push this. But Congress never allowed those debts to be 330 00:21:22,640 --> 00:21:28,639 Speaker 5: wiped out completely, and so in some sense this has 331 00:21:28,680 --> 00:21:34,159 Speaker 5: always been an option. I have heard Treasury officials, people 332 00:21:34,240 --> 00:21:39,280 Speaker 5: negotiating debt restructurings talk, and every once in a while, 333 00:21:39,359 --> 00:21:42,359 Speaker 5: when they can't get the UK to do what they want, 334 00:21:43,560 --> 00:21:47,200 Speaker 5: US officials will kind of snidely mention, you know, there's 335 00:21:47,280 --> 00:21:50,040 Speaker 5: that World War One debt that you never paid, and 336 00:21:50,119 --> 00:21:53,679 Speaker 5: everybody laughs and in a knowing way, And then I 337 00:21:53,720 --> 00:21:54,040 Speaker 5: have this. 338 00:21:54,080 --> 00:21:56,919 Speaker 2: Image of them having like a laminated copy of the 339 00:21:56,960 --> 00:22:00,199 Speaker 2: bond documents and just whipping it out in negotiation. But 340 00:22:00,320 --> 00:22:03,240 Speaker 2: actually that reminds me we don't know what the exact 341 00:22:03,280 --> 00:22:04,520 Speaker 2: bond documentation is. 342 00:22:05,200 --> 00:22:07,439 Speaker 5: We don't know. We don't even know. I mean, we 343 00:22:07,560 --> 00:22:10,160 Speaker 5: know the interest rate is three percent. I've never met 344 00:22:10,240 --> 00:22:14,919 Speaker 5: anybody who's actually seen the document back in nineteen seventeen, 345 00:22:15,760 --> 00:22:17,880 Speaker 5: I don't think it would have been governed by the 346 00:22:18,200 --> 00:22:21,199 Speaker 5: law of New York or the law of England. So 347 00:22:21,359 --> 00:22:26,400 Speaker 5: who knows what statutal limitations would be. Who knows today 348 00:22:26,480 --> 00:22:29,960 Speaker 5: whether or not there is some kind of international statutal 349 00:22:30,000 --> 00:22:33,199 Speaker 5: limitations that would apply, and would it apply in the 350 00:22:33,280 --> 00:22:37,960 Speaker 5: context of setuff. This is just for lawyers. This is 351 00:22:38,000 --> 00:22:42,720 Speaker 5: a bonanza. We could be working on this forever. But 352 00:22:43,480 --> 00:22:46,240 Speaker 5: it seems a bit crazy. But nothing's crazy these days. 353 00:22:46,320 --> 00:22:47,520 Speaker 2: The lawyers always win. 354 00:22:47,960 --> 00:22:51,000 Speaker 3: So speaking of all these old debts and world wars 355 00:22:51,119 --> 00:22:54,679 Speaker 3: and stuff like this, I've gotten into my I'm in 356 00:22:54,680 --> 00:22:56,800 Speaker 3: my mid forties, so of course I read about twentieth 357 00:22:56,840 --> 00:22:59,280 Speaker 3: century history now. And one of the things that are 358 00:22:59,280 --> 00:23:02,760 Speaker 3: actually like was like this big like light bulb revelation 359 00:23:03,400 --> 00:23:07,760 Speaker 3: for me in reading history is that like modern fixed 360 00:23:07,840 --> 00:23:11,040 Speaker 3: borders of countries, it's sort of a novel phenomenon that 361 00:23:11,240 --> 00:23:13,399 Speaker 3: actually like the idea that like these are the lines 362 00:23:13,440 --> 00:23:15,679 Speaker 3: around the country, we just all sort of accept that 363 00:23:16,000 --> 00:23:18,480 Speaker 3: is like very fresh in modern history. And what it 364 00:23:18,560 --> 00:23:20,720 Speaker 3: was striking is like reading about the run up to 365 00:23:20,760 --> 00:23:23,840 Speaker 3: World War two, or like the Germans would sign a 366 00:23:23,880 --> 00:23:26,200 Speaker 3: border agreement with another country, but it would be only 367 00:23:26,240 --> 00:23:28,840 Speaker 3: ten years. They're like, let's be peaceful for ten years 368 00:23:29,000 --> 00:23:32,119 Speaker 3: and then we'll revisit war down the line, whether or not, 369 00:23:32,960 --> 00:23:35,359 Speaker 3: and then we might revisit the idea of conquest. But 370 00:23:35,400 --> 00:23:38,600 Speaker 3: at least in the meantime, some of it's coming back, 371 00:23:38,640 --> 00:23:41,560 Speaker 3: and it's coming back, particularly with respect to Trump's talk 372 00:23:41,560 --> 00:23:45,000 Speaker 3: about Greenland, and people talked about how much a lot 373 00:23:45,040 --> 00:23:47,320 Speaker 3: of people think it's a joke. But a lot of 374 00:23:47,320 --> 00:23:50,159 Speaker 3: people have gotten burned by thinking that things Trump has 375 00:23:50,240 --> 00:23:51,960 Speaker 3: been saying our a joke. And so that's why I've 376 00:23:52,000 --> 00:23:55,960 Speaker 3: become much more on the take Trump literally side. How 377 00:23:56,000 --> 00:23:58,919 Speaker 3: should we think about the idea of like countries just 378 00:23:58,960 --> 00:24:02,479 Speaker 3: sort of like acquire land from other countries as a 379 00:24:02,520 --> 00:24:04,920 Speaker 3: thing that could happen in the twenty first century. 380 00:24:05,200 --> 00:24:08,320 Speaker 5: Okay, this is going to happen, This not could happen. 381 00:24:09,040 --> 00:24:12,480 Speaker 5: You're raising an incredibly important question. So there is greenland, 382 00:24:12,720 --> 00:24:16,480 Speaker 5: but Greenland's kind of fun to talk about. Yeah, although 383 00:24:16,760 --> 00:24:19,280 Speaker 5: you know, Trump seems very serious about it. He keeps 384 00:24:19,280 --> 00:24:21,919 Speaker 5: telling us, don't think this is a joke. We have 385 00:24:22,000 --> 00:24:25,280 Speaker 5: to have it, and I will have it. But it's 386 00:24:25,359 --> 00:24:30,240 Speaker 5: going to be directly relevant in the context of Ukraine. 387 00:24:30,320 --> 00:24:34,359 Speaker 5: So let us say that mister Putin is able to 388 00:24:34,480 --> 00:24:40,359 Speaker 5: negotiate with President Trump to take half of Ukraine. Okay, 389 00:24:40,480 --> 00:24:47,040 Speaker 5: so Ukraine becomes baby Ukraine. What happens to the enormous 390 00:24:47,200 --> 00:24:52,359 Speaker 5: pile of debt that Ukraine has that is unpaid and 391 00:24:52,440 --> 00:24:56,680 Speaker 5: that was restructured in the context of war, including billions 392 00:24:56,680 --> 00:24:59,480 Speaker 5: and billions of dollars that are owed to the US 393 00:24:59,680 --> 00:25:05,119 Speaker 5: and to European allies. Does all Ukraine pay all of 394 00:25:05,119 --> 00:25:09,480 Speaker 5: this or does baby Ukraine pay all of this? Does 395 00:25:09,520 --> 00:25:13,960 Speaker 5: it get divided? It turns out that the laws from 396 00:25:14,200 --> 00:25:17,679 Speaker 5: the era of conquest, those are the laws that apply 397 00:25:17,800 --> 00:25:21,280 Speaker 5: even today. Of what happens when the borders of a 398 00:25:21,359 --> 00:25:26,359 Speaker 5: state change, those laws are really unclear, and so we'd 399 00:25:26,359 --> 00:25:30,200 Speaker 5: have to decide in the modern era, how would those 400 00:25:30,359 --> 00:25:37,080 Speaker 5: old laws apply, given that we pretend that borders don't change, 401 00:25:37,600 --> 00:25:41,960 Speaker 5: and we pretend that conquest is not allowed. I mean, 402 00:25:42,240 --> 00:25:45,879 Speaker 5: Putin takes the position that what's happening in Ukraine is 403 00:25:45,920 --> 00:25:51,800 Speaker 5: an independence movement that started domestically and that he's just 404 00:25:52,040 --> 00:25:55,520 Speaker 5: encouraging it. Well, there is a whole set of laws 405 00:25:55,800 --> 00:25:58,679 Speaker 5: that apply to civil wars. And if they take the 406 00:25:58,720 --> 00:26:03,000 Speaker 5: position of this is civil war, then there is nineteenth 407 00:26:03,000 --> 00:26:05,920 Speaker 5: century debt law that applies to a civil war. 408 00:26:21,240 --> 00:26:25,240 Speaker 2: This is one of my favorite ever financial history topics, 409 00:26:25,280 --> 00:26:29,320 Speaker 2: which is the repudiation of debt from the Soviet Union, 410 00:26:29,480 --> 00:26:33,760 Speaker 2: also Imperial China. And there is this argument that, Okay, 411 00:26:33,840 --> 00:26:38,199 Speaker 2: there's a revolution in a country, the new administration or 412 00:26:38,240 --> 00:26:42,000 Speaker 2: the new policymakers should the new government should not be 413 00:26:42,160 --> 00:26:47,280 Speaker 2: saddled with debt from the previous administration because that administration 414 00:26:47,480 --> 00:26:49,919 Speaker 2: was wrong and was not supposed to be there and 415 00:26:49,960 --> 00:26:52,359 Speaker 2: they were taking advantage of the people and spending all 416 00:26:52,359 --> 00:26:55,239 Speaker 2: their money. Blah blah blah blah. Talk about that. 417 00:26:56,400 --> 00:26:59,720 Speaker 5: So you have brought up one of our favorite topics, 418 00:26:59,760 --> 00:27:03,920 Speaker 5: that doctrine of odious debts, and the doctrine of odious 419 00:27:03,960 --> 00:27:10,840 Speaker 5: debts is really about some despotic leader, a kleptocrat who's 420 00:27:10,880 --> 00:27:15,000 Speaker 5: borrowing a lot of money from usually foreign creditors and 421 00:27:15,080 --> 00:27:18,400 Speaker 5: then absconds with that money, and should the new government 422 00:27:19,280 --> 00:27:23,320 Speaker 5: that comes into place after kicking out the kleptocratic leader 423 00:27:23,640 --> 00:27:27,600 Speaker 5: be responsible to those creditors, especially if those creditors knew 424 00:27:27,680 --> 00:27:31,720 Speaker 5: they were lending to a kleptocrat. What Joe raised with 425 00:27:31,880 --> 00:27:36,400 Speaker 5: the change of state borders is a more obscure doctrine 426 00:27:36,440 --> 00:27:40,639 Speaker 5: that falls within the subset of odious debts, but is 427 00:27:40,680 --> 00:27:46,600 Speaker 5: a little bit different and more importantly, has much more 428 00:27:46,720 --> 00:27:50,120 Speaker 5: legal basis for it. So Joe, can we go back 429 00:27:50,160 --> 00:27:53,720 Speaker 5: to the fourteenth Amendment please? Okay, can we read that 430 00:27:53,920 --> 00:27:55,240 Speaker 5: language that you read. 431 00:27:55,800 --> 00:27:57,440 Speaker 2: Joe's reaching into his pot. 432 00:27:59,040 --> 00:28:01,680 Speaker 3: The validity of the public debt of the United States, 433 00:28:01,760 --> 00:28:05,480 Speaker 3: authorized by law, including debts incurred for payments of pensions 434 00:28:05,480 --> 00:28:10,399 Speaker 3: and bounties for services in suppressing insurrection or rebellion, shall 435 00:28:10,440 --> 00:28:11,320 Speaker 3: not be questioned. 436 00:28:11,480 --> 00:28:16,359 Speaker 5: Okay, So that last part when Joe raised this at 437 00:28:16,400 --> 00:28:19,320 Speaker 5: the beginning of the podcast, I think he was focusing 438 00:28:20,240 --> 00:28:22,880 Speaker 5: and Joe, and you. 439 00:28:22,880 --> 00:28:25,600 Speaker 3: Know what it was, to be honest, and you probably 440 00:28:25,800 --> 00:28:28,679 Speaker 3: sense this, to be honest, When I read this, I 441 00:28:28,720 --> 00:28:30,560 Speaker 3: was like, oh, I never really paid much attention to 442 00:28:30,640 --> 00:28:32,440 Speaker 3: that insurrection or rebellion point. 443 00:28:32,880 --> 00:28:36,240 Speaker 5: That stuff is so important. Okay, I'm getting so excited 444 00:28:36,280 --> 00:28:40,000 Speaker 5: so I apologize for raising my volume. That is the 445 00:28:40,160 --> 00:28:46,360 Speaker 5: US saying to international creditors, we will not pay if 446 00:28:46,360 --> 00:28:51,520 Speaker 5: you lend for insurrection that is civil war, we will 447 00:28:51,560 --> 00:28:55,800 Speaker 5: not pay. And we think this is fine by international law. 448 00:28:56,320 --> 00:28:59,880 Speaker 5: Is remember in the early days, we were very concerned, 449 00:29:00,040 --> 00:29:03,160 Speaker 5: actually none of us, remember, we were very concerned about 450 00:29:03,200 --> 00:29:06,400 Speaker 5: following international law because we didn't want other countries to 451 00:29:06,440 --> 00:29:10,400 Speaker 5: send in the gunboats because we were violating law. It 452 00:29:10,520 --> 00:29:14,640 Speaker 5: was accepted arguably at that time there was okay not 453 00:29:14,960 --> 00:29:19,680 Speaker 5: to pay for debts incurred by the rebels in fighting 454 00:29:19,920 --> 00:29:20,840 Speaker 5: in a civil war. 455 00:29:21,440 --> 00:29:23,960 Speaker 2: Right, and we all know at this point that one 456 00:29:24,040 --> 00:29:28,080 Speaker 2: man's coup can be another man's fight for liberation. So 457 00:29:28,120 --> 00:29:32,760 Speaker 2: it's open to interpretation. I got to ask just before 458 00:29:32,840 --> 00:29:37,240 Speaker 2: we go going back to Greenland, can Trump get Greenland? 459 00:29:37,280 --> 00:29:38,480 Speaker 2: How does that work legally? 460 00:29:38,920 --> 00:29:41,160 Speaker 5: Oh? This is good too, But can I just go 461 00:29:41,280 --> 00:29:44,520 Speaker 5: back to what the implications of what Joe's language in 462 00:29:45,160 --> 00:29:50,240 Speaker 5: that in the fourteenth Amendment for Ukraine? If Putin takes 463 00:29:50,240 --> 00:29:55,080 Speaker 5: the position that what has happened in Ukraine is an 464 00:29:55,200 --> 00:30:00,360 Speaker 5: independence movement and there was a civil war, then Putin 465 00:30:00,440 --> 00:30:05,000 Speaker 5: could invoke basically our fourteenth Amendment and the laws that 466 00:30:05,120 --> 00:30:08,840 Speaker 5: followed since their's have been cases where the British took 467 00:30:08,840 --> 00:30:11,360 Speaker 5: a similar position in the context of the Boer War 468 00:30:11,880 --> 00:30:16,320 Speaker 5: and say I am not responsible for any of the 469 00:30:16,400 --> 00:30:22,080 Speaker 5: debts incurred by Ukraine because that was a civil war context, 470 00:30:23,040 --> 00:30:25,880 Speaker 5: and the side that wins does not have to pay 471 00:30:26,360 --> 00:30:31,080 Speaker 5: the debts of the side that loses. Bondholders I think 472 00:30:31,400 --> 00:30:36,120 Speaker 5: have been quite unaware of this possibility. Now, maybe it 473 00:30:36,160 --> 00:30:39,080 Speaker 5: will all get worked out, but I don't really see 474 00:30:39,160 --> 00:30:43,640 Speaker 5: how we can avoid working this out. But back to Greenland. Now, 475 00:30:43,800 --> 00:30:49,040 Speaker 5: can we get Greenland? Well, yes, we can get Greenland. 476 00:30:49,280 --> 00:30:53,720 Speaker 5: Even though borders are not supposed to change. We could 477 00:30:54,000 --> 00:31:01,600 Speaker 5: in theory, there's no international law prohibiting us purchasing Greenland. 478 00:31:01,880 --> 00:31:05,440 Speaker 5: The question is who do we purchase it from. In 479 00:31:05,480 --> 00:31:08,800 Speaker 5: the old days, we would have just purchased it from Denmark. 480 00:31:09,160 --> 00:31:12,840 Speaker 5: They kind of owned Greenland as property. But now we 481 00:31:12,960 --> 00:31:17,360 Speaker 5: don't think of post colonial states as property, although we 482 00:31:17,400 --> 00:31:22,600 Speaker 5: don't quite know. Maybe the property interests, to the extent 483 00:31:23,360 --> 00:31:26,840 Speaker 5: you think of sovereignty interests as property interests lie with 484 00:31:26,920 --> 00:31:31,400 Speaker 5: the people of Greenland. And so the fifty seven thousand, 485 00:31:31,880 --> 00:31:36,480 Speaker 5: quote unquote citizens of Greenland, maybe Trump could offer to 486 00:31:36,520 --> 00:31:40,560 Speaker 5: pay them each one point five million dollars in a 487 00:31:40,880 --> 00:31:44,560 Speaker 5: Swiss bank account and give them each a little house 488 00:31:45,200 --> 00:31:48,160 Speaker 5: on the beach in Santa Monica and give them one 489 00:31:48,200 --> 00:31:52,640 Speaker 5: of his Golden visas it could happen. It would be 490 00:31:52,760 --> 00:31:57,320 Speaker 5: brand new international law, but entirely plausible. The question, though, 491 00:31:57,440 --> 00:32:01,280 Speaker 5: is where's he going to get the money from. He 492 00:32:01,360 --> 00:32:05,120 Speaker 5: would really have to borrow a large amount of money, 493 00:32:05,520 --> 00:32:10,160 Speaker 5: And so we come back to the question of issuing 494 00:32:10,240 --> 00:32:14,080 Speaker 5: more US sovereign debt in a context in which we're 495 00:32:14,080 --> 00:32:17,160 Speaker 5: trying to reduce the sovereign det I am, maybe the. 496 00:32:17,160 --> 00:32:20,400 Speaker 2: US could use the proceeds from recouping payment on those 497 00:32:20,440 --> 00:32:22,400 Speaker 2: old UK bonds to buy Greenland. 498 00:32:23,280 --> 00:32:27,520 Speaker 5: We could, now, I suspect, okay, I'm building conspiracy theory 499 00:32:27,640 --> 00:32:30,680 Speaker 5: upon conspiracy theory, and maybe this is just. 500 00:32:30,840 --> 00:32:31,880 Speaker 4: A bridge too far. 501 00:32:32,200 --> 00:32:35,640 Speaker 5: But if you go back to techniques that Trump was 502 00:32:35,760 --> 00:32:40,360 Speaker 5: very fond of using, say in his casino days, he 503 00:32:40,440 --> 00:32:46,200 Speaker 5: really didn't like market processes where say, the US would 504 00:32:46,200 --> 00:32:51,680 Speaker 5: be bidding against Denmark and maybe Germany and maybe a 505 00:32:51,800 --> 00:32:56,800 Speaker 5: France for who would pay the Greenlanders the highest amount 506 00:32:57,160 --> 00:33:00,920 Speaker 5: in order to acquire Greenland. Instead, there's been a lot 507 00:33:00,960 --> 00:33:05,840 Speaker 5: of talk about security reasons. The security reasons and the 508 00:33:05,840 --> 00:33:11,440 Speaker 5: imperative that the US must have Greenland, and no talk of, say, 509 00:33:11,440 --> 00:33:14,640 Speaker 5: an auction for Greenland where the Greenlanders would get the 510 00:33:14,720 --> 00:33:20,040 Speaker 5: highest price. This talk about security reasons sounds more like 511 00:33:20,280 --> 00:33:25,040 Speaker 5: a regulatory taking where we get to take it at 512 00:33:25,040 --> 00:33:30,600 Speaker 5: the price we set because it is important for security reasons. 513 00:33:30,720 --> 00:33:34,080 Speaker 5: It is a technique that Trump has used in the 514 00:33:34,120 --> 00:33:38,840 Speaker 5: past in his property dealings and could try to use here. 515 00:33:38,920 --> 00:33:42,600 Speaker 5: Although I don't think there's any international law equivalent, but 516 00:33:42,880 --> 00:33:46,680 Speaker 5: we're making up international law in the modern era, okay. 517 00:33:46,720 --> 00:33:48,640 Speaker 2: So I think at a minimum we can say we 518 00:33:48,720 --> 00:33:52,840 Speaker 2: are living through interesting times, and it's interesting times in 519 00:33:52,920 --> 00:33:55,800 Speaker 2: bonds as well. So thank you MITCHU for coming on 520 00:33:55,840 --> 00:33:58,080 Speaker 2: the show to explain all of that to us and 521 00:33:58,320 --> 00:34:02,760 Speaker 2: hopefully not give two many policy suggestions to the administration. 522 00:34:03,000 --> 00:34:05,240 Speaker 3: I love talking to law professors. Thank you so much 523 00:34:05,320 --> 00:34:06,080 Speaker 3: for coming back on. 524 00:34:06,200 --> 00:34:20,680 Speaker 4: It was so funny. Thank you both, Joe. 525 00:34:20,719 --> 00:34:23,840 Speaker 2: I love talking to Mit too. I know sovereign bond 526 00:34:23,880 --> 00:34:28,600 Speaker 2: documentation is not necessarily everyone's idea of an exciting time, 527 00:34:28,680 --> 00:34:30,880 Speaker 2: but he makes it exciting and interesting. 528 00:34:31,000 --> 00:34:33,719 Speaker 3: No, I wasn't kidding. I Actually it's fun to talk 529 00:34:33,760 --> 00:34:37,680 Speaker 3: to law professors, especially on this kind of stuff because 530 00:34:38,160 --> 00:34:41,200 Speaker 3: you can just see how their brain works and how 531 00:34:41,200 --> 00:34:43,839 Speaker 3: they're like, well, this part of the sentence you think 532 00:34:43,880 --> 00:34:45,640 Speaker 3: it's talk about this, but this part of the sentence 533 00:34:45,800 --> 00:34:48,759 Speaker 3: is like, oh, are we talking about conquest law that's 534 00:34:48,760 --> 00:34:52,200 Speaker 3: been in effect forever? Are we talking about the repudiation 535 00:34:52,320 --> 00:34:55,640 Speaker 3: of odious debt? Et cetera. And I just find it 536 00:34:55,719 --> 00:34:57,680 Speaker 3: a real pleasure to hear all of it. 537 00:34:57,880 --> 00:35:01,320 Speaker 2: Absolutely, And I think the whole conversation highlights that point 538 00:35:01,360 --> 00:35:06,080 Speaker 2: about just how fluid some of these contracts actually can be. 539 00:35:06,480 --> 00:35:10,359 Speaker 2: And again, there's so many assumptions and norms that are 540 00:35:10,360 --> 00:35:13,880 Speaker 2: built into these things, even though often the documentation tries 541 00:35:13,920 --> 00:35:17,400 Speaker 2: to be air tight. Once those assumptions and norms start 542 00:35:17,520 --> 00:35:20,440 Speaker 2: to change, the way the bonds can be used or 543 00:35:20,640 --> 00:35:23,200 Speaker 2: enforced starts to change as well. And the same applies 544 00:35:23,200 --> 00:35:26,120 Speaker 2: to borders, as you pointed out, Yeah. 545 00:35:25,960 --> 00:35:26,600 Speaker 4: And that's funny. 546 00:35:26,840 --> 00:35:30,080 Speaker 3: Countries are so new, no, they really, Like I I 547 00:35:30,239 --> 00:35:32,560 Speaker 3: realized this a little while ago, like almost every country 548 00:35:32,640 --> 00:35:35,279 Speaker 3: is like it's basically day one around here. That you know, 549 00:35:35,480 --> 00:35:38,200 Speaker 3: so many countries are post World War two. That was 550 00:35:38,239 --> 00:35:40,480 Speaker 3: one of those things that I feel like only that 551 00:35:40,640 --> 00:35:42,239 Speaker 3: clicked in my brain way too late. 552 00:35:42,480 --> 00:35:44,719 Speaker 2: I've been meaning to ask you, Yeah, how do you 553 00:35:44,719 --> 00:35:48,160 Speaker 2: feel about the trillion dollar coin now? Because I said 554 00:35:48,719 --> 00:35:52,000 Speaker 2: something like it's based on norms, that the treasure never 555 00:35:52,040 --> 00:35:53,880 Speaker 2: done this and we should treasure norms. 556 00:35:54,200 --> 00:35:58,520 Speaker 3: I agree. I think an actual default where a mispayment 557 00:35:58,560 --> 00:36:01,880 Speaker 3: would be really bad. And if the choice is between 558 00:36:02,000 --> 00:36:05,239 Speaker 3: yet another norms violation, which at this point added to 559 00:36:05,239 --> 00:36:08,240 Speaker 3: the list, versus a literal non payment of a coupon, 560 00:36:08,280 --> 00:36:11,279 Speaker 3: which would be a default, I will I'll take the coin. 561 00:36:11,480 --> 00:36:14,279 Speaker 2: Okay, glad we settled that. Yes, shall we leave it there? 562 00:36:14,360 --> 00:36:15,040 Speaker 3: Let's leave it there. 563 00:36:15,239 --> 00:36:18,279 Speaker 2: This has been another episode of the Authlots podcast. I'm 564 00:36:18,320 --> 00:36:21,239 Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway and. 565 00:36:21,200 --> 00:36:23,840 Speaker 3: I'm joll Wisenthal. You can follow me at the Stalwart. 566 00:36:24,160 --> 00:36:27,360 Speaker 3: Follow our producers Carmen Rodriguez at Carman armand dash O 567 00:36:27,400 --> 00:36:31,160 Speaker 3: Bennett at Dashbot and Kilbrooks at Kelbrooks. 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