Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Thoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe. Why isn't thal Joe?
Speaker 2: You know what I like to say about bonds go on.
Speaker 2: I think there's this perception that bonds are all about
Speaker 2: finance and legalities. They are these contracts and borrowers have
Speaker 2: to stick to the contract, lenders have to stick to
Speaker 2: the contract. But actually I like to look at bonds
Speaker 2: as more stories. Yeah, and I know we've been talking
Speaker 2: on this podcast a lot about norms and the idea
Speaker 2: that a lot of the way the US operates is
Speaker 2: based on norms and habits that have developed over time.
Speaker 2: Bonds are kind of the same way. It's all about
Speaker 2: the narrative of who owes, whom, what and why, and
Speaker 2: that can change really quickly.
Speaker 4: You know.
Speaker 3: It's actually interesting about you saying this. I was thinking
Speaker 3: back to our episode that we did with a Sujit
Speaker 3: end up about creditor and creditor violence, and perhaps one
Speaker 3: way to think about that whole phenomenon is the exploitation
Speaker 3: of rules above norms. Right, So you have all of
Speaker 3: these norms about how debt is paid back, et cetera.
Speaker 3: And there's like extra alpha to be squeezed by actually
Speaker 3: redoubting to the courts and the rules that are literally
Speaker 3: written down in a fight between creditors about who gets
Speaker 3: the cash flows, et cetera. And it really is about
Speaker 3: this tension of like what's written on paper, what's technical,
Speaker 3: what does these words mean, et cetera versus Come on,
Speaker 3: that's not how we deal with bonds.
Speaker 2: That's right. You can use the rules if you're really clever,
Speaker 2: to try to achieve your aims right and change the
Speaker 2: story on some of these. So we should talk about
Speaker 2: that because there is a lot of discussion about what
Speaker 2: the Trump administration could do when it comes to sovereign debt. Obviously,
Speaker 2: people have been talking about the potential Mara Lago accord,
Speaker 2: which includes a possible debt swap. Again, all of that
Speaker 2: is hypothetical at the moment, but beyond that, there are
Speaker 2: some other things going on, and it certainly seems like
Speaker 2: nothing is off the table when it comes to the
Speaker 2: Trump administration. So we should we should.
Speaker 3: Discuss Yeah, but can I just say one thing, which
Speaker 3: is my ethical reservations here of doing any episode. It
Speaker 3: feels like the entire world now operates in this system
Speaker 3: in which people both outside of the White House and
Speaker 3: inside the White House, the various people trying to like
Speaker 3: curry Trump's favor on a given day try to wish
Speaker 3: cast their ideas about policy into the ether. And they
Speaker 3: put out a tweet and they say it's a negotiation.
Speaker 3: They say it's not a negotiation. They say there should
Speaker 3: be applause, et cetera. And there is this incredible mailstream
Speaker 3: of noise where it's all about trying to manifest some
Speaker 3: outcome that so and so person desires. And I have
Speaker 3: some ethical questions about this sort of contribution to the
Speaker 3: noise by introducing the idea of like further taking seriously
Speaker 3: the idea of debt swaps, which to me sounds like
Speaker 3: default into the world. But yes, this is one thing
Speaker 3: that in this great manifestation of ideas people are talking about.
Speaker 3: So I suppose we should talk about it.
Speaker 2: You always say you want to take Trump literally and seriously, so.
Speaker 3: I only take them literally anymore.
Speaker 2: Okay, here's our disclaimer. This is not an actual policy
Speaker 2: suggestion for the Trump administration. But we are going to
Speaker 2: talk about it.
Speaker 3: People are talking about it.
Speaker 2: Let's talk about how realistic it is. And we have
Speaker 2: the perfect guest. We're going to be speaking with mittwu Galotti,
Speaker 2: law professor over at the University of Virginia and one
Speaker 2: of our favorites when it comes to all the ins
Speaker 2: and outs, the technicalities the legalities of sovereign debt. So Midwo,
Speaker 2: thank you so much for coming on all thoughts, I'm.
Speaker 5: So excited to be here. I shouldn't be excited about
Speaker 5: all that. No crazy things that are being discussed, but
Speaker 5: from an academic perspective, this is just heavenly, even though
Speaker 5: I might be jobless soon.
Speaker 4: Right.
Speaker 2: So markets have been crazy, but the upside is, I
Speaker 2: guess we get to talk about bond contracts. When did
Speaker 2: you first become aware of the mar A Lago accord?
Speaker 2: When did people start talking about it?
Speaker 5: So I actually think that I heard about it on
Speaker 5: one of your podcasts.
Speaker 3: Oh God about it's wowerful.
Speaker 5: And then I dug into it and looked at one
Speaker 5: of the proposals in particular interested me, which was sort
Speaker 5: of swapping out short term US treasuries for longer term,
Speaker 5: low interest US treasuries, which was talked a lot about
Speaker 5: it as a debt swap with our allies, but really
Speaker 5: was just an extension maturities at a low rate when
Speaker 5: the market might not actually be giving you the low rate.
Speaker 5: And that has become I mean, that was I think implausible.
Speaker 5: When you guys talked about it, it was just sort of, oh,
Speaker 5: here's some crazy ideas. People are now emailing and asking
Speaker 5: sort of respected market people, how could this happen and
Speaker 5: what would the legal barriers be and what are the ramifications.
Speaker 3: So what's basically going on in the last several weeks
Speaker 3: is that this very theoretical idea, which by the way,
Speaker 3: Trump himself actually I don't think he's ever used he's
Speaker 3: certainly never used the term mar Alago court. But there's
Speaker 3: the people around him, some influential thinkers talking about this
Speaker 3: could be some endgame here where there's some sort of
Speaker 3: rethinking about the US dollar and the dead And now
Speaker 3: it's come to the point where people who are serious
Speaker 3: in markets, they're coming to mewtwo Gladia and they say,
Speaker 3: what's up, help me understand this?
Speaker 4: Yes, I think so.
Speaker 5: You know, we talked about Trump and taking him seriously
Speaker 5: and taking the kinds of things that he has done
Speaker 5: in the past seriously, and what he's willing to do,
Speaker 5: and restructuring distress debt is something that he has done
Speaker 5: a lot of, and he talked about it prior to
Speaker 5: his first presidency when he talked about, oh, the US
Speaker 5: debt not a big deal. We could just inflate it
Speaker 5: away or something like that. A debt swap using the
Speaker 5: power of US governing law is really not that insane,
Speaker 5: both in historical contexts and in what we could do.
Speaker 5: It is insane in terms of norms that have been
Speaker 5: built carefully over the last sixty seventy years.
Speaker 4: But Trump is not.
Speaker 5: Alexander Hamilton, I think yes, to.
Speaker 2: Put it mildly, explain this further. You said earlier a
Speaker 2: debt swap could be basically the equivalent of extending maturities
Speaker 2: on existing treasuries. But like I would hope that there
Speaker 2: is some clause in the bond documents that would rule
Speaker 2: that out. Am I wrong?
Speaker 5: I guess I'm wrong, alas you are wrong. So really,
Speaker 5: anybody and everybody who holds US treasuries should go and
Speaker 5: look at the contract terms for their US treasuries and
Speaker 5: ask the question, do my contract terms restrict the US
Speaker 5: Treasury Department from saying to me tomorrow, you know we
Speaker 5: need a little more money, So we're just extending the
Speaker 5: maturity of your debt by another twenty years at the
Speaker 5: interest rate that you lent to us. Is there anything
Speaker 5: restricting that I don't think you'll find anything.
Speaker 3: This blows my mind because to me, if I'm a
Speaker 3: holder of US treasuries and a creditor or I'm lender,
Speaker 3: the creditor says, you know what, I'm just paying you
Speaker 3: back a long time, to me, that sounds like default.
Speaker 3: And you're saying that in the research that you've done,
Speaker 3: this would not say trigger credit default shops, because to
Speaker 3: my mind, my assumption would be, oh, this breaks the
Speaker 3: entire system. This is a default, and we can't have
Speaker 3: a default on the risk free assets. And you're saying
Speaker 3: that actually in the wording of the document is not there.
Speaker 5: So we have to be clear and I have to
Speaker 5: be geeky here in my law professor mode, there are
Speaker 5: at least three different types of default. So there's a
Speaker 5: default on the contract. Something you could sue somebody for
Speaker 5: breach of contract. It would not be a breach of contract.
Speaker 5: US government is allowed to do this. Then there's default
Speaker 5: in terms of would it trigger the handful of credit
Speaker 5: default swaps that are written on US Treasury. Well, that
Speaker 5: sort of depends on the credit rating agencies decide, and
Speaker 5: based on what we saw in Greece twenty twelve, they
Speaker 5: probably would say it was a default for credit default swaps.
Speaker 5: But that doesn't apply to everyone. So those are the
Speaker 5: two big default scenarios.
Speaker 3: What do you mean that doesn't apply to everyone.
Speaker 4: Well, they don't.
Speaker 5: The default for a credit default swap really only applies
Speaker 5: to the people who are holding credit defaulse protection on
Speaker 5: US Treasury, so they would be able to get their
Speaker 5: money back from somebody who had provided them insurance. But
Speaker 5: the rest of US dupes like me would just have
Speaker 5: to sit with the US extending the maturities. Now, the
Speaker 5: details are important, but if you are willing to let
Speaker 5: me bore you with them, I can sort of sketch
Speaker 5: out the scenarios always Okay. My students asked me this
Speaker 5: in class a couple of days ago, so I had
Speaker 5: to sketch it out for them. So I said, step one,
Speaker 5: the US Treasury Department and the Secretary of the Treasury
Speaker 5: have authority to manage the maturities of US treasuries. What
Speaker 5: does manage the maturities mean? It really does mean, you know,
Speaker 5: issuing bonds of different maturities, managing your yield curve. But
Speaker 5: could it include unilaterally extending the maturities? Seems implausible, but
Speaker 5: this government has pushed its legal authority in many ways. Now,
Speaker 5: what is most likely to happen that the US Treasury
Speaker 5: if they ever went down this path because they needed
Speaker 5: money and rates had gone up and they wanted to
Speaker 5: take advantage of the fact that their old borrowing was
Speaker 5: at low rates, what they would do. I think the
Speaker 5: pattern we have seen is that they would extend the
Speaker 5: maturities and then Congress would quickly pass a law confirming it.
Speaker 5: That's what we've seen in all of the other Trump
Speaker 5: executive orders, plus Congress quickly passing a law, and then
Speaker 5: there would be lawsuits. There would be lawsuits left and
Speaker 5: right saying this is a violation of the Constitution because
Speaker 5: remember there's no contractual protection. So now you have to
Speaker 5: say you've somehow taken my property and I have an
Speaker 5: implicit moralistic right to having my money paid back at
Speaker 5: the time when you said you would pay it back.
Speaker 5: Now that's really tough, and we have historical precedent for this,
Speaker 5: going back to the nineteen thirties when we were in
Speaker 5: deep trouble because of gold. We didn't have enough gold
Speaker 5: to pay everyone in case. They invoked their gold clauses,
Speaker 5: which entitled whole of certain US treasuries to get paid
Speaker 5: in gold. If they had gotten paid in gold or
Speaker 5: asked to get paid in gold, US would have essentially
Speaker 5: gone broke. So the President back by Congress abrogated the
Speaker 5: gold clause protection in contracts, and it was thought that
Speaker 5: surely the Supreme Court would say this is not allowed.
Speaker 5: You cannot just take away people's contractual rights. And the
Speaker 5: Supreme Court, in one of the most famous cases of
Speaker 5: that era, said it was okay. And the markets. I
Speaker 5: don't want to say this, but I'm gonna say it
Speaker 5: because it's true. The markets didn't crash. Yeah, I think
Speaker 5: it's around nineteen thirty five. I'm going to mess up
Speaker 5: which year Congress did the abrogation and then when the
Speaker 5: Supreme Court decision came out. But the predictions were this
Speaker 5: will destroy the US ability to ever borrow in the future,
Speaker 5: and that did not happen. There's some famous articles about this.
Speaker 2: What's your read then on why this didn't happen, like
Speaker 2: why did the market seem to just go like, Okay,
Speaker 2: this is unusual, but fine.
Speaker 5: So my read, with no proof, is that there are
Speaker 5: these rare instances where the market thinks, you know, this
Speaker 5: abrogation of contractual rights, while it looks like a violation
Speaker 5: of the rule of law in every which way possible,
Speaker 5: is necessary to make us all better, and therefore, instead
Speaker 5: of penalizing the government does it, we're going to reward
Speaker 5: them and we're going to lend even more. Arguably Greece
Speaker 5: in twenty twelve, where Greece also legislatively abrogated contractual rights
Speaker 5: and did something very similar, is a similar situation where
Speaker 5: the market didn't penalize them anywhere near the amount that
Speaker 5: many sages on Wall Street were saying would happen. Now.
Speaker 5: I'm not saying that that's what would happen now, I mean,
Speaker 5: this administration seems crazy.
Speaker 3: What about Fourteenth Amendment Section four that says the validity
Speaker 3: of the public debt of the United States authorized by law,
Speaker 3: including debts and curd for payments of pensions and bounties
Speaker 3: for services and suppressing insurrection or rebellion, should not be questioned.
Speaker 5: Oh, I love it that you're bringing up the Fourteenth
Speaker 5: Amendment and the debt language of the fourteenth Amendment that
Speaker 5: my students don't even know exist.
Speaker 3: The only reason I know about this is because it
Speaker 3: comes up a lot during the dead Sertes.
Speaker 2: Joe carries around a copy of it in his podcast
Speaker 2: at all times.
Speaker 5: Okay, this language is so important for a variety of
Speaker 5: reasons relating to multiple debt crises around the world, but
Speaker 5: I won't go into those. Let's just look at the
Speaker 5: language about the validity of the US debt. Arguably, that
Speaker 5: language goes back to the eighteen hundreds at least, when
Speaker 5: often small municipalities would say a certain debt was illegally
Speaker 5: issued by this government in place that did not have
Speaker 5: the proper authorization to issue it. So if that's the
Speaker 5: meaning of validity, that it's about the original issuance, the
Speaker 5: Trump administration could say, we're not challenging the validity. We
Speaker 5: think your debt is very valid. We're just extending the maturity,
Speaker 5: and we do promise to pay you. Let's say they
Speaker 5: extend the maturity by one hundred years. We promised to
Speaker 5: pay you in one hundred years.
Speaker 2: When we're all dead. Yes, Okay, I hesitate to ask
Speaker 2: this question for some of the reasons that Joe laid
Speaker 2: out earlier. But we've established that there's a lot of
Speaker 2: creativity embedded in the rules of bonds, or at least
Speaker 2: you can use those rules rather creatively to achieve whatever
Speaker 2: aims you're trying to achieve. One of the things that
Speaker 2: has come up recently is the idea of maybe collecting
Speaker 2: on historical debt. Oh yeah, that was never paid to
Speaker 2: the US, you know it. I called it the equivalent
Speaker 2: of like looking in your sofa under the cushions for
Speaker 2: spare change. How viable would something like that be?
Speaker 5: Okay, legally that is much more viable. So this has
Speaker 5: come up in the context of there's a recent book,
Speaker 5: very recent by a senior US Treasury official about the
Speaker 5: negotiations between Andrew Mellon and Winston Churchill about the debts
Speaker 5: that were owed to the United States by Great Britain
Speaker 5: after World War One. So I think it's about four
Speaker 5: point four billion or so that was owed, and Great
Speaker 5: Britain resisted paying, and the US tried to get it paid,
Speaker 5: and then finally we kind of gave up, and then
Speaker 5: we had World War Two and all sorts of things.
Speaker 5: Those debts have never been written off. Officially they are
Speaker 5: still official debts of now the United Kingdom to the US.
Speaker 5: They had interest rates on them. I think the interest
Speaker 5: rate was three percent. If you compounded that amount to
Speaker 5: today's values, that would be many trillions of dollars worth. Okay,
Speaker 5: so that's old. But how would you engineer this. That's
Speaker 5: a debt that is owed by the United Kingdom to
Speaker 5: the US. The US owes the United Kingdom because the
Speaker 5: United Kingdom, by the Treasury Zone estimates, holds upwards of
Speaker 5: seven hundred billion in US treasuries, those can be and
Speaker 5: the legal term is set off. Two sets of debts
Speaker 5: can be set off against each other. It is a
Speaker 5: technique that is used every day in the markets.
Speaker 4: It's just who would have thought.
Speaker 5: That it could be applied in this context, But it
Speaker 5: can be, and in fact, in the Russia Ukraine contexts,
Speaker 5: the Biden administration thought very hard about using set off
Speaker 5: techniques to get funding to Ukraine. So this is an
Speaker 5: idea that's out there current. But applying it to the
Speaker 5: UK debt and then maybe even applying it to the
Speaker 5: French debt from World War One would be truly radical,
Speaker 5: but maybe it wouldn't destroy the markets in the same
Speaker 5: way as the first swap that we discussed.
Speaker 2: That's a very big maybe. But okay, so theoretically the
Speaker 2: UK debt could cancel out some US debt. I think
Speaker 2: this is a really good example of where norms come
Speaker 2: into play, because Okay, after World War One, the US
Speaker 2: knew that the UK owed it a bunch of money,
Speaker 2: but the UK was arguing, well, this is actually emergency
Speaker 2: war funding and it's not fair if we have to
Speaker 2: pay it back, and ultimately the US just decided, you
Speaker 2: know what, it was better to keep the UK as
Speaker 2: an ally not annoy them over this particular loan, and
Speaker 2: so they just never did anything about it. But obviously
Speaker 2: relations between the US and the UK are changing, not
Speaker 2: as friendly as they used to be perhaps, and so
Speaker 2: that opens up the question of whether the how youse
Speaker 2: around these loans and bonds can start to change.
Speaker 3: No, well, this sort of anticipated the question that I
Speaker 3: was going to go to, which is like, say more
Speaker 3: about like why it was just accepted that these debts
Speaker 3: were not collected upon.
Speaker 5: Well, I'm not sure there is extensive writing about the negotiations.
Speaker 5: I think they went all the way up to the
Speaker 5: nineteen seventies, and for those who study financial history. Post
Speaker 5: World War two was a truly horrible time in Europe.
Speaker 5: The US was trying to help European countries recover. The
Speaker 5: UK in particular, had taken the position after World War
Speaker 5: One that the US should try to collect this money
Speaker 5: from Germany, because really Germany owed the money to the
Speaker 5: UK and France in reparations, and sort of the consensus
Speaker 5: was world War One reparations were a stupid idea and
Speaker 5: resulted in World War Two. This is Canes and all
Speaker 5: of that work, but generally, in the interest of letting
Speaker 5: Europe recover, I think the US decided better not to
Speaker 5: push this. But Congress never allowed those debts to be
Speaker 5: wiped out completely, and so in some sense this has
Speaker 5: always been an option. I have heard Treasury officials, people
Speaker 5: negotiating debt restructurings talk, and every once in a while,
Speaker 5: when they can't get the UK to do what they want,
Speaker 5: US officials will kind of snidely mention, you know, there's
Speaker 5: that World War One debt that you never paid, and
Speaker 5: everybody laughs and in a knowing way, And then I
Speaker 5: have this.
Speaker 2: Image of them having like a laminated copy of the
Speaker 2: bond documents and just whipping it out in negotiation. But
Speaker 2: actually that reminds me we don't know what the exact
Speaker 2: bond documentation is.
Speaker 5: We don't know. We don't even know. I mean, we
Speaker 5: know the interest rate is three percent. I've never met
Speaker 5: anybody who's actually seen the document back in nineteen seventeen,
Speaker 5: I don't think it would have been governed by the
Speaker 5: law of New York or the law of England. So
Speaker 5: who knows what statutal limitations would be. Who knows today
Speaker 5: whether or not there is some kind of international statutal
Speaker 5: limitations that would apply, and would it apply in the
Speaker 5: context of setuff. This is just for lawyers. This is
Speaker 5: a bonanza. We could be working on this forever. But
Speaker 5: it seems a bit crazy. But nothing's crazy these days.
Speaker 2: The lawyers always win.
Speaker 3: So speaking of all these old debts and world wars
Speaker 3: and stuff like this, I've gotten into my I'm in
Speaker 3: my mid forties, so of course I read about twentieth
Speaker 3: century history now. And one of the things that are
Speaker 3: actually like was like this big like light bulb revelation
Speaker 3: for me in reading history is that like modern fixed
Speaker 3: borders of countries, it's sort of a novel phenomenon that
Speaker 3: actually like the idea that like these are the lines
Speaker 3: around the country, we just all sort of accept that
Speaker 3: is like very fresh in modern history. And what it
Speaker 3: was striking is like reading about the run up to
Speaker 3: World War two, or like the Germans would sign a
Speaker 3: border agreement with another country, but it would be only
Speaker 3: ten years. They're like, let's be peaceful for ten years
Speaker 3: and then we'll revisit war down the line, whether or not,
Speaker 3: and then we might revisit the idea of conquest. But
Speaker 3: at least in the meantime, some of it's coming back,
Speaker 3: and it's coming back, particularly with respect to Trump's talk
Speaker 3: about Greenland, and people talked about how much a lot
Speaker 3: of people think it's a joke. But a lot of
Speaker 3: people have gotten burned by thinking that things Trump has
Speaker 3: been saying our a joke. And so that's why I've
Speaker 3: become much more on the take Trump literally side. How
Speaker 3: should we think about the idea of like countries just
Speaker 3: sort of like acquire land from other countries as a
Speaker 3: thing that could happen in the twenty first century.
Speaker 5: Okay, this is going to happen, This not could happen.
Speaker 5: You're raising an incredibly important question. So there is greenland,
Speaker 5: but Greenland's kind of fun to talk about. Yeah, although
Speaker 5: you know, Trump seems very serious about it. He keeps
Speaker 5: telling us, don't think this is a joke. We have
Speaker 5: to have it, and I will have it. But it's
Speaker 5: going to be directly relevant in the context of Ukraine.
Speaker 5: So let us say that mister Putin is able to
Speaker 5: negotiate with President Trump to take half of Ukraine. Okay,
Speaker 5: so Ukraine becomes baby Ukraine. What happens to the enormous
Speaker 5: pile of debt that Ukraine has that is unpaid and
Speaker 5: that was restructured in the context of war, including billions
Speaker 5: and billions of dollars that are owed to the US
Speaker 5: and to European allies. Does all Ukraine pay all of
Speaker 5: this or does baby Ukraine pay all of this? Does
Speaker 5: it get divided? It turns out that the laws from
Speaker 5: the era of conquest, those are the laws that apply
Speaker 5: even today. Of what happens when the borders of a
Speaker 5: state change, those laws are really unclear, and so we'd
Speaker 5: have to decide in the modern era, how would those
Speaker 5: old laws apply, given that we pretend that borders don't change,
Speaker 5: and we pretend that conquest is not allowed. I mean,
Speaker 5: Putin takes the position that what's happening in Ukraine is
Speaker 5: an independence movement that started domestically and that he's just
Speaker 5: encouraging it. Well, there is a whole set of laws
Speaker 5: that apply to civil wars. And if they take the
Speaker 5: position of this is civil war, then there is nineteenth
Speaker 5: century debt law that applies to a civil war.
Speaker 2: This is one of my favorite ever financial history topics,
Speaker 2: which is the repudiation of debt from the Soviet Union,
Speaker 2: also Imperial China. And there is this argument that, Okay,
Speaker 2: there's a revolution in a country, the new administration or
Speaker 2: the new policymakers should the new government should not be
Speaker 2: saddled with debt from the previous administration because that administration
Speaker 2: was wrong and was not supposed to be there and
Speaker 2: they were taking advantage of the people and spending all
Speaker 2: their money. Blah blah blah blah. Talk about that.
Speaker 5: So you have brought up one of our favorite topics,
Speaker 5: that doctrine of odious debts, and the doctrine of odious
Speaker 5: debts is really about some despotic leader, a kleptocrat who's
Speaker 5: borrowing a lot of money from usually foreign creditors and
Speaker 5: then absconds with that money, and should the new government
Speaker 5: that comes into place after kicking out the kleptocratic leader
Speaker 5: be responsible to those creditors, especially if those creditors knew
Speaker 5: they were lending to a kleptocrat. What Joe raised with
Speaker 5: the change of state borders is a more obscure doctrine
Speaker 5: that falls within the subset of odious debts, but is
Speaker 5: a little bit different and more importantly, has much more
Speaker 5: legal basis for it. So Joe, can we go back
Speaker 5: to the fourteenth Amendment please? Okay, can we read that
Speaker 5: language that you read.
Speaker 2: Joe's reaching into his pot.
Speaker 3: The validity of the public debt of the United States,
Speaker 3: authorized by law, including debts incurred for payments of pensions
Speaker 3: and bounties for services in suppressing insurrection or rebellion, shall
Speaker 3: not be questioned.
Speaker 5: Okay, So that last part when Joe raised this at
Speaker 5: the beginning of the podcast, I think he was focusing
Speaker 5: and Joe, and you.
Speaker 3: Know what it was, to be honest, and you probably
Speaker 3: sense this, to be honest, When I read this, I
Speaker 3: was like, oh, I never really paid much attention to
Speaker 3: that insurrection or rebellion point.
Speaker 5: That stuff is so important. Okay, I'm getting so excited
Speaker 5: so I apologize for raising my volume. That is the
Speaker 5: US saying to international creditors, we will not pay if
Speaker 5: you lend for insurrection that is civil war, we will
Speaker 5: not pay. And we think this is fine by international law.
Speaker 5: Is remember in the early days, we were very concerned,
Speaker 5: actually none of us, remember, we were very concerned about
Speaker 5: following international law because we didn't want other countries to
Speaker 5: send in the gunboats because we were violating law. It
Speaker 5: was accepted arguably at that time there was okay not
Speaker 5: to pay for debts incurred by the rebels in fighting
Speaker 5: in a civil war.
Speaker 2: Right, and we all know at this point that one
Speaker 2: man's coup can be another man's fight for liberation. So
Speaker 2: it's open to interpretation. I got to ask just before
Speaker 2: we go going back to Greenland, can Trump get Greenland?
Speaker 2: How does that work legally?
Speaker 5: Oh? This is good too, But can I just go
Speaker 5: back to what the implications of what Joe's language in
Speaker 5: that in the fourteenth Amendment for Ukraine? If Putin takes
Speaker 5: the position that what has happened in Ukraine is an
Speaker 5: independence movement and there was a civil war, then Putin
Speaker 5: could invoke basically our fourteenth Amendment and the laws that
Speaker 5: followed since their's have been cases where the British took
Speaker 5: a similar position in the context of the Boer War
Speaker 5: and say I am not responsible for any of the
Speaker 5: debts incurred by Ukraine because that was a civil war context,
Speaker 5: and the side that wins does not have to pay
Speaker 5: the debts of the side that loses. Bondholders I think
Speaker 5: have been quite unaware of this possibility. Now, maybe it
Speaker 5: will all get worked out, but I don't really see
Speaker 5: how we can avoid working this out. But back to Greenland. Now,
Speaker 5: can we get Greenland? Well, yes, we can get Greenland.
Speaker 5: Even though borders are not supposed to change. We could
Speaker 5: in theory, there's no international law prohibiting us purchasing Greenland.
Speaker 5: The question is who do we purchase it from. In
Speaker 5: the old days, we would have just purchased it from Denmark.
Speaker 5: They kind of owned Greenland as property. But now we
Speaker 5: don't think of post colonial states as property, although we
Speaker 5: don't quite know. Maybe the property interests, to the extent
Speaker 5: you think of sovereignty interests as property interests lie with
Speaker 5: the people of Greenland. And so the fifty seven thousand,
Speaker 5: quote unquote citizens of Greenland, maybe Trump could offer to
Speaker 5: pay them each one point five million dollars in a
Speaker 5: Swiss bank account and give them each a little house
Speaker 5: on the beach in Santa Monica and give them one
Speaker 5: of his Golden visas it could happen. It would be
Speaker 5: brand new international law, but entirely plausible. The question, though,
Speaker 5: is where's he going to get the money from. He
Speaker 5: would really have to borrow a large amount of money,
Speaker 5: And so we come back to the question of issuing
Speaker 5: more US sovereign debt in a context in which we're
Speaker 5: trying to reduce the sovereign det I am, maybe the.
Speaker 2: US could use the proceeds from recouping payment on those
Speaker 2: old UK bonds to buy Greenland.
Speaker 5: We could, now, I suspect, okay, I'm building conspiracy theory
Speaker 5: upon conspiracy theory, and maybe this is just.
Speaker 4: A bridge too far.
Speaker 5: But if you go back to techniques that Trump was
Speaker 5: very fond of using, say in his casino days, he
Speaker 5: really didn't like market processes where say, the US would
Speaker 5: be bidding against Denmark and maybe Germany and maybe a
Speaker 5: France for who would pay the Greenlanders the highest amount
Speaker 5: in order to acquire Greenland. Instead, there's been a lot
Speaker 5: of talk about security reasons. The security reasons and the
Speaker 5: imperative that the US must have Greenland, and no talk of, say,
Speaker 5: an auction for Greenland where the Greenlanders would get the
Speaker 5: highest price. This talk about security reasons sounds more like
Speaker 5: a regulatory taking where we get to take it at
Speaker 5: the price we set because it is important for security reasons.
Speaker 5: It is a technique that Trump has used in the
Speaker 5: past in his property dealings and could try to use here.
Speaker 5: Although I don't think there's any international law equivalent, but
Speaker 5: we're making up international law in the modern era, okay.
Speaker 2: So I think at a minimum we can say we
Speaker 2: are living through interesting times, and it's interesting times in
Speaker 2: bonds as well. So thank you MITCHU for coming on
Speaker 2: the show to explain all of that to us and
Speaker 2: hopefully not give two many policy suggestions to the administration.
Speaker 3: I love talking to law professors. Thank you so much
Speaker 3: for coming back on.
Speaker 4: It was so funny. Thank you both, Joe.
Speaker 2: I love talking to Mit too. I know sovereign bond
Speaker 2: documentation is not necessarily everyone's idea of an exciting time,
Speaker 2: but he makes it exciting and interesting.
Speaker 3: No, I wasn't kidding. I Actually it's fun to talk
Speaker 3: to law professors, especially on this kind of stuff because
Speaker 3: you can just see how their brain works and how
Speaker 3: they're like, well, this part of the sentence you think
Speaker 3: it's talk about this, but this part of the sentence
Speaker 3: is like, oh, are we talking about conquest law that's
Speaker 3: been in effect forever? Are we talking about the repudiation
Speaker 3: of odious debt? Et cetera. And I just find it
Speaker 3: a real pleasure to hear all of it.
Speaker 2: Absolutely, And I think the whole conversation highlights that point
Speaker 2: about just how fluid some of these contracts actually can be.
Speaker 2: And again, there's so many assumptions and norms that are
Speaker 2: built into these things, even though often the documentation tries
Speaker 2: to be air tight. Once those assumptions and norms start
Speaker 2: to change, the way the bonds can be used or
Speaker 2: enforced starts to change as well. And the same applies
Speaker 2: to borders, as you pointed out, Yeah.
Speaker 4: And that's funny.
Speaker 3: Countries are so new, no, they really, Like I I
Speaker 3: realized this a little while ago, like almost every country
Speaker 3: is like it's basically day one around here. That you know,
Speaker 3: so many countries are post World War two. That was
Speaker 3: one of those things that I feel like only that
Speaker 3: clicked in my brain way too late.
Speaker 2: I've been meaning to ask you, Yeah, how do you
Speaker 2: feel about the trillion dollar coin now? Because I said
Speaker 2: something like it's based on norms, that the treasure never
Speaker 2: done this and we should treasure norms.
Speaker 3: I agree. I think an actual default where a mispayment
Speaker 3: would be really bad. And if the choice is between
Speaker 3: yet another norms violation, which at this point added to
Speaker 3: the list, versus a literal non payment of a coupon,
Speaker 3: which would be a default, I will I'll take the coin.
Speaker 2: Okay, glad we settled that. Yes, shall we leave it there?
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Authlots podcast. I'm
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3: I'm joll Wisenthal. You can follow me at the Stalwart.
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