US Government Debt Different - Finance Department - University of ...

184 United States Sovereign Debt: A Thought Experiment On Default And Restructuring2. Alternative 2: Selective Default and New ProsperityShares as Additional Compensation.Alternative 2 would operate essentially in the same manner as Alternative1, with certain important exceptions. First, Alternative 2would not discharge and satisfy any Treasury obligations. The legislationand the terms of the Prosperity Shares would clearly state thatnothing in the law affects the validity of the public debt and thatall existing public debt would remain valid, binding, and enforceablein accordance with its terms. Second, Congress would authorizethe Executive Branch to selectively default on the same portion ofTreasury obligations that would be satisfied under Alternative 1. Forexample, it could require Presidential finding of an emergency andthe issuance of an executive order to implement the program. AssumingCongress adopted Alternative 1 as its first choice, Alternative2 would differ in a third respect. The tenor of the Prosperity Sharesunder Alternative 2 would be structured to have a value of approximatelyone-half of the Alternative 1 Prosperity Shares. The enablinglegislation also would provide that all payments received by the holdersof Prosperity Shares would reduce the Treasury obligations dollarfor dollar.3. Alternative 3: Selective Default and Prosperity Shares ExchangeOffering.Instead of issuing the Prosperity Shares to compensate holders fora U.S. default on a percentage of the non-exempted Treasuries asunder Alternatives 1 and 2, under Alternative 3, the U.S. would offerthe Prosperity Shares to all non-exempted Treasuries holders. Acceptanceof the offer would have the consequence of discharging andsatisfying X% of the non-exempted Treasuries as under Alternative1. But Alternative 3 would modify Treasury obligations only withconsent of the relevant holders.C. Selected Legal Issues.Subpart B focused primarily on how the U.S. might go about restructuringof its debt. In particular, it explained how a selective default