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

Charles W. Mooney, Jrconsider adopting all three alternatives as a hedge against future developments.It could give first priority to Alternative 1, with a savingsclause to the effect that Alternative 2 would apply if Alternative 1 isnot upheld. Alternative 3, then, would apply if Alternative 2 wereto fail. Alternatively, if only one of the alternatives seems likely tobe successful, Congress could opt for that approach. Once again, Ishould emphasize that these alternatives are illustrative only in orderto provide a concrete setting for consideration of the various legaland practical issues that a restructuring would present.187a. Implementing Alternative 1.Implementation of the Alternative 1 restructuring plan might be anunconstitutional exercise of Congressional power because it modifiesthe terms and relieves the U.S. of liability on the portion of theTreasury obligations replaced by the Prosperity Shares. 23 Unlike Alternative2, which does not contemplate any discharge and satisfactionof the Treasury obligations as to which Prosperity Shares wouldbe issued, and Alternative 3, which contemplates the substitution ofProsperity Shares for a portion of Treasuries debt only upon Treasuriesholders’ consent, Alternative 1 would unilaterally replace a portionof the Treasury obligations even in the absence of consent.Section Four of the Fourteenth Amendment, provides in part: “Thevalidity of the public debt of the United States . . . shall not bequestioned.” 24 Adopted in 1868, Section Four was originally writtenwith an eye towards preventing challenges to Civil War debts, 25 butby its terms and as construed by the Supreme Court it applies to allfederal debt. 26 An examination of the clause’s structure and history23 If the present option value of the Prosperity Shares could be shown to approximatethe value of the putatively satisfied and discharged debt, that might solve theproblem. But the terms of Prosperity Shares that could be so valued likely would notprovide the debt relief contemplated by the restructuring.24 U.S. Const. amend. XIV, §4.25 Perry v. U.S., 294 U.S. 330, 354 (1935) (“this provision was undoubtedly inspiredby the desire to put beyond question the obligations of the government issuedduring the Civil War.”).26 Id. (Perry held that the language of Section Four “indicates a broader connotation”than just covering Civil War debts, but “applies as well to the governmentbonds in question, and to others duly authorized by the Congress.”) During the2011 controversy over increasing the U.S. government debt ceiling, the scope ofSection Four was the subject of sharp disagreement. Compare Laurence Tribe, Guest