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

Charles W. Mooney, JrBut that conclusion is far from clear. This underscores the importanceof implementing Alternative 2 with steps to ensure that noU.S. court (i.e., no court with jurisdiction over the U.S.) would everhave the opportunity to examine the constitutionality of Alternative2. 132 c. Implementing Alternative 3.215The implementation of Alternative 3 would be straightforward. TheU.S. would notify Treasuries holders of the exchange offer of ProsperityShares in satisfaction of the specified percentage of Treasuryobligations essentially on the same terms as under Alternative 1.However, unlike Alternative 1, the Prosperity Shares for Treasury obligationsexchange would be strictly voluntary. Holders could chooseto accept the offer or not to accept. This approach would avoid thelegal difficulties and substantially reduce the political ramificationsof the first two alternatives. It also would be more conducive for bilateralnegotiations with major Treasuries holders, although the U.S.might not have sufficient leverage to succeed.2. Credible Commitment Against Future Defaults.Alternatives 1 and 2 would raise questions as to whether the U.S.might attempt serial restructurings. Such concerns would exacerbatethe likely market fallout from either of these alternatives and mightthreaten future access of the U.S. to capital markets. How might theU.S. usefully assuage investors’ concerns that the U.S. might repeatthe process in the future? While a perfectly bulletproof prophylacticmight not be possible, the issue is worth exploring. One approachwould be to incorporate into the restructuring arrangement, possiblyas a term of the Prosperity Shares, a poison pill-like feature. Such afeature might provide that any default on the non-defaulted portionof the Treasuries, or any future attempt to further restructureTreasuries, would ipso facto reinstate the status quo ante, impose aretroactive default interest rate, and provide for immediate paymentof a penalty. Although such a provision could not prevent a futuredefault, it might send a strong signal to the market that the restructuringis truly a one-time event.132 See text at notes 141-44, infra (discussing withdrawal of consent by the U.S.to jurisdiction).