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

246 Direct and Indirect U.S. Government Debtto revenues. At the same time, it arguably would be more constitutionallypermitted than reducing the principal amount, 2 especially ifthe extended maturities accrue interest at a market rate so that, economically,there would be no “actual loss.” 3 Extending debt maturitieswould also be less politically and commercially disruptive thanreducing the principal amount, because the debt would eventuallybe honored.Prof. Mooney may wish to compare the ability of large Treasuriesholders to quickly exit the market with the increasing corporatedebt-restructuring problem caused by distressed-debt trading. Notonly are large investors able to quickly divest their claims, at a discountedprice. More significantly, buyers of those claims often includeopportunistic investors, such as hedge funds, who increasinglyhave been trying to “game” the system for short-term advantage. Thishas been undermining some of the long-term debtor restructuringgoals of the federal Bankruptcy Code. 4Regarding post-default enforcement of Treasuries, Prof. Mooney’spaper observes that the offering circular for Treasuries provides, withrespect to the commercial book-entry system, that the federal governmentdoes not “have any obligation to any person or entity thatdoes not have an account with a Federal Reserve Bank.” But querywhether that restriction might itself be unconstitutional because it“questions” enforceability of the debt. Moreover, if that restrictionwere held to be unconstitutional, at least two additional questionswould arise: Would investors be deemed to, and could they even,waive the unconstitutionality?I am not convinced, as is Prof. Mooney, that default should be equatedwith invalidity. Section Four of the Fourteenth Amendment providesthat the “validity of the public debt of the United States . . .shall not be questioned.” 5 Prof. Mooney observes that the plurality2 Cf. infra note 5 and accompanying text.3 Perry v. United States, 294 U.S. 330, 358 (1935).4 See Harvey Miller, Keynote Address: Bankruptcy And Reorganization, Through TheLooking Glass Of 50 Years (1960 – 2010), presented March 12, 2012, at the annualInduction of Fellows of the American College of Bankruptcy, United States SupremeCourt, at 12-13 (expressing concern over distressed-debt trading).5 U.S. CONST. amend. XIV, §4.