330 research outputs found

    Markets and Sovereignty

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    The past few decades have witnessed the growth of an exciting debate in the legal academy about the tensions between economic pressures to commodify and philosophical commitments to the market inalienability of certain items. Sex, organs, babies, and college athletics are among the many topics that have received attention. The debates often have proceeded, however, as if they involve markets on one side and the state on the other, with the relevant question being the ways in which the latter can or should try to facilitate, restrict, or rely on the former. In this article, we approach the relationship between markets and sovereign control from a different perspective, and contemplate more radical versions of their relationship. What would it mean for governing authority itself to be market alienable? And what would it mean if the people‚ÄĒrather than the state‚ÄĒwere the ones who set the prices and controlled the transfers? Could a ‚Äėmarket for sovereign control‚Äô contribute to welfare-enhancing changes in governance

    CDS Zombies

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    This paper examines the contract interpretation strategies adopted by the International Swaps and Derivatives Association (ISDA) for its credit derivatives contracts in the Greek sovereign debt crisis. The authors argue that the economic function of sovereign credit default swaps (CDS) after Greece is limited and uncertain, partly thanks to ISDA’s insistence on textualist interpretation. Contract theory explanations for textualist preferences emphasise either transactional efficiency or relational factors, which do not fit ISDA or the derivatives market. The authors pose an alternative explanation: the embrace of textualism in this case may be a means for ISDA to reconcile the competing political demands from state regulators and its market constituents. They describe categories of contracts susceptible to such political demands, and consider when and why textualism might be the preferred response

    The Hausmann-Gorky Effect

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    For over a century, legal scholars have debated the question of what to do about the debts incurred by despotic governments; asking whether successor non-despotic governments should have to pay them. That debate has gone nowhere. This paper examines whether an Op Ed written by Harvard economist, Ricardo Hausmann, in May 2017, may have shown an alternative path to the goal of increasing the cost of borrowing for despotic governments. Hausmann, in his Op Ed, had sought to produce a pricing penalty on the entire Venezuelan debt stock by trying to shame JPMorgan into removing Venezuelan bonds from its emerging market index. JPMorgan did not comply, but there was a pricing penalty. Intriguingly, the penalty hit only one bond; an issue by Venezuela‚Äôs state-owned oil company that went on the market two days prior to Hausmann‚Äôs piece. That bond then began to carry the name in the market of ‚ÄúHunger Bond.‚ÄĚ Using quantitative data and interviews with investors, we try to understand the causes of the Hunger Bond penalty and ask whether there are lessons for policy maker

    Making a Voluntary Greek Debt Exchange Work

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    Within the next couple of months, the Greek government, is supposed to persuade private creditors holding about EUR 200bn in its bonds to voluntarily exchange their existing bonds for new bonds that pay roughly 50 percent less. This may work with large creditors whose failure to participate in a debt exchange could trigger a Greek default, but may not persuade smaller creditors, who will be told that their claims will continue to be fully serviced if they do not participate in the exchange. This paper proposes an approach to dealing with this free rider problem that exploits the fact that with some probability, the proposed exchange might be followed by an involuntary restructuring some time in the future. The idea is to design the new bonds that creditors are offered in the exchange in a way that make them much harder to restructure than the current Greek government bonds. This is easy to do because the vast majority of outstanding Greek government bonds lack standard creditor protections. Hence, creditors would be offered a bond that performs much worse than their current bond if things go according to plan, but much better if things do not. They will accept this instrument if (1) the risk of a new Greek debt restructuring in the medium term is sufficiently high; and (2) there is an expectation that the next restructuring probably will not be voluntary

    Competing for Refugees: A Market-Based Solution to a Humanitarian Crisis

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    The current refugee crisis demands novel legal solutions, and new ways of summoning the political will to implement them. As a matter of national incentives, the goal must be to design mechanisms that discourage countries of origin from creating refugees, and encourage host countries to welcome them. One way to achieve this would be to recognize that persecuted refugee groups have a financial claim against their countries of origin, and that this claim can be traded to host nations in exchange for acceptance. Modifications to the international apparatus would be necessary, but the basic legal elements of this proposal already exist. In short, international law can and should give refugees a legal asset, give host nations incentives to accept them, and give oppressive countries of origin the bill

    A Convenient Untruth: Fact and Fantasy in the Doctrine of Odious Debts

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    The few years since the U.S. incursion into Iraq in 2003 have witnessed an explosion in the literature on odious debts - that is, debts incurred (a) without the consent of the people (e.g., by a despotic regime); (b) from which no benefits accrued to the people; and (c) when the creditors had knowledge of the foregoing. The key question in the literature is whether successors to the despotic regime are obligated to pay the debts of the despot. That is, whether the newly democratic nation of Iraq is obligated to pay the debts of Saddam Hussein. The starting point for almost every discussion - scholarly or popular - of this doctrine is an obscure legal scholar named Alexander Nahum Sack, variously described as the pre-eminent scholar on public debts of his time, a former minister to Tsar Nicholas II, and a Russian professor of law who penned the doctrine of odious debts while teaching in Paris. This Article excavates the background of Alexander Sack, separating the reality of his life from the myth perpetuated in the odious debts literature. Instead of the heroic and eminent Tsarist exile, the evidence reveals a peripatetic legal scholar who taught in five different universities on two continents, and after being fired from a tenured position, ended his life penniless. We are left then with these questions: What does the reality of Sack mean for the legal status of the odious debts doctrine? And how is it that he achieved this iconic status when even minimal inquiry would have revealed a far more murky reality

    Transferable Sovereignty: Lessons from the History of the Congo Free State

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    In November 1908, the international community tried to buy its way out of the century‚Äôs first recognized humanitarian crisis: King Leopold II‚Äôs exploitation and abuse of the Congo Free State. And although the oppression of Leopold‚Äôs reign is by now well recognized, little attention has been paid to the mechanism that ended it‚ÄĒa purchased transfer of sovereign control. Scholars have explored Leopold‚Äôs exploitative acquisition and ownership of the Congo and their implications for international law and practice. But it was also an economic transaction that brought the abuse to an end. The forced sale of the Congo Free State is our starting point for asking whether there is, or should be, an exception to the absolutist conception of territorial integrity that dominates traditional international law. In particular, we ask whether oppressed regions should have a right to exit‚ÄĒalbeit perhaps at a price‚ÄĒbefore the relationship between the sovereign and the region deteriorates to the level of genocide

    Engineering an Orderly Greek Debt Restructuring

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    For some months now, discussions over how Greece will restructure its debt have been constrained by the requirement that the deal be ‚Äúvoluntary‚ÄĚ ‚Äď implying that Greece would continue debt service to any creditors that choose retain their old bonds rather than tender them in an exchange offer. In light of Greece‚Äôs deep solvency problems and lack of agreement with its creditors so far, the notion of a voluntary debt exchange is increasingly looking like a mirage. In this essay, we describe and compare three alternative approaches that would achieve an orderly restructuring but avoid an outright default: (1) ‚Äúretrofitting‚ÄĚ and using a collective action clause (CAC) that would allow the vast majority of outstanding Greek government bonds to be restructured with the consent of a supermajority of creditors; (2) combining the use of a CAC with an exit exchange, in which consenting bondholders would receive a new English-law bond with standard creditor protections and lower face value; (3) an exit exchange in which a CAC would only be used if participation falls below a specified threshold. All three exchanges are involuntary in the sense that creditors that dissent or hold out are not repaid in full

    Talking Judges

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    What kinds of empirical questions about themselves and their colleagues on the bench are judges interested in asking? This was the topic of a recent conference at the Duke Law School. Our Essay reflects on the ways in which the judges at this conference and at a prior one talked about the empirical study of their community. To put it mildly, most of the judges were not fans of the empirical research. Our interest in this Essay is not, however, in responding to the judicial criticisms. Rather it is in drawing insights about how judges view themselves and their profession from how they discussed the research at the conference

    Innovation After the Revolution: Foreign Sovereign Bond Contracts Since 2003

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    For over a decade, contracts literature has focused on standardization. Scholars asked how terms become standard, and why they change so rarely. This line of inquiry painted a world where a standard term persists until it is dislodged by another standard term, perhaps after a brief window of ferment before the second term takes hold. It also overshadowed the early insights of boilerplate theories, which described contracts as a mix of standard and customized terms, and asked why the mix might be suboptimal. This article brings the focus back to the mix. It examines the development of selected provisions in sovereign bond contracts after a widely publicized boilerplate shift in 2003. The adoption of collective action clauses in sovereign bonds five years ago moved the documentation standard in New York closer to the prevailing practice in London. However, contrary to expectations, the shift away from old boilerplate did not lead to convergence around new boilerplate. Issuers in London and, to a lesser extent, in New York, have been experimenting with diverse formulations and institutional arrangements, including trustees and creditor committees. The contracts we study, as well as our interviews with practitioners and officials, suggest that standardization may be a matter of degree, that the degree of standardization may vary across different markets, and that a shock of the sort that led the 2003 shift may dislodge a previously standard term without replacing it with a new standard - erstwhile boilerplate becomes a platform for customization
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