Mitu Gulati on Whether Trump Could Restructure US Debt

US Treasuries are the most important market in the world. With some $29 trillion outstanding, they create the benchmark that informs basically every other type of borrowing. Any changes to how the bond market works would be a massive deal. But lately, there's been a lot of chatter about how the Trump administration could radically restructure and refinance the US debt under the so-called "Mar-a-Lago Accord." In this episode, we speak with University of Virginia law professor Mitu Gulati about how far the administration could go to legally reform this huge and important market. We also talk about how to buy Greenland and whether Trump could make a few billion by collecting on some old loans from allies. Read more:One Way for Trump to Find a Few Extra Trillion DollarsThe Stories We Tell Ourselves About Bonds Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 1:10Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 1:14Joe Weisenthal?

  And I'm Joe Weisenthal.

• 1:16Tracy Alloway?

  Joe, you know what I like to say about bonds?

• 1:19Joe Weisenthal?

  Go on.

• 1:20Tracy Alloway?

  I think there's this perception that bonds are all about finance and legalities. They are these contracts and borrowers have to stick to the contract, lenders have to stick to the contract. But actually, I like to look at bonds as more stories.

• 1:39Joe Weisenthal?

  Yeah.

• 1:40Tracy Alloway?

  And I know we've been talking on this podcast a lot about norms and the idea that a lot of the way the US operates is based on norms and habits that have developed over time. Bonds are kind of the same way. It's all about the narrative of who owes whom what and why. And that can change really quickly.

• 2:01Joe Weisenthal?

  You know, it's actually interesting about you saying this. I was thinking back to our episode that we did with Sujit Endap about creditor uncreditor violence. And perhaps one way to think about that whole phenomenon is the exploitation of rules above norms, right? So you have all of these norms about how debt is paid back, et cetera. And there's like extra alpha to be squeezed by actually redoubting to the courts and the rules that are literally written down in a fight between creditors about who gets the cash flows, et cetera. And it really is about this tension of like, what's written on paper? What's technical? What does these words mean, et cetera? Versus, come on, that's not how we deal with bonds.

• 2:45Tracy Alloway?

  That's right. You can use the rules if you're really clever to try to achieve your aims, right? And change the story on some of these bonds. So we should talk about that because there is a lot of discussion about what the Trump administration could do when it comes to sovereign debt. Obviously, people have been talking about the potential Mar-a-Lago Accord, which includes a possible debt swap. Again, all of that is hypothetical at the moment. But beyond that, there are some other things going on. And it certainly seems like nothing is off the table when it comes to the Trump administration. So we should, we should discuss.

• 3:20Joe Weisenthal?

  Yeah, but can I just say one thing, which is my ethical reservations here of doing any episode. It feels like the entire world now operates in this system in which people, both outside of the White House and inside the White House, the various people trying to like curry Trump's favor on a given day, try to wish cast their ideas about policy into the ether. And they put out a tweet and they say it's a negotiation. They say it's not a negotiation. They say there should be a pause, et cetera. And there is this incredible maelstrom of noise where it's all about trying to manifest some outcome that so and so person desires. And I have some ethical questions about this sort of contribution to the noise by introducing the idea of like, further taking seriously the idea of debt swaps,

• 4:05Joe Weisenthal?

  which to me sounds like default into the world. But yes, this is one thing that in this great manifestation of ideas people are talking about. So I suppose. We should talk about it.

• 4:16Tracy Alloway?

  You always say you want to take Trump literally and seriously, so.

• 4:20Joe Weisenthal?

  I only, I only take him literally anymore.

• 4:22Tracy Alloway?

  Okay, here's our disclaimer. This is not an actual policy suggestion for the Trump administration, but we are going to talk about it.

• 4:28Joe Weisenthal?

  People are talking about it. Let's talk about it.

• 4:29Tracy Alloway?

  How realistic it is. And we have the perfect guest. We're going to be speaking with Mitu Gulati, law professor over at the University of Virginia and one of our favorites when it comes to all the ins and outs, the technicalities, the legalities of sovereign debt. So Mitu, thank you so much for coming on All Thoughts.

• 4:47Speaker 05

  I'm so excited to be here. I shouldn't be excited about all the

• 4:51Joe Weisenthal?

  No, it's great.

• 4:52Speaker 05

  crazy loony things that are being discussed, but from an academic perspective, this is just heavenly, even though I might be jobless soon.

• 5:02Tracy Alloway?

  Right. So markets have been crazy, but the upside is, I guess, we get to talk about bond contracts. When did you first become aware of the Mar-a-Lago Accord? When did people start talking about it?

• 5:16Speaker 05

  So I actually think that I heard about it on one of your podcasts.

• 5:21Joe Weisenthal?

  Oh, God.

• 5:21Speaker 05

  About the Mar-a-Lago Accord.

• 5:23Joe Weisenthal?

  It's all their fault.

• 5:25Speaker 05

  And then I dug into it and looked at one of the proposals in particular interested me, which was sort of swapping out short-term US Treasuries for longer-term, low-interest US Treasuries, which was talked a lot about it as a debt swap with our allies, but really was just an extension of maturities at a low rate when the market might not actually be giving you the low rate. And that has become, I mean, that was, I think, implausible when you guys talked about it. It was just sort of,

• 6:05Speaker 05

  oh, here's some crazy ideas. People are now emailing and asking sort of respected market people, how could this happen? And what would the legal barriers be? And what are the ramifications?

• 6:22Joe Weisenthal?

  So what's basically going on in the last several weeks is that this very theoretical idea, which by the way, Trump himself actually, I don't think he's ever used, he's certainly never used the term Mar-a-Lago Accord, but there's the people around him, some influential thinkers talking about this could be some end game here where there's some sort of rethinking about the US dollar and the debt. And now it's come to the point where people who are serious in markets, they're coming to you, me too, Gulati, and they say, what's up? Help me, help me understand this.

• 6:51Speaker 05

  Yes. And I think so, you know, we talked about Trump and taking him seriously and taking the kinds of things that he has done in the past seriously and what he's willing to do. And restructuring distressed debt is something that he's done a lot of. And he talked about it prior to his first presidency, when he talked about, oh, the US debt, not a big deal, we could just inflate it away, or something like that. A debt swap using the power of US governing law is really not that insane, both in historical contexts

• 7:36Speaker 05

  and in what we could do. It is insane in terms of norms that have been built carefully over the last 60, 70 years. But Trump is not Alexander Hamilton, I think.

• 7:50Tracy Alloway?

  Yes, to put it mildly. Explain this further. You said earlier, a debt swap could be basically the equivalent of extending maturities on existing treasuries. But like, I would hope that there is some clause in the bond documents that would rule that out. Am I, am I wrong? I guess I'm wrong.

• 8:11Speaker 05

  Alas, you are wrong. So anybody and everybody who holds US treasuries should go and look at the contract terms for their US treasuries and ask the question, do my contract terms restrict the US Treasury Department from saying to me tomorrow, you know?

• 8:36Speaker 05

  We need a little more money. So we're just extending the maturity of your debt by another 20 years at the interest rate that you lent to us. Is there anything restricting that? Uh, I don't think you'll find anything.

• 8:51Joe Weisenthal?

  Really? This blows my mind. Because to me, if I'm a holder of US Treasuries and the creditor or lender, the creditor says, you know what, I'm just paying you back a long time. To me, that sounds like default. And you're saying that in the research that you've done, this would not say trigger credit default swaps? Because to my mind, my assumption would be, oh, this breaks the entire system. This is a default, and we can't have a default on the risk-free assets. And you're saying that actually, in the wording of the document, it's not there.

• 9:22Speaker 05

  So we have to be clear, and I have to be geeky here in my law professor mode. Please, please. There are at least three different types of default. So there's a default on the contract, something you could sue somebody for, breach of contract. It would not be a breach of contract. US government is allowed to do this. Then there's default in terms of would it trigger the handful of credit default swaps that are written on US Treasury? Well, that sort of depends on what the credit rating agencies decide. And based on what we saw in Greece 2012, they probably would say it was a default for credit default swaps. But that doesn't apply to everyone.

• 10:06Speaker 05

  So those are the two big default scenarios.

• 10:11Joe Weisenthal?

  What do you mean that doesn't apply to everyone?

• 10:13Speaker 05

  Well, the default for a credit default swap really only applies to the people who are holding credit defaults protection on US Treasury. So they would be able to get their money back from somebody who had provided them insurance. But the rest of us dupes like me would just have to sit with the US extending the maturities. Now, the details are important. But if you are willing to let me bore you with them, I can sort of sketch out the scenario.

• 10:45Tracy Alloway?

  Always, always.

• 10:46Speaker 05

  Okay, my students asked me this in class a couple of days ago, so I had to sketch it out for them. So I said, step one, the US Treasury Department and the Secretary of the Treasury have authority to manage the maturities of US Treasuries. What does manage the maturities mean? It really does mean, you know, issuing bonds of different maturities, managing your yield curve. But could it include unilaterally extending the maturities? Seems implausible, but this government has pushed its legal authority in many ways. Now, what is most likely to happen?

• 11:31Speaker 05

  That the US Treasury, if they ever went down this path because they they needed money and rates had gone up and they wanted to take advantage of the fact that their old borrowing was at low rates. What they would do, I think, the pattern we have seen, is that they would extend the maturities and then Congress would quickly pass a law confirming it. That's what we've seen in all of the other Trump executive orders plus Congress quickly passing a law. And then there would be lawsuits. There would be lawsuits left and right saying this is a violation of the Constitution. Because remember, there's no contractual protection.

• 12:15Speaker 05

  So now you have to say, you've somehow taken my property and I have an implicit moralistic right to having my money paid back at the time when you said you had paid back. Now, that's really tough and we have historical precedent for this going back to the 1930s when we were in deep trouble because of gold.

• 12:43Speaker 05

  We didn't have enough gold to pay everyone in case they invoked their gold clauses, which entitled holders of certain US treasuries to get paid in gold. If they had gotten paid in gold or asked to get paid in gold, US would have essentially gone broke. So the president, backed by Congress, abrogated the gold clause protection in contracts. And it was thought that surely the Supreme Court would say, this is not allowed. You cannot just take away people's contractual rights. And the Supreme Court, in one of the most famous cases of that era, said it was okay.

• 13:27Speaker 05

  And the markets, I don't want to say this, but I'm going to say it because it's true. The markets didn't crash.

• 13:36Joe Weisenthal?

  Yeah. What year was this?

• 13:38Speaker 05

  I think it's around 1935. I'm going to mess up which year Congress did the abrogation and then when the Supreme Court decision came out. But the predictions were this will destroy the US ability to ever borrow in the future. And that did not happen. There are some famous articles about this.

• 14:13Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 14:29Speaker 06

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service insocial clients.

• 14:37Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Rees, America Ripple says.

• 14:45Speaker 07

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that. Regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80 year old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 15:05Speaker 00

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• 15:15Speaker 08

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands on experience matters more to recruiters than advanced degrees. With the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 15:58Speaker 08

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• 16:38Tracy Alloway?

  What's your read then on why this didn't happen? Like, why did the market seem to just go like, okay, this is unusual, but fine?

• 16:46Speaker 05

  So my read with no proof is that there are these rare instances where the market thinks, you know, this abrogation of contractual rights, while it looks like a violation of the rule of law in every which way possible, is necessary to make us all better. And therefore, instead of penalizing the government that does it, we're gonna reward them and we're gonna lend even more. Arguably, Greece in 2012, where Greece also legislatively

• 17:29Speaker 05

  abrogated contractual rights and did something very similar, is a similar situation where the market didn't penalize them anywhere near the amount that many sages on Wall Street were saying would happen. Now, I'm not saying that that's what would happen now. I mean, this administration seems crazy.

• 17:54Joe Weisenthal?

  What about 14th Amendment, Section 4, that says the validity of the public debt of the United States authorized by law, including debts incurred for payments of pensions and bounties for services and suppressing insurrection or rebellion, should not be questioned?

• 18:08Speaker 05

  Oh, I love it that you're bringing up the 14th Amendment and the debt language of the 14th Amendment that my students don't even know exists.

• 18:16Joe Weisenthal?

  The only reason I know about this is because it comes up a lot during the debt ceiling crisis.

• 18:19Tracy Alloway?

  Joe carries around a copy of it in his pocket at all times.

• 18:23Speaker 05

  Okay, this language is so important for a variety of reasons relating to multiple debt crises around the world, but I won't go into those. Let's just look at the language about the validity of the US debt. Arguably, that language goes back to the 1800s at least, when often, small municipalities would say a certain debt was illegally issued by this government in place that did not have the proper authorization to issue it. So if that's the meaning of validity... That it's about the original issuance.

• 19:08Speaker 05

  The Trump administration could say, we're not challenging the validity. We think your debt is very valid. We're just extending the maturity and we do promise to pay you. Let's say they extend the maturity by 100 years. We promise to pay you in 100 years.

• 19:24Tracy Alloway?

  When we're all dead.

• 19:25Speaker 05

  Yes.

• 19:27Tracy Alloway?

  Okay, I hesitate to ask this question for some of the reasons that Joe laid out earlier. But we've established that there's a lot of creativity embedded in the rules of bonds. Or at least you can use those rules rather creatively to achieve whatever aims you're trying to achieve. One of the things that has come up recently is the idea of maybe collecting on historical debt.

• 19:52Speaker 05

  Oh, yeah.

• 19:53Tracy Alloway?

  That was never paid to the US. You know, I called it the equivalent of like looking in your sofa under the cushions for spare change. How viable would something like that be?

• 20:06Speaker 05

  Okay, legally, that is much more viable. So this has come up in the context of, there's a recent book, very recent, by a senior US Treasury official about the negotiations between Andrew Mellon and Winston Churchill about the debts that were owed to the United States by Great Britain after World War I. So I think it's about 4.4 billion or so that was owed. And Great Britain resisted paying and the US tried to get it paid. And then finally, we kind of gave up and then we had World War II and all sorts of things. Those debts have never been written off officially.

• 20:52Speaker 05

  They are still official debts of now the United Kingdom to the US. They had interest rates on them. I think the interest rate was 3%. If you compounded that amount to today's values, that would be many trillions of dollars worth. Okay, so that's old, but how would you engineer this? That's a debt that is owed by the United Kingdom to the US. The US owes the United Kingdom because the United Kingdom, by the Treasury's own estimates, holds upwards of 700 billion in US Treasuries.

• 21:34Speaker 05

  Those can be, and the legal term is, set off. Two sets of debts can be set off against each other. It is a technique that is used every day in the markets. It's just, who would have thought that it could be applied in this context? But it can be, and in fact, in the Russia-Ukraine context, the Biden administration thought very hard about using set-off techniques to get funding to Ukraine. So this is an idea that's out there, current, but applying it to the UK debt and then maybe even applying it to the French debt from World War I would be truly radical.

• 22:18Speaker 05

  But maybe it wouldn't destroy the markets in the same way as the first swap that we discussed.

• 22:25Tracy Alloway?

  That's a very big maybe. But, okay, so theoretically, the UK debt could cancel out some US debt. I think this is a really good example of where norms come into play. Because, okay, after World War I, the US knew that the UK owed it a bunch of money, but the UK was arguing, well, this is actually emergency war funding and it's not fair if we have to pay it back. And ultimately, the US just decided, you know what? It was better to keep the UK as an ally, not annoy them over this particular loan. And so they just never did anything about it. But obviously, relations between the US and the UK are changing,

• 23:10Tracy Alloway?

  not as friendly as they used to be, perhaps. And so that opens up the question of whether the values around these loans and bonds can start to change.

• 23:20Joe Weisenthal?

  No, well, this sort of anticipated the question that I was going to go to, which is like, like, say more about like, why it was just accepted that these debts were not collected upon.

• 23:31Speaker 05

  Well, I'm not sure. There is extensive writing about the negotiations. I think they went all the way up to the 1970s. And for those who study financial history, post-World War II was a truly horrible time in Europe. The US was trying to help European countries recover.

• 23:55Speaker 05

  The UK in particular had taken the position after World War I that the US should try to collect this money from Germany. Because really, Germany owed the money to the UK and France in reparations. And sort of the consensus was, World War I reparations were a stupid idea and resulted in World War II. This is Keynes and all of that work. But generally, in the interest of letting Europe recover, I think the US decided better not to push this.

• 24:35Speaker 05

  But Congress never allowed those debts to be wiped out completely. And so, in some sense, this has always been an option. I have heard Treasury officials, people negotiating debt restructurings, talk. And every once in a while, when they can't get the UK to do what they want, US officials will kind of snidely mention, you know, there's that World War I debt that you never paid. And everybody laughs and in a knowing way and then.

• 25:10Tracy Alloway?

  I have this image of them having like a laminated copy of the bond documents and just whipping it out in negotiation. But actually, that reminds me, we don't know what the exact bond documentation is.

• 25:21Speaker 05

  We don't know, we don't even know. I mean, we know the interest rate is 3%. I've never met anybody who's actually seen the document. Back in 1917, I don't think it would have been governed by the law of New York or the law of England. So who knows what statute of limitations would be? Who knows today whether or not there is some kind of international statute of limitations that would apply? And would it apply in the context of set off? This is just, for lawyers, this is a bonanza. We could be working on this forever. But it seems a bit crazy, but nothing's crazy these days.

• 26:02Tracy Alloway?

  The lawyers always win.

• 26:04Joe Weisenthal?

  So, speaking of all these old debts and world wars and stuff like this, I've like gotten into my, I'm in my mid 40s, so of course I read about 20th century history now. And one of the things that actually like was like this big like light bulb revelation for me in reading history is that like modern fixed borders of countries, it's sort of a novel phenomenon that actually like the idea that like these are the lines around the country, we just all sort of accept it, is like very fresh in modern history. And I, what was striking is like reading about the run up to World War II, where like the Germans would sign a border agreement with another country, but it would be only 10 years, they're like, let's be peaceful for 10 years and then we'll revisit war down the line. Then we'll decide whether or not to be enemies again.

• 26:49Joe Weisenthal?

  And then we might revisit that idea of conquest, but at least in the meantime, some of it's coming back and it's coming back particularly with respect to Trump's talk about Greenland. And people talked about how much it, a lot of people think it's a joke, but a lot of people have gotten burned by thinking that things Trump has been saying are a joke. And so that's why I've become much more on the take Trump literally side. How should we think about the idea of like countries just sort of like acquiring land from other countries as a thing that could happen in the 21st century?

• 27:21Speaker 05

  Okay, this is gonna happen. It's not could happen. You're raising an incredibly important question. So there is Greenland, but Greenland's kind of fun to talk about.

• 27:32Joe Weisenthal?

  Yeah.

• 27:32Speaker 05

  Although, you know, Trump seems very serious about it. He keeps telling us, don't think this is a joke. We have to have it and I will have it. But it's going to be directly relevant in the context of Ukraine. So let us say that Mr. Putin is able to negotiate with President Trump to take half of Ukraine.

• 27:56Joe Weisenthal?

  Okay.

• 27:57Speaker 05

  So Ukraine becomes baby Ukraine. What happens to the enormous pile of debt that Ukraine has that is unpaid? And that was restructured in the context of war, including billions and billions of dollars that are owed to the US and to European allies? Does old Ukraine pay all of this? Hmm. Or does baby Ukraine pay all of this? Does it get divided? It turns out that the laws from the era of conquest, those are the laws that apply even today of what happens when the borders of a state change. Those laws are really unclear.

• 28:41Speaker 05

  And so we'd have to decide in the modern era, how would those old laws apply? Given that we pretend that borders don't change and we pretend that conquest is not allowed. I mean, Putin takes the position that what's happening in Ukraine is an independence movement that started domestically and that he's just encouraging it. Well, there is a whole set of laws that apply to civil wars. And if they take the position of this is a civil war, then there is 19th century debt law that applies to a civil war.

• 29:39Speaker 08

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices. But according to recruiters, advisors,

• 30:24Speaker 08

  and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 31:02Tracy Alloway?

  This is one of my favorite ever financial history topics, which is the repudiation of debt from the Soviet Union, also Imperial China. And there is this argument that, okay, there's a revolution in a country. The new administration or the new policymakers should, the new government, should not be saddled with debt from the previous administration because that administration was wrong and was not supposed to be there and they were taking advantage of the people and spending all their money, blah, blah, blah, blah. Talk about that.

• 31:37Speaker 05

  So you have brought up one of our favorite topics, the doctrine of odious debts. And the doctrine of odious debts is really about some despotic leader, a kleptocrat, who's borrowing a lot of money from usually foreign creditors and then absconds with that money. And should the new government that comes into place after kicking out the kleptocratic leader be responsible to those creditors, especially if those creditors knew they were lending to a kleptocrat? What Joe raised with the change of state borders is a more obscure doctrine that falls

• 32:18Speaker 05

  within the subset of odious debts, but is a little bit different. And more importantly, has much more legal basis for it. So, Joe, can we go back to the 14th amendment?

• 32:32Joe Weisenthal?

  Please.

• 32:33Speaker 05

  Okay. Can we read that language that you read?

• 32:35Joe Weisenthal?

  Yeah, you want me to read it again?

• 32:36Tracy Alloway?

  Joe's reaching into his pocket.

• 32:38Joe Weisenthal?

  I still have it on the, I still have it on. "The validity of the public debt of the United States authorized by law, including debts incurred for payments of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

• 32:52Speaker 05

  Okay. So, that last part, when Joe raised this at the beginning of the podcast, I think he was focusing.

• 33:01Speaker 05

  And Joe, correct me.

• 33:01Joe Weisenthal?

  Just on the validity of the debt part.

• 33:03Speaker 05

  On the validity of the debt.

• 33:03Joe Weisenthal?

  And you know what, it was all, to be honest, and I, you probably sensed this, to be honest, when I read this, I was like, I never really paid much attention to that insurrection or rebellion point there.

• 33:13Speaker 05

  Okay, that stuff is so important. Okay, I'm getting so excited, so I apologize for raising my volume. That is the US saying to international creditors, we will not pay if you lend for insurrection. That is civil war. We will not pay, and we think this is fine by international law. Is remember, in the early days, we were very concerned, actually, none of us remember, we were very concerned about following international law because we didn't want other countries to send in the gunboats because we were violating law. It was accepted, arguably, at that time, that it was okay not to pay for debts incurred

• 33:58Speaker 05

  by the rebels in fighting in a civil war.

• 34:02Tracy Alloway?

  Right, and we all know at this point that one man's coup can be another man's fight for liberation. So it's open to interpretation. I gotta ask, just before we go, going back to Greenland, can Trump get Greenland? How does that work legally?

• 34:19Speaker 05

  Oh, this is good, too. But can I just go back to what the implications of what Joe's language in that, in that, uh, in the 14th Amendment for Ukraine? If Putin takes the position that what has happened in Ukraine is an independence movement, and there was a civil war, then Putin could invoke, basically, our 14th Amendment and the laws that followed since. There's have, have been cases where the British took a similar position in the context of the Boer War, and say, I am not responsible for any of the debts incurred by Ukraine, because that was a civil war context.

• 35:03Speaker 05

  And the side that wins does not have to pay the debts of the side that loses. Bondholders, I think, have been quite unaware of this possibility. Now, maybe it will all get worked out, but I don't really see how we can avoid working this out. But back to Greenland. Now, can we get Greenland? Well, yes, we can get Greenland. Even though borders are not supposed to change, we could, in theory, there's no international law prohibiting us purchasing Greenland. The question is, who do we purchase it from?

• 35:46Speaker 05

  In the old days, we would have just purchased it from Denmark. They kind of owned Greenland as property. But now we don't think of post-colonial states as property. Although we don't quite know, maybe the property interests, to the extent you think of sovereignty interests as property interests, lie with the people of Greenland. And so, the 57,000 quote-unquote "citizens" of Greenland, maybe Trump could offer to pay them each $1.5 million in a Swiss bank account and give them each a little house on the beach in Santa Monica and give them one of his golden visas.

• 36:31Speaker 05

  It could happen. It would be brand-new international law, but entirely plausible. The question, though, is, where's he gonna get the money from? He would really have to borrow a large amount of money. And so, we come back to the question of issuing more US sovereign debt in a context in which we're trying to reduce the sovereign debt. Oh, yeah.

• 36:57Tracy Alloway?

  Maybe the US could use the proceeds from recouping payment on those old UK bonds to buy Greenland.

• 37:04Speaker 05

  We could. Now, I suspect, okay, I'm building conspiracy theory upon conspiracy theory, and maybe this is just a bridge too far. But if you go back to techniques that Trump was very fond of using, say, in his casino days, he really didn't like market processes where, say, the US would be bidding against Denmark and maybe Germany and maybe France for who would pay the Greenlanders the highest amount in order to acquire Greenland. Instead, there's been a lot of talk about security reasons, the security reasons and the imperative that the

• 37:47Speaker 05

  US must have Greenland, and no talk of, say, an auction for Greenland where the Greenlanders would get the highest price. This talk about security reasons sounds more like a regulatory taking where we get to take it at the price we set because it is important for security reasons. It is a technique that Trump has used in the past in his property dealings and could try to use here, although I don't think there's any international law equivalent, but we're making up international law in the modern era.

• 38:27Tracy Alloway?

  Okay, so I think at a minimum, we can say we are living through interesting times, and it's interesting times in bonds as well. So, thank you, Mitu, for coming on the show to explain all of that to us and hopefully not give too many policy suggestions to the administration.

• 38:43Joe Weisenthal?

  I love talking to law professors. Thank you so much for coming back on.

• 38:47Speaker 05

  It was so fun. Thank you both.

• 39:01Tracy Alloway?

  Joe, I love talking to Mitu.

• 39:02Joe Weisenthal?

  Yeah.

• 39:03Tracy Alloway?

  I know sovereign bond documentation is not necessarily everyone's idea of an exciting time, but he makes it exciting and interesting.

• 39:11Joe Weisenthal?

  No, I wasn't kidding. I actually, it's fun to talk to law professors, especially this kind of stuff, because you can just see like how their brain works and how they're like, well, this part of the sentence, you think it's about this, but this part of the sentence is like, oh, are we talking about conquest law that's been in effect forever? Are we talking about the repudiation of odious debt, et cetera? And I just find it of real pleasure to hear all of it.

• 39:38Tracy Alloway?

  Absolutely. And I think the whole conversation really highlights that point about just how fluid some of these contracts actually can be. And again, there's so many assumptions and norms that are built into these things, even though often the documentation tries to be airtight, once those assumptions and norms start to change, the way the bonds can be used or enforced starts to change as well. And the same applies to borders, as you pointed out.

• 40:06Joe Weisenthal?

  Yeah. Isn't that funny? Countries are so new. No, they really like, I realized this a little while ago, like almost every country is like, it's basically day one around here. You know, so many countries are post-World War II. That was one of those things that I feel like only that clicked in my brain way too late.

• 40:23Tracy Alloway?

  I've been meaning to ask you.

• 40:24Joe Weisenthal?

  Yeah.

• 40:25Tracy Alloway?

  How do you feel about the trillion dollar coin now? No, because I said this is something like it's based on norms that the treasury has never done this, and we should treasure norms.

• 40:35Joe Weisenthal?

  I agree. I think an actual default or a missed payment would be really bad. And if the choice is between yet another norms violation, which at this point, add it to the list, versus a literal non-payment of a coupon, which would be a default, I will, I'll take the coin.

• 40:52Tracy Alloway?

  Okay. Glad we settled that.

• 40:54Joe Weisenthal?

  Yes.

• 40:54Tracy Alloway?

  Shall we leave it there?

• 40:55Joe Weisenthal?

  Let's leave it there.

• 40:56Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alockway. You can follow me at Tracy Alockway.

• 41:01Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashell Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have all of our episodes and a daily newsletter. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 41:24Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about bond documentation, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 42:17Speaker 09

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• 42:49Speaker 10

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