2014 Reports

Brief of Joseph E. Stiglitz as Amicus Curiae in Support of Petitioners

Stiglitz, Joseph E.

Sovereign governments fund themselves to a large extent through public debt markets. The contracts for sovereign debts are thus essential to the operation of governments, and, in turn, the global economy. As with any financial enterprise, the contracts also provide guidance on what will occur in the event that the government cannot pay as promised. But the legal meaning of those contracts is irretrievably intertwined with the economic meaning; governments and bondholders alike care about the law because it guides their behavior. In other words, legal interpretations in this context can have profound consequences for the way that governments fund themselves and develop their economies. Professor Joseph Stiglitz files this brief to explain how the Second Circuit’s decision in this case—if left standing by this Court—will threaten to upend global sovereign-debt markets, harm developing nations, and challenge New York’s position as a global financial capital.1 No rational creditor would participate in a restructuring under the Second Circuit’s legal regime. Accepting partial payment initially is foolish when the law allows, even compels, full payment eventually. At the very least, the Second Circuit’s decision severely impedes potential debt restructurings under standard debt contracts and subverts debtors’ ability to start anew when they cannot pay back creditors. In the process, a basic principle of modern capitalism—that when debtors cannot pay back creditors, a fresh start is needed—has been overturned. This Court should step in and set things straight.