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10/20/2014

What Happened to the U.S. Constitution? Effects of Changing Interpretations on International Debt and Banking—Part I


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Contrary to the wishes of originalists, the U.S. Constitution evolves. However, it evolves in strange, almost incomprehensible ways.

For instance, the reach of the First and Second Amendments has increased drastically. The “freedom of speech” clause in the First Amendment, once admitting restrictive Comstock obscenity laws, now has extended to freedom (and anonymity) of money spent by corporations on political advertising, thanks to the Supreme Court’s ruling in Citizens United. The Second Amendment entitles every citizen, age and mental state notwithstanding, to obtain firepower on the scale of a post–Revolutionary War battalion—and much more accurate at that.

In contrast, other literal constitutional norms are strangely moot. The prohibition in, Article I, Section 9, against U.S. citizens taking presents, salaries, offices, or titles, from foreign governments—which grew out of the fear that Americans would be enticed by the British empire—has been weakened by the growth of the American power. Its denial, in this period after the “mission accomplished” phase of the Iraq War, extends to morally suspect suggestions to develop complex administrative entities—America’s “own versions of viceroys, legates, residents, and procurators” (Cohen 2004)—in countries in which we have a large military presence. The Patriot Act has made many holes in the Fourth Amendment. The proscription against bills of attainder, also in Article I, Section 9, has not stopped the development of no-fly lists and other forms of extrajudicial punishments in the post-2001 era.

Another original constitutional norm that has been ignored in the new American world order is the second paragraph of Article III, Section 2: “In all cases affecting ambassadors, other public ministers and consuls, and those in which a state shall be party, the Supreme Court shall have original jurisdiction.” Whatever constitutional lawyers would make of it, it flowed from the same concern that underpinned the natural-born-citizen clause of Article II, Section 1, namely their excessive fears of re-unification with Great Britain. Framers explicitly kept foreign relations out of the reach of the lower courts and in the executive branch. They were afraid that British loyalists would bankrupt the new republic by seeking restitution for plantations, houses, and property confiscated or destroyed in the Revolutionary War. Even if these property claims could not have been enforced in the U.S., Britain with its powerful navy could have seized American goods against them.

Now that the U.S. has replaced the UK as the dominant global power (some will say the world’s policeman), worries that American goods will be impounded have disappeared, while the drive to use the courts to lay claims to foreign property has grown. In 2012, the hedge fund N.M.L. Capital obtained a court order to seize an Argentine navy training vessel, ironically named Libertad, docked near Ghana’s capital of Accra as payment against Argentina’s default (Schmall 2012).

The temptation to use U.S. courts as an instrument of foreign policy grows with every case.  In order to force Argentina to pay its debt, federal judge Thomas Griesa (a Nixon appointee) ruled that if Argentina did not make good on its old bonds, it should not make interest payments on its exchange bonds, and banks should not help it do so (see Norris 2014). Department of Justice claimed that bank BNP Paribas processing transactions through the U.S. financial system, i.e. using U.S. technology for transactions with for clients in Sudan, Iran, and Cuba, not involving U. S. money or territory, constitutes violation of unilateral U.S. sanctions and imposed a $8.9 billion fine (U.S. Department of Justice 2014).

Comments that I’ve seen in Bloomberg’s newsletter with regard to Argentina’s default (see comments in Shipley 2014 and Levine 2014) support this judicial overreach—this attitude of “might against right.” I hold the Founding Fathers’ belief that courts should be kept out of foreign affairs. The indiscriminate use of U.S. courts to advance foreign policy aims will accelerate the diversification of U.S.-controlled payment systems and the subsequent movement away from the dollar. While the desire of many emerging nations to leverage their dependence on the dollar has been transparent for a long time, the advantages of the current U.S.- and EU-dominated systems have outweighed the risks. However, asset freezes and payment cutoffs by courts were relatively rare in the past, and they involved fairly uncontroversial cases (the Iran hostage crisis, Swiss bank accounts owned by Holocaust survivors, and North Korea’s nuclear program—but, incongruously, not Pakistan’s) and marginal economies. Judge Griesa’s stop-payment order was closer to politically motivated blackmail of president Cristina Fernández de Kirchner.

Lao-tzu, the founder of Taoism, said, “Sharp weapons are instruments of evil omen.” The use of extreme methods—a parallel in the Senate would be the filibuster—in the service of routine causes blunts these weapons and, in the end, corrupts the very institutions that become addicted to their use.

 In Part II of this article, I will discuss the substantive issue of Argentinian default. Here I only suggest that in the long run, enmeshing courts in the matters belonging—and constitutionally assigned—to the domain of international diplomacy can debase the U.S. court system. We see a similar process at work in the legislative branch: procedure is debased, and Congress has turned from a policy-making body to an instrument of political propaganda.

Peter Lerner, MBA, PhD, is a semi-retired financial researcher who lives in Ithaca, NY.


As an impartial, nonprofit forum for the finance and banking industries NYSSA encourages discussion and debate among its member and other professionals. Commentaries, however, should be taken as the sole opinion of the author(s) and not of NYSSA. If you would like to submit a commentary to the Finance Professional's Post, send your article to the editor.

REFERENCES

Cohen, Eliot A. July/August 2004.  “History and the Hyperpower.” Foreign Affairs. Council on Foreign Relations.  

Levine, Matt. August 20, 2014. “Argentina’s Last Bond Exchange Went So Well It’s Doing Another.” Bloomberg View. 

Norris, Floyd. July 24, 2014. “The Muddled Case of Argentine Bonds.New York Times. 

Schmall, Emily. October 18, 2012. “Seizure of Ship from Argentina Forces Shake-Up.” New York Times. http://www.nytimes.com/2012/10/19/world/americas/seizure-of-argentine-ship-forces-shake-up.html?module=Search&mabReward=relbias%3As%2C%7B%221%22%3A%22RI%3A11%22%7D

Shipley, David, and the editors. July 31, 2014. “Argentina Didn’t Have to Be This Way.” Bloomberg View. 

U.S. Department of Justice. June 30, 2014. “BNP Paribas Agrees to Plead Guilty and to Pay $8.9 Billion for Illegally Processing Financial Transactions for Countries Subject to U.S. Economic Sanctions.” 

 
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