American Consequences - December 2017

Once the French troops left, Emperor Maximilian lasted all of 11 months. By the end of 1867, he had been captured and sent to the firing squad along with his top generals. The new Mexican state – backed by the United States – repudiated the debts run up by Maximilian, the French puppet. And the creditors – the French, mostly – got nothing. Sack later argued that the reign of Maximilian was abhorrent and that the Mexican people should not be harnessed by this “odious debt.” “It is a debt of the regime, a personal debt contracted by the ruler,” Sack wrote, “and consequently it falls with the demise of the regime.” What he meant was, we won’t buy the Emperor’s New Clothes. Few people would argue that people recently freed from true oppression should have to shoulder debts incurred to guild their despot’s palace... but you shouldn’t be surprised to discover that modern governments have found it useful to scorn their own obligations. Take Ecuador... In 2008, President Rafael Correa declared the nation’s $3.9 billion in foreign-held debt “illegitimate.” He claimed the prior corrupt and despotic regimes were responsible. Exactly which despotic regimes he meant is unclear. The country has been a democracy since 1979. As the Washington Post reported at the time... Ecuador is ceasing payments not because

Walking Away From ‘Odious Debt’

He argued – back in 1927 – that some government debts were so outrageous that they could not rightly be owed by the people.

It started out as pure theater: Red silk from the orient and solid silver cuffs, studded with the Russian crown jewels. Even the walking stick was bathed in gold. Tsar Nicholas II would wear this spectacular costume to the Russian Imperial winter ball in 1903. But Alexandre Zak rejected the excesses he saw. It’s not because Zak was a communist. He was a professor of finance and law at the university in St. Petersburg during the Tsars’ regime. He fled Russia after the Leninist revolution. He landed first in Estonia, then later New York, where he advised the U.S. Justice Department during World War II. By then, Zak had Americanized his name to “Alexander Sack” and written one of the key texts in international financial law, “The Succession of Public Debts of a State.” In it, he argued – back in 1927 – that some government debts were so outrageous that they could not rightly be owed by the people . Sack based his doctrine around despotic regimes that piled up debt for self-interest as opposed to the state’s or people’s needs. His doctrine claimed this illegitimate – or “odious” – debt belonged to the regime and not the nation. So it should fall along with the regime’s demise. Sack’s examples included the reign of Austrian Prince Maximilian I, who was “emperor” of Mexico from 1863 to 1867... Maximilian was a puppet of France’s Napoleon III and was “elected” Emperor while French troops were massed in Mexico City.

the oil-rich country cannot afford to pay but because it has made a political decision not to...

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