Suitably Flip

Latest Brilliant Debt Ceiling End-Around: Off Balance Sheet Financing

Lots of style points for this one.  And as a former Enron advisor, Paul Krugman should find it even dandier than the trillion dollar coin trick.

[T]here is a plausible course of action, one that the president should publicly adopt in the coming weeks as his contingency plan should debt-ceiling negotiations falter. He should threaten to issue scrip — “registered warrants” — to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.

The scrip would not violate the debt ceiling because it wouldn’t constitute a new borrowing of money backed by the credit of the United States. It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay.

Not "debt" mind you.  Just a "formal acknowledgment of a pre-existing monetary claim."  One which finds itself blessedly omitted from the liabilities side of the federal balance sheet.

And what do you do after you concoct a shady new debt finance structure designed to conceal its underlying risk or to sidestep rules limiting such risk?  You securitize it and squirt it out into the capital markets, that's what.

Finally, the scrip would be transferable, allowing financial institutions to buy it at a high percentage of its face value, knowing that the political crisis would almost certainly be resolved before long.

The federal Anti-Assignment Act generally prohibits the transfer of claims against the United States from one private actor to another, but the government could waive the act’s application, which is what the president would do here.

See - it's even almost legal!

(As long as the President decrees that the law that outlaws it doesn't outlaw it.)

Comments

Latest Brilliant Debt Ceiling End-Around: Off Balance Sheet Financing

Lots of style points for this one.  And as a former Enron advisor, Paul Krugman should find it even dandier than the trillion dollar coin trick.

[T]here is a plausible course of action, one that the president should publicly adopt in the coming weeks as his contingency plan should debt-ceiling negotiations falter. He should threaten to issue scrip — “registered warrants” — to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.

The scrip would not violate the debt ceiling because it wouldn’t constitute a new borrowing of money backed by the credit of the United States. It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay.

Not "debt" mind you.  Just a "formal acknowledgment of a pre-existing monetary claim."  One which finds itself blessedly omitted from the liabilities side of the federal balance sheet.

And what do you do after you concoct a shady new debt finance structure designed to conceal its underlying risk or to sidestep rules limiting such risk?  You securitize it and squirt it out into the capital markets, that's what.

Finally, the scrip would be transferable, allowing financial institutions to buy it at a high percentage of its face value, knowing that the political crisis would almost certainly be resolved before long.

The federal Anti-Assignment Act generally prohibits the transfer of claims against the United States from one private actor to another, but the government could waive the act’s application, which is what the president would do here.

See - it's even almost legal!

(As long as the President decrees that the law that outlaws it doesn't outlaw it.)