Law Commons^™

The process of drafting a contract can be routine, almost automated. Over a long enough time, lawyers may stop paying attention to contract language or even forget why it is there. The problem is acute with standard-form contracts and perhaps especially so with financial contracts such as sovereign bonds. How should courts interpret contract language when neither the parties, nor their lawyers, nor any other relevant player in the market can credibly explain what it does? This essay addresses this question in the context of one of the most contested interpretive questions in modern international finance: the meaning of the …

Many politicians and commentators agree that credit default swaps (CDS) played a significant role in the financial crisis of 2008. Yet, few who observe this role are aware that CDS were set loose on the economy by the federal pre-emption of thousands of years of public policy. Since the time of Aristotle law, philosophy and public policy have been hostile to gambling. Viewed as a socially unproductive zero sum wealth transfer, the law has generally refused to permit parties to use the courts to enforce wagers. Courts and legislatures worked in harmony to control and in some cases punish financial …

In response to the Eurozone sovereign debt crisis, policymakers have initiated a range of reforms falling at both poles of the “hard”/“soft” law continuum. One of the most ambitious is the United Nations Conference on Trade and Development’s initiative to identify what it calls “Principles of Responsible Sovereign Lending and Borrowing.” The Principles aim to transform attitudes about sovereign lending in general, and sovereign loan contracts in particular, through consensus-building, promulgating model contract terms, and other soft law approaches. Principle 15, for example, envisions the use of collective action clauses (CACs) to ensure that debt restructurings occur “promptly, efficiently, and …