Monday, November 9th
Monica Widmann (UCLA), “Violating Impartiality: The United States Judiciary Governing the Market”
Sovereign debt markets have, historically, been formally unregulated, but with the advent of the 1976 US Foreign Sovereign Immunities Act (FSIA), this is no longer the case. Sovereign states can now be sued in US courts. As a result, US judges have gained a considerable amount of power over how sovereign debt defaults are resolved. Although a reasonable expectation would be that the majority of cases are won by plaintiffs because the evidence that a state—the defendant—defaulted is clear, this does not occur in practice. What affects the decisions judges make? I argue that a judges’ ideological inclination affects their decisions. Conservative judges, unlike their liberal counterparts, are more likely to rule against the defendant because they want to enforce free market norms. This difference in ruling propensity is most acute when the defendant is a democracy as they have close economic ties with the US. I test my argument with an original data set of US sovereign debt litigation cases that covers the period between 1976 and 2019. Using Bayesian hierarchical modeling and Virtual Twins, I demonstrate that the outcome of a case is influenced by (a) whether the case is assigned to a liberal or conservative judge, (b) the strength of economic ties between the United States and the debtor state, and (c) the level of democracy in the defendant country. Despite expectations, plaintiffs do not regularly win. This study has implications for understanding the evolution of international debt market governance in a period where banking houses, such as the Rothschild’s, no longer exists.