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§ 439. “The Parliament May Take Over.”

The power given to the Parliament by this section is absolute, and may be exercised without the consent of the States. The power can of course only be exercised under an Act passed by the Parliament for that purpose. Such an Act will presumably not be passed so as to effect the transfer itself, or even so as to direct absolutely that the transfer shall be made; as either of these courses would be open to the objection raised by Mr. Holder to a peremptory provision in the Constitution—namely, that it would make a present of the federal security to the bondholders, and so prevent any possibility of an advantageous conversion before maturity. It will probably be in an enabling form, authorizing the Federal Treasurer to negotiate with the bondholders, and so offer them the federal security in exchange for some concession which will share the benefits of the transfer between the Commonwealth and the bondholders.

The effect of the transfer will be to substitute the credit of the Commonwealth for the credit of the States—to make the Commonwealth the debtor to whom the bondholders will have to look, and to release the States from any obligation to the bondholders, imposing on them instead an obligation to indemnify the Commonwealth for the amount of principal and interest.

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