Coming soon (January 21) is the SCOTUS oral argument about the Trump 2.0 use of Unitary Executive Theory to allow President Trump to “fire” Fed Governor Lisa Cook.
As I see it, this is a unique case in American history. And this is the first time such briefs have been filed to argue the pros and cons of a firing like this.
Also note that there has been no trial of Lisa Cook. There is only an allegation, and there is considerable evidence to support Lisa Cook’s denial of the Trump allegation. Also note that, according to a search of records, Trump himself had a document history in his own real estate dealings that suggests the same kind of fraud that his administration has accused Lisa Cook of committing. The following article contains links to both mortgage documents involved:
“Trump’s Own Mortgages Match His Description of Mortgage Fraud, Records Reveal” | ProPublica, https://www.propublica.org/article/trump-mortgage-fraud-florida-principal-residences
The Trump position is simple to paraphrase: “I am the executive, and I can fire anybody in the executive branch of the government for any reason.” Trump invokes a constitutional argument, American history, and James Madison’s articulations to support that outcome.
The Lisa Cook argument has three parts. First, the law requires “cause” for Trump to fire Cook, and there is no cause: There has been no trial, and there is no proof of any fraud or cause. Furthermore, Lisa Cook has produced a public document that clearly shows Trump’s fraud allegation is wrong.
Second, Trump’s argument is that the Constitution places the Federal Reserve wholly under the executive branch and therefore the law requiring “cause” for firing a Fed governor is unconstitutional. You can read the details of this argument in the briefs.
The Madison exception (nuance) is ignored by Trump even though Madison created it in response to a US Treasury event. Note that the Federal Reserve did not exist at the time. Let me offer serious readers an analysis of this question. Here’s the citation and an abstract of a research paper from 2022.
Gary J Schmitt, “A Madisonian Footnote to the Unitary Executive,” American Enterprise Institute (April 15, 2022). Available at SSRN: https://ssrn.com/abstract=4084838 or http://dx.doi.org/10.2139/ssrn.4084838.
Abstract
James Madison led the debate in the First Congress that confirmed the president’s constitutional authority to remove executive officials at his pleasure, a key feature of what is now called “the unitary executive.” But shortly after the argument over the removal power had been settled, Madison argued that the comptroller of the Treasury Department should be given a specific tenure in light of the comptroller’s judicial-like responsibilities in settling judgments of claims by individuals against the US Government. Reviewing this incident, follow-on decisions about that office, passage of laws giving the courts administrative duties, and the creation of the first independent regulatory body (the Interstate Commerce Commission) reveals a more complex understanding of separation of powers that has implications for assessing the legitimacy of independent agencies. It is an understanding that does not dismiss the general validity of the unitary executive and the chief executive’s responsibility to see that the laws are “faithfully executed” but also recognizes that not all administrative functions are simply executive in nature. The paper applies this more nuanced understanding to the recent Supreme Court decision on presidential removal authority in Seila Law LLC v. Consumer Financial Protection Bureau (2020) and the decisions in the classic removal cases Myers v. United States (1926) and Humphrey’s Executor v. United States (1935).
Financial Market Impacts
The chart below shows the cost of credit insurance on the United States (credit default swap – CDS) on August 22, 2025, which is the day before Trump announced that he would fire Lisa Cook. Also shown is the peak interpolated CDS term structure on October 13, 2025, which is the period when it looked as though Trump might prevail. The bottom CDS price shown is recent and reflects the revelations and disclosures that counter Trump’s allegations. This evidence suggests SCOTUS may be willing to find in favor of Lisa Cook and not grant Trump unitary executive power over Fed governors.
Hat tip to Austin Hackenburg of Cumberland Advisors for this chart.
My Interpretation
Markets made a parallel shift in the slope of the CDS term structure. Essentially, the world’s market agents have priced an approximate 11-basis-point estimate on the outcome of the Lisa Cook case. An 11-basis-point parallel shift means an ANNUAL cost of $29 billion in interest paid by the US government. There is about $26 trillion estimated publicly held US Treasury debt. (I ignore debt held by US government.) So, 11 bps means $29 billion per year in interest rate change attributable to the Lisa Cook outcome.
Note that the term structure remains steep in all outcome alternatives. Note that the CDS term structure runs for only 10 years, so a forward rate calculation would infer that the term structure gets steeper in years 11 through 30. Note that the existing US Treasury term structure is conforming to this CDS slope. Note that lowering the short-term interest rate only makes the term structure steeper and worsens the market-based price estimate for longer-term American debt management.
The best outcome, as I see it, is that SCOTUS issues a clear opinion about Trump’s invocation of Unitary Executive Theory versus Lisa Cook, and SCOTUS requires any allegation of cause be proven in a judicial proceeding. Worst outcome is SCOTUS upholds Unitary Executive Theory applied to the central bank of the United States.
If the latter happens, I expect that the bond market will react violently. Why? Because if Trump can fire a Fed governor for any reason or without needing a reason, he can fire all of them. That unchecked power would eliminate Fed independence and undermine the entire world reserve currency status of the United States dollar.
A Chicago Fed research paper on CDS analyzes rising default risk for the US. The discussion and charts make this paper well worth a read.
“What Does the CDS Market Imply for a U.S. Default?” Economic Perspectives, No. 4 (October 2023), https://www.chicagofed.org/publications/economic-perspectives/2023/4
Drawing primarily upon three sources found at AEI, Wikipedia, and Penn Carey Law, Google AI offers a summary of James Madison on Unitary Executive theory, should readers want a quick overview or a deeper dive.
Below is a list of briefs filed in Trump v. Cook, No. 25A312 (SCOTUS), with titles linked directly to their PDF versions:
Supreme Court Briefs & Documents
- Application to Stay the Preliminary Injunction & Request for Administrative Stay (Applicant: Donald J. Trump) – PDF [supremecourt.gov]
- Supplemental Brief for the Applicant (Applicant: Donald J. Trump) – PDF [supremecourt.gov]
- Opposition to Request for an Immediate Administrative Stay (Respondent: Lisa D. Cook) – PDF [supremecourt.gov]
- Brief of Separation of Powers Clinic (Amicus Curiae in Support of Application) – PDF [supremecourt.gov]
- Brief of America First Legal Foundation (Amicus Curiae in Support of Application) – PDF [supremecourt.gov]
- Brief of the U.S. Chamber of Commerce (Amicus Curiae – Support of Neither Party) – PDF [uschamber.com]
Additional Resources (for reference & context)
- SCOTUSblog Case Page & Docket Timeline – Link [scotusblog.com]
- Supreme Court Order Deferring Action (Oct 1, 2025) – PDF [documentcloud.org]
Here’s a reference for worldwide sovereign CDS pricing at the 5-year tenor:
“Sovereign CDS” | World Government Bonds, https://www.worldgovernmentbonds.com/sovereign-cds/
Last, we highly recommended this technical discussion regarding CDS and default risk — a Fed working paper written in the context of the 2023 debt ceiling episode:
“What Does the CDS Market Imply for a US Default?” WP 2023-17 | Federal Reserve Bank of Chicago (May 2023), https://doi.org/10.21033/wp-2023-17
Previous Related Commentaries
“The Lisa Cook Affair: An Extraordinary Amicus Brief” | Kotok Report, https://kotokreport.com/the-lisa-cook-affair-an-extraordinary-amicus-brief/
“The Lisa Cook Affair” | Kotok Report, https://kotokreport.com/the-lisa-cook-affair/
“The Fed and Bill Pulte” | Kotok Report, https://kotokreport.com/the-fed-and-bill-pulte/
