> “We believe,” he wrote, “that the interest — widely shared in the financial community — in maintaining New York’s status as one of the foremost commercial centers is advanced by requiring debtors, including foreign debtors, to pay their debts.”
So I guess that means this judge never lets companies or individuals file for bankruptcy either.
The one policy you can always count on our government to enforce is "protect bondholders at all costs."
The article talks a lot about how it's hard to be sympathetic to the Argentinian government, a perspective I mostly agree with. But who's the bigger heel, Argentina, or the idiots who lent them money expecting to get any of it back?
The difference is that we have a statute allowing companies and individuals to declare bankruptcy. Here all we have are the written terms of Argentina's debt agreement. All we can do is attempt to enforce them. Is it really a viable option to pretend the agreements do not exist?
Perhaps we need an international process, analogous to bankruptcy, by which a nation can escape its debt burden. But I don't see how it is a federal judge's prerogative (or responsibility) to create one.
> The one policy you can always count on our government to enforce is "protect bondholders at all costs."
Unless of course those bondholders are institutional investors, and the other creditor is the UAW. When governments are so intimately involved in these kinds of proceedings, the only thing that we can be sure of is political expediency.
You must not have been following the Argentina saga very closely if you think the courts are ruling out of political expediency. The U.S. government has appeared in this case multiple times in support of Argentina, but the courts rule against them anyway. The U.S. government (the executive branch, that is) would clearly rather the courts allow Argentina to wipe out the bondholders and start over. This litigation has become a major point of friction between the U.S. and Argentina diplomatically.
This article gives little attention to very major point. It says:
> But the courts say that interest may not be paid unless the country pays all it owes on bonds it defaulted on years ago, something Argentina says it cannot and will not do.
This is only true because of the terms of Argentina's debt agreement. Unlike the language of virtually every country in the world today except (I think) Jamaica, Argentina's agreements include what is called a "pari passu" clause and not a collective action clause. This fancy jargon just means this: under the pari passu clause, Argentina could not subordinate the debt to any future debt (that is, it cannot issue new debt that will be given a higher priority in making payments). All the courts have done is rule, sensibly I think, that Argentina has, in effect, subordinated the old debt by passing a law making it illegal to make payments on that debt while issuing new debt on which it will make payments.
Meanwhile, under a collective action clause, a country could force hold-out debtors to accept a restructuring. If Argentina had written such a provision into its agreement, this would have been over a decade ago. (Though, in fairness, when the debt in question was issued, such clauses were not widely used). The article does talk about this, but only briefly. It highlights arguments from a few nations that old bonds do not all have collective action clauses, and that, possibly, a creditor could buy enough of a single bond issue to block restructuring even with a collective action clause. What the article does not point out, however, is that it is entirely within a nation's control how it drafts its pari passu and collective action clauses (and whether it includes either of them). All the courts are doing today is enforcing the agreements the way Argentina itself drafted them. If Argentina, or other nations feel threatened by our courts' robust enforcement of those agreements, they should probably consider changing the terms that they commit themselves to.
Would anyone have bought the bonds without this clause?
I'm not sure, but keeping in mind that these bonds were issued at a time when Argentina was considered extremely risky to lend to, I'd imagine this was more than just an oversight on the part of some lawmaker or beaurocrat. If this clause makes it harder for Argentina to reneg on their promises (as they have done repeatedly in the past) that strikes me as crucial.
It's quite telling that they structured the deal in NY and not Argentina. I don't know why a country would agree to that unless they knew it was the only way foreign investors would consider lending them money.
No investor would accept exchanging a bond in Argentinian courts: the courts in Argentina dont have the same independence that the US court would do, so it would very likely screw over investors.
* Argentinian workers begin organizing, get better pay, get Argentinian resources into hands of Argentinian people
* CIA and US military help organize a coup, help kill off opposition to dictatorship
* Dictatorship loads on tons of debt
* Decades later, US international powers invoked to force Argentinian people to pay off debts incurred by the dictator who the CIA and US military imposed on them
And people wonder why Saudi nationalists flew planes into the Pentagon and World Trade Center...
I've been actually trying to figure out when the bonds were actually issued. Can you point me to a source? You seem confident that the bonds at issue were issued by the government under Jorge Videla, which would mean not before 1981, but I'm not sure how you figured that out.
disregarding the last point, which I think is rather disrespectful, you have a good point. The open veins of latin america is a good read for those who are interested
This article is very biased. One thing that's missing is the key fact that Argentina knew exactly what it was doing when it issued this debt: agreeing to pay it off no matter what. That is why it agreed to the most onerous terms possible. Otherwise no one would have lent them the money at the time. This is exactly what they agreed to.
If you run your country's finances like a drunken sailor, you should eventually expect your access to credit to be cut off. The government of Agentina has had ample opportunity to sober up but just can't resist buying another round of drinks for the entire country before every election. The Argentinian people deserve better but keep electing incompetent leaders.
What does it mean to agree to pay off no matter what? And how was that written in the bond issuing?
Every debt has in its nature the possibility of default, and owing 120 billion dollars would be giving up the next 10 years in exports just to pay that single debt, out of 7% of holdouts in one of the particular debts.
Always have to weight pros/cons for every decision. There are several scenarios: Argentina would pay the 1.5 billion for the hedge funds, but if that means having to pay 15 billion extra, it would be virtually the same as defaulting.
While the government of Argentina could not actually guarantee repayment they instead agreed to terms to eliminate every possible method to avoid repaying: denominated in foreign currency, cannot be subordinated, terms can only be changed voluntarily, subject to foreign law, etc. They knew exactly what they getting into but pushed ahead regardless because they wanted the money no matter what.
Rather than think carefully about how to best default perhaps they should have been thinking carefully about how to best borrow or even better how best to spend.
This whole situation arises from a clause in the bond restructuring deal that was common when it was made. If the exchange deal had a collective agreement clause, this would have been over 10 years ago, and contracts today normally have that clause (that if the majority of the bond holders accepts, the minority has to accept as well).
I am willing to bet that the whole reason the new clause became common, was because of Argentina's or Congo's case with default swaps and hedge funds that exploit that loophole intro a 10000% profit lawsuit.
Irresponsible spending is something that brought Argentina to its defaults, but not to the situation its now facing.
The change in courts and terms are not part of the original default debt, but of the default swap in 2005: before that, Argentina didnt have to answer to the US supreme court for those bonds or to a hedge fund.
When Argentina had economic recovery, and wanted to get rid of debt, it proposed a default swap bonds, at a discount rate. To make the deal appealing to bond holders and give trust to it, they proposed the US courts as a trustable mediator.
93% of the debt was restructured this way, and has given hefty returns, up to 77cents on the original bond dollar. However, the remaining debt is all owned by the hedge fund, whose entire strategy is the pari passu clause. Without it or with a collective clause, this situation would not happen, and the debt on these bonds would have been done and over.
> Most likely, this means creditors have a stronger incentive to be holdouts in the first place. I take that to be a negative and welfare-decreasing. If creditor rights were weaker up front, as I would prefer, it would be harder for nations to over-borrow in the first place, and ex post less of the cost of that over-borrowing will fall on the taxpayers and citizens of the poorer citizenry.
The United States government told lower courts that this could create big problems. It could lead to countries choosing to borrow under English law, rather than New York law...
Most of those arguing for Argentina are arguing that it would be good policy to let them force restructuring. But:
There is no legal procedure to resolve debts of destitute countries. There is no court to approve a restructuring plan that will wipe out some debts and convert others to equity, as there is for companies.
The court essentially said that making policy isn't their job - only enforcing the law is.
I find it quite odd that the article and many of the parties involved almost seem to assume that the court should be making law from the bench. At least, that's the impression I get from the article.
You won't find this in any history book, not for the next 50 years probably. English ain't my language, and you could find glitches.
The external Argentinean debt matter is a very complex issue.
There have always been internal economical groups in the country culturally unaligned with the best interest of the nation. Along with external economical groups, they got by now aproximately 60 years of bad influence in Argentina. They controlled the media, the upper political, militar and clerical circles.
They managed to get full control of the country several times, those times are what you usually associate with the massive acquisition of new debt. The first move they did was done in 1956, then again, several times during the 70's, then in the 80's and finally, and taking debt to a record level, in the 90's.
The population has been thoroughly manipulated and controlled to support many of these economical plans, purposely beneficial for them, but actually assembled to enrich the upper circles, secure the control and giving the close supporters a cut. And then you have a full country fully controlled by plain hunger and long hours of work (+14), the population enough desperate they cannot get to assemble a minimal resistance.
Of course there was resistance, and it was labeled by international media as a whole "guerrilla", even when only a small minority of the resistance was actually violent.
Obviously the upper circles feeded and encouraged the violent resistance groups as a way of enforce their points of views and build support for "stronger action". Those "stronger" actions led to the dead of thousands of innocent eventually, and were the real motivation for the military coups during the second half of the XX century in Argentina.
Thousands were killed by straight violence, from the state o from the violent groups. But actually, the dead were a couple of millions during the last 50 years: the level of poverty were so high that these people have nothing, and they keep dying silently, in the background, thoroughly covered by the internal and external economical interests, the massive media, etc.
The resistance, the small minority of the upper economical, political, military and clerical establishment got another chance to take back the control of the country in 2001.
At last, after a long fight and millions of casualties, Argentina was free for the first time in almost 60 years.
Since then, the new order kept the rest of the upper classes under strong control, and started paying the debts (not taken by them), to take back the country to a status more related to a modern country than the Tortuga Island style management from 1956-2001.
Many of the economical actions of the new order had to be related with spending of vast economical resources, mostly given them back to the population by welfare state politics.
This is "giving back" as opposed to "giving a gift for not working", returning the wealth illegally and criminally stolen by the economical groups during decades.
This is what you could read in the mass media tagged as "populism". And now you could understand why that was not true.
The external economical groups did not like how Argentina escaped from their control, how the country got the their freedom back, because they begin to "lose" money, "their" money was actually economical wealth from the people of Argentina. With the "money" in their hands, the people was mostly incapable of getting a job, food, health attention (from the state and they couldn't get a job to pay for they own medical attention).
These dudes keep trying to trigger several economical, military and political chaos during the last decade.
Some american citizens like to think that the most powerful economical groups are "american", and they play for the best intere...
19 comments
[ 2.7 ms ] story [ 50.2 ms ] threadSo I guess that means this judge never lets companies or individuals file for bankruptcy either.
The one policy you can always count on our government to enforce is "protect bondholders at all costs."
The article talks a lot about how it's hard to be sympathetic to the Argentinian government, a perspective I mostly agree with. But who's the bigger heel, Argentina, or the idiots who lent them money expecting to get any of it back?
Perhaps we need an international process, analogous to bankruptcy, by which a nation can escape its debt burden. But I don't see how it is a federal judge's prerogative (or responsibility) to create one.
Unless of course those bondholders are institutional investors, and the other creditor is the UAW. When governments are so intimately involved in these kinds of proceedings, the only thing that we can be sure of is political expediency.
> But the courts say that interest may not be paid unless the country pays all it owes on bonds it defaulted on years ago, something Argentina says it cannot and will not do.
This is only true because of the terms of Argentina's debt agreement. Unlike the language of virtually every country in the world today except (I think) Jamaica, Argentina's agreements include what is called a "pari passu" clause and not a collective action clause. This fancy jargon just means this: under the pari passu clause, Argentina could not subordinate the debt to any future debt (that is, it cannot issue new debt that will be given a higher priority in making payments). All the courts have done is rule, sensibly I think, that Argentina has, in effect, subordinated the old debt by passing a law making it illegal to make payments on that debt while issuing new debt on which it will make payments.
Meanwhile, under a collective action clause, a country could force hold-out debtors to accept a restructuring. If Argentina had written such a provision into its agreement, this would have been over a decade ago. (Though, in fairness, when the debt in question was issued, such clauses were not widely used). The article does talk about this, but only briefly. It highlights arguments from a few nations that old bonds do not all have collective action clauses, and that, possibly, a creditor could buy enough of a single bond issue to block restructuring even with a collective action clause. What the article does not point out, however, is that it is entirely within a nation's control how it drafts its pari passu and collective action clauses (and whether it includes either of them). All the courts are doing today is enforcing the agreements the way Argentina itself drafted them. If Argentina, or other nations feel threatened by our courts' robust enforcement of those agreements, they should probably consider changing the terms that they commit themselves to.
I'm not sure, but keeping in mind that these bonds were issued at a time when Argentina was considered extremely risky to lend to, I'd imagine this was more than just an oversight on the part of some lawmaker or beaurocrat. If this clause makes it harder for Argentina to reneg on their promises (as they have done repeatedly in the past) that strikes me as crucial.
It's quite telling that they structured the deal in NY and not Argentina. I don't know why a country would agree to that unless they knew it was the only way foreign investors would consider lending them money.
And people wonder why Saudi nationalists flew planes into the Pentagon and World Trade Center...
If you run your country's finances like a drunken sailor, you should eventually expect your access to credit to be cut off. The government of Agentina has had ample opportunity to sober up but just can't resist buying another round of drinks for the entire country before every election. The Argentinian people deserve better but keep electing incompetent leaders.
Every debt has in its nature the possibility of default, and owing 120 billion dollars would be giving up the next 10 years in exports just to pay that single debt, out of 7% of holdouts in one of the particular debts.
Always have to weight pros/cons for every decision. There are several scenarios: Argentina would pay the 1.5 billion for the hedge funds, but if that means having to pay 15 billion extra, it would be virtually the same as defaulting.
Rather than think carefully about how to best default perhaps they should have been thinking carefully about how to best borrow or even better how best to spend.
I am willing to bet that the whole reason the new clause became common, was because of Argentina's or Congo's case with default swaps and hedge funds that exploit that loophole intro a 10000% profit lawsuit.
Irresponsible spending is something that brought Argentina to its defaults, but not to the situation its now facing.
The change in courts and terms are not part of the original default debt, but of the default swap in 2005: before that, Argentina didnt have to answer to the US supreme court for those bonds or to a hedge fund. When Argentina had economic recovery, and wanted to get rid of debt, it proposed a default swap bonds, at a discount rate. To make the deal appealing to bond holders and give trust to it, they proposed the US courts as a trustable mediator.
93% of the debt was restructured this way, and has given hefty returns, up to 77cents on the original bond dollar. However, the remaining debt is all owned by the hedge fund, whose entire strategy is the pari passu clause. Without it or with a collective clause, this situation would not happen, and the debt on these bonds would have been done and over.
> Most likely, this means creditors have a stronger incentive to be holdouts in the first place. I take that to be a negative and welfare-decreasing. If creditor rights were weaker up front, as I would prefer, it would be harder for nations to over-borrow in the first place, and ex post less of the cost of that over-borrowing will fall on the taxpayers and citizens of the poorer citizenry.
http://marginalrevolution.com/marginalrevolution/2014/06/wha...
The United States government told lower courts that this could create big problems. It could lead to countries choosing to borrow under English law, rather than New York law...
Most of those arguing for Argentina are arguing that it would be good policy to let them force restructuring. But:
There is no legal procedure to resolve debts of destitute countries. There is no court to approve a restructuring plan that will wipe out some debts and convert others to equity, as there is for companies.
The court essentially said that making policy isn't their job - only enforcing the law is.
I find it quite odd that the article and many of the parties involved almost seem to assume that the court should be making law from the bench. At least, that's the impression I get from the article.
The external Argentinean debt matter is a very complex issue.
There have always been internal economical groups in the country culturally unaligned with the best interest of the nation. Along with external economical groups, they got by now aproximately 60 years of bad influence in Argentina. They controlled the media, the upper political, militar and clerical circles.
They managed to get full control of the country several times, those times are what you usually associate with the massive acquisition of new debt. The first move they did was done in 1956, then again, several times during the 70's, then in the 80's and finally, and taking debt to a record level, in the 90's.
The population has been thoroughly manipulated and controlled to support many of these economical plans, purposely beneficial for them, but actually assembled to enrich the upper circles, secure the control and giving the close supporters a cut. And then you have a full country fully controlled by plain hunger and long hours of work (+14), the population enough desperate they cannot get to assemble a minimal resistance.
Of course there was resistance, and it was labeled by international media as a whole "guerrilla", even when only a small minority of the resistance was actually violent.
Obviously the upper circles feeded and encouraged the violent resistance groups as a way of enforce their points of views and build support for "stronger action". Those "stronger" actions led to the dead of thousands of innocent eventually, and were the real motivation for the military coups during the second half of the XX century in Argentina.
Thousands were killed by straight violence, from the state o from the violent groups. But actually, the dead were a couple of millions during the last 50 years: the level of poverty were so high that these people have nothing, and they keep dying silently, in the background, thoroughly covered by the internal and external economical interests, the massive media, etc.
The resistance, the small minority of the upper economical, political, military and clerical establishment got another chance to take back the control of the country in 2001.
At last, after a long fight and millions of casualties, Argentina was free for the first time in almost 60 years.
Since then, the new order kept the rest of the upper classes under strong control, and started paying the debts (not taken by them), to take back the country to a status more related to a modern country than the Tortuga Island style management from 1956-2001.
Many of the economical actions of the new order had to be related with spending of vast economical resources, mostly given them back to the population by welfare state politics.
This is "giving back" as opposed to "giving a gift for not working", returning the wealth illegally and criminally stolen by the economical groups during decades.
This is what you could read in the mass media tagged as "populism". And now you could understand why that was not true.
http://en.wikipedia.org/wiki/Populism
The external economical groups did not like how Argentina escaped from their control, how the country got the their freedom back, because they begin to "lose" money, "their" money was actually economical wealth from the people of Argentina. With the "money" in their hands, the people was mostly incapable of getting a job, food, health attention (from the state and they couldn't get a job to pay for they own medical attention).
These dudes keep trying to trigger several economical, military and political chaos during the last decade.
Some american citizens like to think that the most powerful economical groups are "american", and they play for the best intere...