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S.&P. Says Argentina Has Defaulted

dealbook.nytimes.com

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Re: S.&P. Says Argentina Has Defaulted

#61

Post by mkohlmyr »

arethuza wrote: post #54
Nursie wrote: post #32

So in the coming days we'll be hearing a lot more about 'Las Malvinas' and how Britain is an evil colonial power and stole the islands? That usually seems to be what happens when Argentina has internal problems that need to be distracted from.

Rather off topic - I watched the World Cup Final in a large crowd at a German owned resort in Turkey, with a lot of Germans, English, Turks and a handful of Scots (us). Everyone supported Germany apart from the English who supported Argentina - which rather surprised me :-)

Probably has more to do with how Brits feel about Germany than Argentina

Re: S.&P. Says Argentina Has Defaulted

#62

Post by wslh »

opendais wrote: post #21

Argentina should never have handled the bonds under NY law and without control of the bondholder's list. That mistake is costing them dearly. The only reason they can't pay everyone but the holdouts [e.g. selective default] is because of the fact they handled them under NY law after the 2001 default. :/

Debtors couldn't rely in the completely corrupt Argentinian judicial system.

Re: S.&P. Says Argentina Has Defaulted

#63

Post by pessimizer »

smackfu wrote: post #45
blowski wrote: post #19

Earlier quoted context omitted.

> Argentina issued bonds under New York law. Until I read this, I assumed that international bonds were issued under international law, with the World Bank as the arbitrator. With the US as both lender and arbitrator, it seems to give them a lot of power.

It's more like, if you keep defaulting on bonds by saying you don't have to pay them because you changed the rules, eventually no on will buy them unless you let someone else set the rules.

That's what it would be like if this were anything but a holdup. The US government is intervening in the market and preventing bondholders who have agreed on a change in rules from receiving their bond payments, rather than letting the market set the prices. That's the opposite of what you describe here.

edit: What I'm saying is only crazy within the bubble of this thread. It's also the opinion of the US government and the American Bankers Association.

http://www.bloomberg.com/news/2013-01-04/bankers-group-suppo...

"'Permitting injunctions against these trustees that preclude them fulfilling their pre-existing obligations whenever expedient to enforce a judgment against the debtor will have significantly adverse consequences for the financial system,' the ABA said in its brief."

http://www.reuters.com/article/2012/12/13/argentina-debt-usa...

"U.S. government lawyers reiterated their position that the court's interpretation of the 'equal treatment' clause in Argentina's defaulted bonds 'may adversely affect future voluntary sovereign debt restructurings, the stability of international financial markets, and the repayment of loans extended by international financial institutions.'"

Re: S.&P. Says Argentina Has Defaulted

#64

Post by pessimizer »

[deleted] wrote: post #60
pessimizer wrote: post #56

I don't understand why S&Ps rating matters, except for in the cases of US state or federal investments where some of the ratings agencies have been written into statute. Everybody is as familiar with the Argentinian situation and how it has developed as S&P is, and they have the ability to make their own judgements about whether they want to buy Argentinean bonds. The danger to Argentina is that the US government has…

[deleted]

The S&P isn't New York law. I don't understand what you're saying.

Re: S.&P. Says Argentina Has Defaulted

#65

Post by sz4kerto »

pessimizer wrote: post #56

I don't understand why S&Ps rating matters, except for in the cases of US state or federal investments where some of the ratings agencies have been written into statute. Everybody is as familiar with the Argentinian situation and how it has developed as S&P is, and they have the ability to make their own judgements about whether they want to buy Argentinean bonds. The danger to Argentina is that the US government has…

> I don't understand why S&Ps rating matters

Because it's part of many private contracts and financial products. (E.g. 'in case the S&P rating of entity X drops below Z, then [...]').

Re: S.&P. Says Argentina Has Defaulted

#66

Post by bayesianhorse »

pessimizer wrote: post #56

I don't understand why S&Ps rating matters, except for in the cases of US state or federal investments where some of the ratings agencies have been written into statute. Everybody is as familiar with the Argentinian situation and how it has developed as S&P is, and they have the ability to make their own judgements about whether they want to buy Argentinean bonds. The danger to Argentina is that the US government has…

The background behind the rating agencies is that there are thousands or even millions of investment portfolios out there, with many of them fulfilling very important risk management functions. Pension funds, health insurance, all other forms of insurance, Banks, even many big companies who aren't technically in the finance industry.

Most of them need some form of "low yield safe investment". But it is hard to define what is safe. That's where rating agencies come in. An insurance can promise to abide by such an agency, and that removes a lot of oportunity for bad judgement on the part of individual fund managers.

You may argue whether these agencies are doing a good job at this, but most proposals to get to a better system involve some way of increasing the power of governments or individual fund managers.

Re: S.&P. Says Argentina Has Defaulted

#67

Post by johnnyg »

nabla9 wrote: post #28
johnnyg wrote: post #9

Earlier quoted context omitted.

Wouldn't it be more fair to say endemic corruption and decades of misguided plans that swung too hard to socialist, then capitalist and then again socialist policies created this? The idea that the root cause of this is that a group of investors come along, buy debt on the open market and then expect that debt to be paid seems overly simplistic.

Defaulting is error on both sides, the borrower failed in risk analysis just like the debtor. The problem is that sovereign nations don't have clear bankrupt procedure and these hedge funds are holding country as hostage for their past mistakes despite the fact that majority of borrowers accepted debt restructuring that was arranged and accepted haircuts. If the debt and its interest grows past what country gdp can e…

Nice reply! I love HN sometimes.

What impact does this have on contracts in general?

When I give my word, I keep it. When I sign a contract, I honor it. There's a social contract that assures me that the counter party will too. There's a court system setup to ensure they do. There is force behind that if it is taken even further.

If I should instead shape every contract with a 20% hedge that assumes the counter party will not keep their word, doesn't that introduce a significant amount of inefficiency in the entire system.

Isn't it long term better and in fact just that those who give their word, spend all of their money and then run out take the consequences of it?

For systemic risk to be properly moderated, the individuals or even individual counties must suffer the consequences of their actions. You can opt to not allow this, but you ultimately suffer as a whole when you do.

I see no better way through. Do you?

Re: S.&P. Says Argentina Has Defaulted

#68

Post by yread »

TLDR;

When restructuring defaulted bonds, Argentina agree to borrow in US dollars. They further agreed:

- to pay all bond holders equally.

- to be governed by New York state law.

- to NOT include a collective action clause in the bond agreement which would have forced minority recalcitrant bondholders to enter a restructuring agreement, if a super majority of the bondholders agreed.

A small minority (2.5-3%) refused to accept the 70-75% haircut the Argentina government was forcing on the bondholders (fyi: previously the largest haircut in sovereign debt was 30%)

(from one of the dealbook article's comments)

Re: S.&P. Says Argentina Has Defaulted

#69

Post by estebank »

epx wrote: post #44
scardine wrote: post #27

Brazil and Argentina had very similar economic plans to get out of hyperinflation from the 80's - both created a new currency whose value was attached to the USD. There was a subtle difference: Brazil forbade domestic contracts in dollar (with a few exceptions, mainly leasing contracts for imported vehicles). So when the market forces kicked in and Brazil was forced to devalue its artificially priced new currency, th…

Also, Brazilian Real was born to be around 1:1 with USD, but the exchange rate was never fixed, it floated from day one. Argentinian coin (don't remember the name) was 1:1 by force, which made the delay even more catastrophic.

> Argentinian coin

Argentinian Peso. Before that it was Austral.

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