S.&P. Says Argentina Has Defaulted • Hacker News Board

Re: S.&P. Says Argentina Has Defaulted

#71

Post by PeterisP » Thu, Jul 31, 2014, 2:34 PM UTC

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…

It's not reasonable to expect that the holdouts should settle like the others - it was an option to put this requirement (to go with the majority) in the bond contract as it is often done; however for these bonds Argentina didn't do that. If you agree to not-X, then you can't say afterwards that X would be reasonable and demand X. Leaving out this requirement made the bonds more valuable, but it has a price - this one.

Argentina is capable of paying their debt right now - however, it would involve also paying those holdouts in full, and they're simply intentionally choosing to pay some debts but not others, despite having an agreement that those debts will have a priority - why shouldn't they be punished for that?

If someone pays back people they like, but doesn't pay those they dislike, that's not fair nor excusable - that's a default. This is not a fight about inability to pay as such, this is a fight about which creditors get their money first. And this is agreed by the courts now. Argentina is quite free and capable to pay the rest of their debts, but they won't have a veto to unfairly leave some creditors out, those creditors will be able to take their share of any payments made.

Re: S.&P. Says Argentina Has Defaulted

#72

Post by pessimizer » Thu, Jul 31, 2014, 2:35 PM UTC

bayesianhorse wrote: post #66

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…

I didn't realize how common that was outside of government. Thanks.

Re: S.&P. Says Argentina Has Defaulted

#73

Post by sz4kerto » Thu, Jul 31, 2014, 2:35 PM UTC

bedane wrote: post #53

To the more knowledgeable people around: can this trigger a credit default swaps crisis? Are all the Argentina CDS bought in the last decade really known to the public?

Not really -- it's an event that has been expected for a while. CDS dominoes usually start falling when a significant AND unexpected event happens ('black swan'). Argentina in default is moderately significant but not unexpected.

In other words, sudden changes in valuations cause a problem. Their government bond valuations have slowly approached zero therefore there's no sudden jump. The value of the CDSs does not change suddenly when Argentina is formally considered default if everybody has expected that outcome.

Re: S.&P. Says Argentina Has Defaulted

#74

Post by [deleted] » Thu, Jul 31, 2014, 2:36 PM UTC

wslh wrote: post #6

manishsharan wrote: post #4

Wow ! Just one investor can bring a country to its knees !

These funds are like the patent trolls. The difference is that with patent trolls you are trapped in a inneficient patent system while in this case Argentina has a big part of the responsability in the way the government reestructured 93% of the debt.

[deleted]

Re: S.&P. Says Argentina Has Defaulted

#75

Post by pessimizer » Thu, Jul 31, 2014, 2:36 PM UTC

sz4kerto wrote: post #65

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 [...]').

Thanks. Is this generally something that's written in to qualify for doing business with the state, or something that private investors look for?

Re: S.&P. Says Argentina Has Defaulted

#76

Post by bayesianhorse » Thu, Jul 31, 2014, 2:37 PM UTC

Spooky23 wrote: post #58

Why does Argentina struggle so with these sorts of problems? It seems like a country with enormous potential. Lots of resources, limited security threat, amazing climate.

Horrible judgement in political leadership seems to be one major problem.

Re: S.&P. Says Argentina Has Defaulted

#77

Post by rayiner » Thu, Jul 31, 2014, 2:39 PM UTC

jacquesm wrote: post #43

manishsharan wrote: post #4

Wow ! Just one investor can bring a country to its knees !

Investor is too kind a term. They did not exactly buy those papers at nominal value.

So what? They're getting a discount for taking on the risk that they won't be able to collect from Argentina at all, and for the fact that they will have to file a lawsuit in order to collect. It's more efficient for everybody if a hedge fund buys up a bunch of bonds and tries to collect on them in a single lawsuit, instead of individual investors suing to collect the money piecemeal.

Re: S.&P. Says Argentina Has Defaulted

#78

Post by pionar » Thu, Jul 31, 2014, 2:40 PM UTC

gizmo686 wrote: post #37

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.

I am not a lawyer. My understanding of this type of clause is not that it makes New York the arbitrator, but rather clarifies for whoever does arbitrate that New York laws should be used. This seems important when working across national (or state) boundries do prevent ambiguity as to what set of laws is being used. I suspect that it is simmilar to copying the relevent laws into a contract and signing that, which is…

>My understanding of this type of clause is not that it makes New York the arbitrator, but rather clarifies for whoever does arbitrate that New York laws should be used.

I agree, but it would make sense, then that since the New York legal system is the final interpreter of New York law, then that would be where lawsuits would go.

Re: S.&P. Says Argentina Has Defaulted

#79

Post by bayesianhorse » Thu, Jul 31, 2014, 2:41 PM UTC

neeks wrote: post #70

We really should have evolved by now to using a monetary system that doesn't revolve around debt.

Which is impossible, because any economic activity that takes some time to come to fruition is already a sort of debt. If you can't use a currency to increase the "money" supply, other forms of credit and investment emerge, and you get the same problems.

Re: S.&P. Says Argentina Has Defaulted

#80

Post by blowski » Thu, Jul 31, 2014, 2:43 PM UTC

pessimizer wrote: post #63

smackfu wrote: post #45

Earlier quoted context omitted.

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 a…

I can see both sides here. What surprised me is not that a judge has decided, but that a US judge has decided. It looks like an American judge decided in an American corporation's favour, and against a poorer country, to hell with the damage it will do the world's economy.

On the other hand, if the US doesn't uphold the law, then the world economy would be damaged because lending would become more unpredictable.

As it stands, though, it's easy to portray this as the US bullying Argentina in the interests of a small group of rich American citizens who behave like loan sharks. It just seems like it would be better to have an international body of law under which all international lending takes place, and when there is a dispute, a judge is chosen from an independent third party. Is there any serious effort to make that happen? I have no idea.