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

Re: S.&P. Says Argentina Has Defaulted

#111

Post by pessimizer » Thu, Jul 31, 2014, 3:09 PM UTC

This is how much money has been spent lobbying US officials in order to make this happen.

http://www.opensecrets.org/lobby/clientsum.php?id=D000047065...

edit: I summed the years and got $5.3 million since 2007. The UI doesn't seem to help you sum at all.

edit2: http://www.cepr.net/index.php/blogs/the-americas-blog/nnfarm...

excerpt from WSJ article included:

"Mr. Matlack is president of American Agriculture Movement, a farmers' advocacy group that was listed among about 40 members of American Task Force Argentina, whose stated mission is to help investors recoup money from Argentina's 2001 bond default and subsequent restructuring.

"But Mr. Matlack and some leaders of other groups representing ranchers, teachers and farmers, are baffled about why the task force listed their organizations as members 'united for a just and fair reconciliation' of Argentina's default.

"Reached while he was planting wheat on his farm, Mr. Matlack said he had never heard of American Task Force Argentina. 'We don't have anything to do with Argentina's debt,' he said.

"Also perplexed are leaders of the Colorado conference of the American Association of University Professors, which was listed under members and supporters. 'This is absolutely foreign to me,' says Ray Hogler, legislative director of the academic group.

"Both groups were dropped from the list after the Wall Street Journal alerted the task force to the discrepancies."

Re: S.&P. Says Argentina Has Defaulted

#112

Post by blowski » Thu, Jul 31, 2014, 3:10 PM UTC

chimeracoder wrote: post #108

blowski wrote: post #91

Earlier quoted context omitted.

I actually downvoted you because the world `holdup` made it sound a bit inflammatory. Having read the links, I see where you're coming from, and changed to an upvote. This is certainly one of those topics that sensationalists will try to reduce to easy answers, when it's clear there aren't any.

> Having read the links, I see where you're coming from, and changed to an upvote. How do you change a vote on HN? Any time I upvote or downvote, both arrows disappear, so I always assumed they were permanent.

Good point. I thought I did - perhaps I'm thinking I'm on StackOverflow. I thought I clicked 'back' so the arrows were there. I don't remember. Even if I haven't actually changed it to an upvote, then it deserves it.

Re: S.&P. Says Argentina Has Defaulted

#113

Post by sseveran » Thu, Jul 31, 2014, 3:10 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 may be reasonable that they should settle, but they are not required to. This particular fund has a group that specializes in litigating against countries to exploit an issue with debt structure.

For me this comes down to whether the law is being enforced. And in this case it appears that the law is being followed.

Re: S.&P. Says Argentina Has Defaulted

#114

Post by blowski » Thu, Jul 31, 2014, 3:14 PM UTC

pessimizer wrote: post #111

This is how much money has been spent lobbying US officials in order to make this happen. http://www.opensecrets.org/lobby/clientsum.php?id=D000047065... edit: I summed the years and got $5.3 million since 2007. The UI doesn't seem to help you sum at all. edit2: http://www.cepr.net/index.php/blogs/the-americas-blog/nnfarm... excerpt from WSJ article included: "Mr. Matlack is president of American Agriculture Movement…

Is there a group representing the 93% who accepted the restructuring?

Re: S.&P. Says Argentina Has Defaulted

#115

Post by lmm » Thu, Jul 31, 2014, 3:14 PM UTC

cpwright wrote: post #104

lmm wrote: post #57

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? It would be fair to say that those caused the 2001 default. Which was a real default, but not a catastrophe; defaults happen sometimes, Argentina negotiated a settlement with (most of) its creditors (who had known all along that their inv…

You might say that it is a "technicality", but it is the contract the government of Argentina agreed to. The only thing you have with a financial arrangement of this magnitude is the contract. It is perfectly reasonable for the creditors to do all they can to get paid. It isn't a failure of their risk management, because they probably figured this was risky all along. If Argentina didn't want the bonds to be subject…

I think even with a financial arrangement of this magnitude there's a place for considering what's fair and equitable. Maybe there were mistakes in the contracts, but the overwhelming majority of bondholders are willing to be reasonable - it's the few holdouts who are wrecking it for everyone.

Re: S.&P. Says Argentina Has Defaulted

#116

Post by PeterisP » Thu, Jul 31, 2014, 3:15 PM UTC

opendais wrote: post #96

PeterisP wrote: post #84

Earlier quoted context omitted.

The reason that they can demand money is that those bonds have a requirement that Argentina will pay all bondholders equally - even if they pay x% of it, then they have to pay every bondholder x%, instead of paying some bondholders more and some less or nothing. Now Argentina is paying money to some of those old bondholders according to the restructured debt that Argentina itself agreed to. However, all other bondhol…

> However, all other bondholders - including some that Argentina dislikes and doesn't want to pay - have a valid claim on that money, according to that initial rule. That's it. That isn't it. Those "bondholders Argetina dislikes" are asking for more money than the rest and are demanding the full value for bonds that all the other bondholders agreed to take a haircut on in 2001. You don't get to go back and demand ful…

Argentina issued the bonds on explicit terms that it will be okay to hold out on a haircut - Argentina agreed that even if 93% agree on restructuring, then it's not binding to others and they can demand full value.

Argentina issued the bonds on explicit terms that it will pay everyone equally - even if they agree or refuse some future deal. Argentina dislikes them from not agreeing to it, but that's it - only a dislike that doesn't give any rights to pay them differently than others; they didn't have to agree to the haircut, so it's within their rights to demand to be paid whenever the others get paid.

For your CC example - yes, it would likely be different in personal bankruptcy, but that's not relevant because personal bankruptcy intentionally gives much more protection than sovereign bonds, the rules are quite different there. And sovereign defaults don't wipe you as clean like a personal bankruptcy does in many western countries - and there are jurisdictions where you don't get personal bankruptcy, and you keep the debts until you die. And in some places, even after that - the debt transfers to the heirs.

Re: S.&P. Says Argentina Has Defaulted

#117

Post by pessimizer » Thu, Jul 31, 2014, 3:15 PM UTC

blowski wrote: post #112

chimeracoder wrote: post #108

Earlier quoted context omitted.

> Having read the links, I see where you're coming from, and changed to an upvote. How do you change a vote on HN? Any time I upvote or downvote, both arrows disappear, so I always assumed they were permanent.

Good point. I thought I did - perhaps I'm thinking I'm on StackOverflow. I thought I clicked 'back' so the arrows were there. I don't remember. Even if I haven't actually changed it to an upvote, then it deserves it.

It doesn't matter:) I've got plenty of internet points; I just appreciate your thoughtful replies.

Re: S.&P. Says Argentina Has Defaulted

#118

Post by chimeracoder » Thu, Jul 31, 2014, 3:19 PM UTC

growlix wrote: post #101

chimeracoder wrote: post #46

Earlier quoted context omitted.

> Brazil forbade domestic contracts in dollar (with a few exceptions, mainly leasing contracts for imported vehicles). This is an interesting and often overlooked aspect of monetary policy in the US. In the US, we are used to the dollar being the single currency domestically for virtually all domestic transactions, and even used to it being used abroad (which extends our purchasing power greatly) as well as in most b…

Can you (or someone) explain how black market transactions in USD act as a free loan to the US government? This isn't intuitive to me.

Anytime a dollar is printed, the person who receives the physical dollar bill is a creditor to the US government. The government is in debt to the holder of the bill, just as they would be in debt to a purchaser of a government bond.

This is why counterfeit money is so bad - it's literally forging a debt of the government that never existed (essentially forging the government's name on a contract that says "I promise to pay the holder of this note $1" when they never did).

Anytime a dollar bill is inadvertently destroyed, this is equivalent to the creditor forgiving the government's debt. This is a form of seigniorage[0][1].

The USD is the currency of choice for many black market transactions across the world. These transactions are usually conducted in cash, and the cash is oftentimes stockpiled (kept in cash instead of deposited into banks) or used for other black market transactions. In many cases, very little (if any) makes its way back into the domestic legal market.

"Free loan" is a little hyperbolic, but it's a way of saying that the US has a number of overseas creditors who are unlikely to either demand that the US make good on its debt or sell that debt to someone who will. It increases the demand for USD internationally, which allows the US to print more USD[2] without any (or most) of the normal consequences of issuing debt.

There's a body of academic literature that goes into the impact of black market transactions on monetary policy. I'm running out the door so I can't look for it, but if you're interested it should be easy to find (though a lot of it may be paywalled by JSTOR and the like).

[0] https://en.wikipedia.org/wiki/Seignorage

[2] Sidenote, but this is why protests in which people burn dollar bills (OccupyWallStreet was one, though there are others) are so ironic - they're simply giving free money to the government, which is someties the exact opposite of what they are trying to convey with the protest.

[2] Here I use the term "print" both figuratively and literally, unlike before

Re: S.&P. Says Argentina Has Defaulted

#119

Post by smackfu » Thu, Jul 31, 2014, 3:19 PM UTC

pessimizer wrote: post #86

blowski wrote: post #80

Earlier quoted context omitted.

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 i…

I just edited my comment to double down due to downvotes, but this ruling will ultimately damage the US more than Argentina. If we establish that it will be impossible to restructure debt if you issue your bonds in the US, we've established that there's no reason to issue your bonds in the US. edit: it's important to keep in mind that 93% of bondholders have agreed to the restructuring. The courts look like they're s…

It's a difficult situation because a lot of these bonds have been resold at a steep discount. Someone who paid ten cents on the dollar for a bond has much different financial incentives than I may have as an original buyer... should the fact that there are more of them mean they can screw me over?

Re: S.&P. Says Argentina Has Defaulted

#120

Post by gamblor956 » Thu, Jul 31, 2014, 3:20 PM UTC

opendais wrote: post #96

PeterisP wrote: post #84

Earlier quoted context omitted.

The reason that they can demand money is that those bonds have a requirement that Argentina will pay all bondholders equally - even if they pay x% of it, then they have to pay every bondholder x%, instead of paying some bondholders more and some less or nothing. Now Argentina is paying money to some of those old bondholders according to the restructured debt that Argentina itself agreed to. However, all other bondhol…

> However, all other bondholders - including some that Argentina dislikes and doesn't want to pay - have a valid claim on that money, according to that initial rule. That's it. That isn't it. Those "bondholders Argetina dislikes" are asking for more money than the rest and are demanding the full value for bonds that all the other bondholders agreed to take a haircut on in 2001. You don't get to go back and demand ful…

You don't get to go back and demand full value on debt that was restructured for everyone else. That is like if I declared bankruptcy and one of my credit card companies held out for full payment on the debt when all the others had already signed off on X% of the debt.

Yes, yes can, especially when the bond says you can. A bond is a legal contract binding the debtor and the creditor.

That credit card company wouldn't be able to do it but these bondholders can because they found the right judge.

It has nothing to do with the right judge and everything to do with Argentina seriously fucking up on the original bond issuance. One of the terms of the original bond was that minority bondholders could not be forced to accept renegotiated terms *even if the majority of bondholders had accepted new terms. One of the other terms of the original bond was that all bondholders would be paid back equally. It's the combination of the two terms which got Argentina in this mess. You generally don't see either of these terms in bonds, let alone both of them together, for precisely this reason--it restricts the debtor's ability to restructure the debt if things go south.