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S.&P. Says Argentina Has Defaulted

dealbook.nytimes.com

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Re: S.&P. Says Argentina Has Defaulted

#121

Post by lmm »

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.

In many ways cash dollars behave like US government bonds with zero coupon - their effects on the money supply are similar. The government can print dollars in place of issuing bonds or vice versa, and the economic constraints that cause it not to print an infinite number of dollars are the same constraints that cause it not to issue an infinite amount of bonds (modulo silly political things like the debt ceiling). So when you accept a dollar in return for valuable goods you're in some sense making a free loan to the USG (probably via several intermediaries) - you gave up something valuable, and got a promise for future repayment.

Re: S.&P. Says Argentina Has Defaulted

#122

Post by djKianoosh »

_ouxp wrote: post #51
djKianoosh wrote: post #23

Earlier quoted context omitted.

Not to bring too many facts into the discussion, but Uruguay and Argentina dont have similar racial composition: http://www.indexmundi.com/uruguay/demographics_profile.html http://www.indexmundi.com/argentina/demographics_profile.htm... Uruguay have 12% non-white, Argentina only 3% That's not what I would call "similar".

Sorry, I should have been clearer: they are predominantly white. When I was last in each country, I didn't get any real sense of deep hatred of each other. Though there was some seemingly good natured ribbing about who was better at e.g. asado.

right on.. i grew up in Argentina. and yes there's a rivalry, predominantly friendly, among things like asado, futbol, mate, etc. :) and yes, between arg/uru/bra people are very friendly with each other as long as it doesn't involve futbol ;-)

Re: S.&P. Says Argentina Has Defaulted

#123

Post by PeterisP »

encoderer wrote: post #109
PeterisP wrote: post #87

Earlier quoted context omitted.

Argentina is able to pay the current bondholders, it's simply choosing not to pay them because part of that money will go also to those bondholders Argentina dislikes.

In the story they said Argentina has transferred $500MM to pay bond holders, but the bank refuses to transfer it because the court ruled they could not selectively pay and any cooperating banks would be in contempt. Is there another layer to the story I'm missing?

That's the exact thing - they have the money to pay, but they have to give a proportion of that money to the holdout bondholders (the "not selective" part), and they refused to do that, despite all the negotiations.

Courts didn't rule that they can't pay, courts ruled that they can't ignore the other bondholders when paying.

[edit] A car analogy - if a court says you can't drive until you pay your parking fines, then it doesn't mean that you're maliciously completely prevented from driving, it simply means that you're compelled to pay the fine at last.

Re: S.&P. Says Argentina Has Defaulted

#124

Post by lmm »

simonebrunozzi wrote: post #82

I'm very sorry for Argentinians - I've been there last year, visiting relatives (I'm from Italy, and my grand aunt moved to Argentina in the 50s - she was a bit over 20 - to escape an arranged marriage in Italy, and came back only in the 80s). Argentina is a beautiful country, with problems that are very similar to the ones that we have in Italy - but different scenarios, and different economies. I see this as an opp…

Bitcoin would make these problems worse. The whole reason they got into this mess in the first place was by pegging their currency to the dollar, which meant they couldn't devalue the peso when they should have done for a long time; when the eventual reckoning came it was brutal. With bitcoin it would be much much worse, because you can't ever do that decoupling, and you wouldn't even get the US government doing writedowns like QE (which at least mean that in any global financial disaster, you've got a government doing approximately the appropriate things).

Re: S.&P. Says Argentina Has Defaulted

#125

Post by miguel3000 »

djKianoosh wrote: post #23
_ouxp wrote: post #16

Earlier quoted context omitted.

I don't see how this adds to the conversation. Also, Argentina and Uruguay have similar racial composition & as far as I can tell see themselves as the same people of the Rio Plata.

Not to bring too many facts into the discussion, but Uruguay and Argentina dont have similar racial composition: http://www.indexmundi.com/uruguay/demographics_profile.html http://www.indexmundi.com/argentina/demographics_profile.htm... Uruguay have 12% non-white, Argentina only 3% That's not what I would call "similar".

You can also use this link if you want to see how the countries compare side by side: http://www.indexmundi.com/factbook/compare/argentina.uruguay...

Re: S.&P. Says Argentina Has Defaulted

#126

Post by PeterisP »

opendais wrote: post #89
wslh wrote: post #62

Earlier quoted context omitted.

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

And now none of the bondholders can be paid because a hedge fund shopped it around to the right judge. That is so much better.

What do you mean, "shopped it around to the right judge"?

Argentina agreed that any disputes would be according to the NY/USA law, and the matter went to those exact courts, appealed up to USA Supreme Court.

To what judge should the dispute have gone, in your opinion? Is there some important part of this dispute that I'm missing here?

Re: S.&P. Says Argentina Has Defaulted

#127

Post by the_af »

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.

Disclaimer: I'm from Argentina.

One batch of politicians and lobbyists sells the country for short-term gain. Later politicians inherit the problem, and maybe compound it with their own batch of mistakes. The "problem" in this particular case is a tiny group of foreign speculative capital creditors holding the whole country hostage. It has little to do with the country's potential.

Note these so-called "vulture funds" are doing what they do: acquire debt at low prices while a country's economy is down, then attempt to recoup it at disproportionate interest rates when the country's economy recovers. That they are attempting this now, if anything, is a sign Argentina's economy isn't in such a bad shape. The vulture funds aren't run by fools; they wouldn't attempt to extract money where there is none.

Re: S.&P. Says Argentina Has Defaulted

#128

Post by lmm »

johnnyg wrote: post #67
nabla9 wrote: post #28

Earlier quoted context omitted.

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…

So there's currently an interesting case going on with Caesar's bonds because someone accidentally put "and" in a contract where they meant "or".[1] If you have to spend lots of time having a group of expert lawyers and grammaticians going through your contracts before you sign them and checking for every possible edge case, that's a significant inefficiency and cost in the system as well.

The 2001 restructuring was reasonable; most of the bondholders agreed with it, and got a fair price for their bonds. The holdouts knew this when they bought the same bonds.

Imagine a court system that applies common sense and equitable principles and tries to interpret contracts in a way that's as fair as possible to everyone involved, rather than going by the strict letter of every contract document. This removes the ability to rip someone off when you spot a hole in their contract, which makes some things less efficient, but I can see it working better overall.

[1] So it's something like: there's a provision in the contract that says that certain guarantees are invalidated if this subsidiary is reabsorbed into its parent corporation and it's sold to a different company, and some other conditions. Which is obviously nonsense because there's no way those things would both happen. But it's also what the contract says.

Re: S.&P. Says Argentina Has Defaulted

#129

Post by crdoconnor »

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…

>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.

Ratings agencies are unaccountable private entities. Every time they are challenged they invoke the 1st amendment - i.e. their right to lie. Yet the law enshrines their privilege through regulation of investments (which are forced to rely upon their opinions).

There's absolutely no way the government would be any worse. They are at least accountable to their citizens via voting. Ratings agencies are accountable to nobody.

They've also used their weight to bully, too. S&P downgraded the US even though it made absolutely no sense because there were moves made to prosecute them for mis-rating CDOs before the credit crisis.

Re: S.&P. Says Argentina Has Defaulted

#130

Post by bmelton »

Grue3 wrote: post #81

I wonder what highly esteemed economics expert Paul Krugman thinks about this. http://krugman.blogs.nytimes.com/2012/05/03/down-argentina-w...

I don't usually upvote sarcasm, and I'm not even sure if that is sarcasm, but regardless, I don't understand this statement.

> But why exactly is Brazil an impressive “BRIC” while Argentina is always disparaged? Actually, we know why — but it doesn’t speak well for the state of economics reporting.

What is it that we know? Why is, in Krugman's mind, Argentina always being disparaged?

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