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

Re: S.&P. Says Argentina Has Defaulted

#141

Post by bmelton » Thu, Jul 31, 2014, 3:44 PM UTC

lmm wrote: post #128

johnnyg wrote: post #67

Earlier quoted context omitted.

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…

> a way that's as fair as possible to everyone involved, rather than going by the strict letter of every contract document.

Presumably, this is in place to keep colluding with judges who will interpret your claim "fairly", for a fee, to a minimum, as well as mitigate the hedge against those who defend contract discrepancies with "Well, that's what we meant", when in fact, that was neither what was meant or ever said.

The Halbig decision bears on this matter. There's a law, which is effectively a contract, and the IRS attempted to interpret it how they needed to to make the ACA work. What this means now is, right or wrong, that we have a group of Senators and Representatives who voted on a law to be enacted as it was written, and when that was no longer viable, they simply 'interpreted' the text of the law to mean something new so that it could work.

Ignoring who's right or who is wrong, some additional lawyering up front would have prevented this, but that was not done because it would not have been politically expedient. Contracts are a way of keeping people fair. If the contract is written in a way that isn't fair, then it would be unenforceable regardless of how well it was written, so that 'fairness' is built in to contract law already.

Re: S.&P. Says Argentina Has Defaulted

#142

Post by 001sky » Thu, Jul 31, 2014, 3:44 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…

In the context of a sovereign debt default, this is trivial.

Re: S.&P. Says Argentina Has Defaulted

#143

Post by opendais » Thu, Jul 31, 2014, 3:44 PM UTC

PeterisP wrote: post #116

opendais wrote: post #96

Earlier quoted context omitted.

> 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 disli…

I think the issue is, I disagree with the morality of the bondholder's cause and the negative impact it creates on other bondholders.

You don't seem to realize that is why I'm complaining. >.>

Re: S.&P. Says Argentina Has Defaulted

#144

Post by the_af » Thu, Jul 31, 2014, 3:45 PM UTC

walshemj wrote: post #10

Time to reinforce the Falkland's garrison

Sigh. Argentina is currently a democracy and has been one since the early 80s after our last military dictatorship. We are not a warlike country. Any issue with the Malvinas Islands is being handled via diplomacy. Please stop spreading mindless FUD.

Re: S.&P. Says Argentina Has Defaulted

#145

Post by nabla9 » Thu, Jul 31, 2014, 3:46 PM UTC

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…

>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.

Of course it does and it should, because there is real risks involved. Banks make their money by evaluating risks correctly.

>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.

This would only work if the parties involved would be fully rational. As long as you have imperfect actors with limited information that have limited ability to learn lessons, optimum way to limit the risk for borrower is by bankruptcy laws and procedures so that everyone involved knows the risks.

There was solid international effort to deal with the situation during the Argentine Great Depression and IMF was involved in making the deal. Because there is no bankruptcy law for countries, it was impossible to negotiate bankruptcy deal for Argentine that would bind everyone. These hedge funds are exploiting this. Going forward, we should make example of them. If majority of debtors agree, better to take the deal. This would generate de facto bankruptcy procedure.

Re: S.&P. Says Argentina Has Defaulted

#146

Post by estebank » Thu, Jul 31, 2014, 3:46 PM UTC

smackfu wrote: post #119

pessimizer wrote: post #86

Earlier quoted context omitted.

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?

Well, not passing judgement for or against, but these holdouts _also_ bought the bonds at less than face value.

Re: S.&P. Says Argentina Has Defaulted

#147

Post by evol262 » Thu, Jul 31, 2014, 3:47 PM UTC

bmelton wrote: post #130

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?

Because they already defaulted in 2001 and got into a spat with the IMF and various investors from western nations who tried to capitalize on their misfortune.

In Krugman's mind, Argentina is disparaged because they don't really want to be part of the western "system" of investment in the national resources of South American nations by developed powers.

Re: S.&P. Says Argentina Has Defaulted

#148

Post by 001sky » Thu, Jul 31, 2014, 3:49 PM UTC

acqq wrote: post #34

sciurus wrote: post #3

To understand background and potential implication, I found http://dealbook.nytimes.com/2014/07/30/q-a-whats-behind-the-... helpful.

Also see http://dealbook.nytimes.com/2014/07/30/in-hedge-fund-argenti... "The hedge fund firm of billionaire Paul E. Singer has about 300 employees, yet it has managed to force Argentina, a nation of 41 million people, into a position where it now has to contemplate a humbling surrender." "Argentina on Wednesday failed to make scheduled payments on its government bonds. The country has the money to pay the bonds. But…

With all due respect, these arguments belie the law.

If this were a case of leders screwing over the people by having governments re-write laws (see: student loans) perhaps more sympathy would be in order.

This is a case where the borrowers have tried to disregard US law, in its entirety.

In that respect, I'm not sure there is anything bad to imply about the hedge funds who simply made bets on the integrity of US Law.

The president of Argentina obviously has her own view and interest at stake, as well.

Re: S.&P. Says Argentina Has Defaulted

#149

Post by berns » Thu, Jul 31, 2014, 3:55 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…

Judge Griesa decision shouldn't be solomonic. He decides based on a contract. His role is not to favour one part or the other.The percentage of bondholder that accepted the restructuring is irrelevant. Also, something that is not usually mentioned is that an appeals court upheld the judge's decision.

Re: S.&P. Says Argentina Has Defaulted

#150

Post by davidw » Thu, Jul 31, 2014, 3:58 PM UTC

rayiner wrote: post #42

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.

In a transaction like this one, the parties get to choose the law that applies. Indeed, they are free to choose privately-formulated law and have the disputes resolved by private arbitration organizations (there are several examples of each). That said, it is quite popular to choose New York law to govern international transactions, and litigate issues in New York courts, even when the transactions have nothing to do…

Likely, the bonds cost a little bit less if they're in a jurisdiction where it's going to be relatively easy, straightforward and fair to sort things out in the event things go wrong.