Some hedge fund managers walk onto an Argentinian navy ship • Hacker News Board

Re: Some hedge fund managers walk onto an Argentinian navy ship

#21

Post by spindritf » Thu, Oct 04, 2012, 3:50 PM UTC

sethg wrote: post #14

antr wrote: post #5

Earlier quoted context omitted.

This ain't no vulture fund; and we all know about Argentinian "diplomacy". This fund invested in Argentina, because it believed in its economy - it went long. Like many other funds who invest in US treasuries, German bunds, JGBs, etc. We all know the Argentinian government is no example for a well-run government, and this fund is taking a stance (i) against the mal-practice/mis-management of the Argentinian finances,…

For private borrowers who can’t make their payments and probably never will, there is bankruptcy law, which lays out a orderly procedure where the borrower asks for relief, the lenders make their claims, and a judge decides who ends up with how much. It’s not a perfect system by any means, but anyone who loans money understands the risk that the borrower will declare bankruptcy, and the credit markets still function.…

> For sovereign countries, unfortunately, there is no such procedure.

Poor sovereign countries... Instead of having their assets wiped out and possibly facing years of payments (even if reduced), they have to deal with unbearable consequences, like a lot of finger waving and maybe a boat detained on request of someone not willing to finance political careers half way around the world. Dreadful. It may even come to the point that creditors will find some of those countries not trustworthy in the future and won't lend their governments more money.

Re: Some hedge fund managers walk onto an Argentinian navy ship

#22

Post by moron » Thu, Oct 04, 2012, 4:02 PM UTC

I don't really have a problem with them collecting on their debts, but what bothers me about this is that if the situation had turned violent or otherwise required diplomacy, the US gov't would have been responsible for stepping in. i.e., taxpayers would have been on the hook for getting these goofballs out of hot water for their fanciful repo operation.

Re: Some hedge fund managers walk onto an Argentinian navy ship

#23

Post by andyjohnson0 » Thu, Oct 04, 2012, 4:22 PM UTC

Dylan16807 wrote: post #17

andyjohnson0 wrote: post #12

Earlier quoted context omitted.

For those not familiar with the term "Vulture Fund", there is some background at the following links: Cashing in on the crash http://www.economist.com/node/9687782 Vulture funds – how do they work? http://www.guardian.co.uk/global-development/2011/nov/15/vul...

I'm having a bit of trouble understating the problem with vulture firms. Is it the fact that they bought a lot of risky debt at low prices? That is how risk works; I feel like objections along these lines are focusing on specific cases where the vultures got lucky and are ignoring the big picture. Is it the fact that they are demanding money out of bankrupt countries? This seems odd to me; wouldn't the original debto…

As I understand it, the problem is that the debtor states are often unable to repay the debt, at least not without taking money away from areas like public health and education.

The loans are often quite old. Presumably the original lenders often decide that the loans are never going to be repayed, and the debtor states budget on that assumption. Years later they find themselves pursued for debts they believed were lapsed.

Re: Some hedge fund managers walk onto an Argentinian navy ship

#24

Post by sethg » Thu, Oct 04, 2012, 4:31 PM UTC

spindritf wrote: post #21

sethg wrote: post #14

Earlier quoted context omitted.

For private borrowers who can’t make their payments and probably never will, there is bankruptcy law, which lays out a orderly procedure where the borrower asks for relief, the lenders make their claims, and a judge decides who ends up with how much. It’s not a perfect system by any means, but anyone who loans money understands the risk that the borrower will declare bankruptcy, and the credit markets still function.…

> For sovereign countries, unfortunately, there is no such procedure. Poor sovereign countries... Instead of having their assets wiped out and possibly facing years of payments (even if reduced), they have to deal with unbearable consequences, like a lot of finger waving and maybe a boat detained on request of someone not willing to finance political careers half way around the world. Dreadful. It may even come to th…

All countries—especially small and/or underdeveloped countries—need foreign trade in order to develop their economies, and it’s really really hard to engage in foreign trade without credit. And “if you stiff your current borrowers it may be harder to borrow in the future” is a risk that civilians have right now; creating a sovereign bankruptcy code won’t change that.

I forgot to mention that such a code would actually help borrowers, in the following way: For countries in a debt crisis, the lenders holding 90% of the debt may realize that they aren’t going to get paid back in full, and therefore would agree to a settlement where at least they get something back. But the ones holding the remaining 10% can pound the table and say “no, we want payment in full, and we’re legally entitled to it”... which leads the 90% bloc to say “well, if they’re still entitled to payment in full, we’re not going to be suckers and settle for less”... which leads the indebted country to say “we can’t possibly pay you all in full, so screw you all, we’re defaulting”.

Re: Some hedge fund managers walk onto an Argentinian navy ship

#25

Post by molmalo » Thu, Oct 04, 2012, 4:34 PM UTC

gadders wrote: post #20

molmalo wrote: post #15

Earlier quoted context omitted.

Not exactly, it's long, but here I go... Malvinas/Falklands has always been a national claim, that has been brought to every possible international forum, for decades before the war in 1982, and of course, also after the war... So, that's not news. The current overall economic situation is not as terrible as it may seem from outside. The main problem is that because of the high inflation, people try to have their sav…

Thanks for such an informative reply. I hope one day Argentina gets a government worthy of them :-) I also hope to go fishing in Patagonia one day, but that's another story... As an aside, are those wealthy families that own all the land of Spanish or Welsh origin? I've heard there are a lot of Welsh immigants in Argentina.

No problem, glad to be of help.

Most of them are from Spanish origin, "familias patricias" - "patrician families" that were here and were somewhat powerful at the time when we were still a colony, our independence in 1816 or in the following decades, during the War of the Triple Alliance [1], and later at the Conquest of the Desert[2].

However, during the last two decades, there's being a new wave of landowners, mostly from USA, Italy, Chile, England, Israel, etc.

Benetton and Douglas Tompkins are two cases of foreigners buying LARGE amounts of land. It has become a big problem, because they bought lots of strategic locations (periglacial lands, river sources, estuaries, etc), and then blocked access to water and other resources to people downriver, turning those lands sterile, and then buying them at vile prices.

This was so severe, that a new law was made on February 2012 [3], limiting the amount of land owned by foreign people/companies to 15% of the country.

You can see the amount of land owned by foreigners in this picture (spanish annotations, sorry): http://hosting11.imagecross.com/image-hosting-46/1669TIERRAg...

-

[1] A war between Paraguay vs an alliance of Argentina, Brazil and Uruguay that resulted in the death of 90% of the Paraguayan people at the time. Very Sad. http://en.wikipedia.org/wiki/Paraguayan_War

[2] Our equivalent to the Wild West Conquest, when Patagonia was finally dominated. That's where your image of the Argentine "Gauchos" comes from ;) http://en.wikipedia.org/wiki/Conquest_of_the_Desert

[3] Spanish, use translator: http://www.prensa.argentina.ar/2012/02/29/28494-se-reglament...

Re: Some hedge fund managers walk onto an Argentinian navy ship

#26

Post by Dylan16807 » Thu, Oct 04, 2012, 4:44 PM UTC

andyjohnson0 wrote: post #23

Dylan16807 wrote: post #17

Earlier quoted context omitted.

I'm having a bit of trouble understating the problem with vulture firms. Is it the fact that they bought a lot of risky debt at low prices? That is how risk works; I feel like objections along these lines are focusing on specific cases where the vultures got lucky and are ignoring the big picture. Is it the fact that they are demanding money out of bankrupt countries? This seems odd to me; wouldn't the original debto…

As I understand it, the problem is that the debtor states are often unable to repay the debt, at least not without taking money away from areas like public health and education. The loans are often quite old. Presumably the original lenders often decide that the loans are never going to be repayed, and the debtor states budget on that assumption. Years later they find themselves pursued for debts they believed were l…

I have to think that in that case it's the original lender that resurrects the loan, it just took a reminder. A vulture wouldn't buy a loan that was truly dead.

I guess you can blame vultures for incentivizing old lenders to resurrect loans but that's a pretty indirect thing to be upset about.

Re: Some hedge fund managers walk onto an Argentinian navy ship

#27

Post by chollida1 » Thu, Oct 04, 2012, 5:07 PM UTC

I've got some experience with this, from being in the industry.

Not surprising most of these distressed debt funds are managed by lawyers and bond traders. They started in earnest in the early 80s when "junk" bonds became the latest trading fad.

The traders saw that they could buy up this debt cheap as most banks wanted it off their books and the lawyers figured that they could negotiate better terms than the previous owners would.

These types of funds can provide valuable services in a number of ways: - getting toxic debt off the balance sheet of other firms - creating some liquidity for existing holders - getting the most money possible for existing holders.

The downside is that if you are a target of one or more of these funds you'd better have better negotiators and lawyers than they do :)

Not surprisingly the returns on these types of funds tend to fluctuate a lot causing the industry to move to a few large funds and many small funds. The smaller funds tend to have out sized returns for a couple of years and then blow up spectacularly.

Re: Some hedge fund managers walk onto an Argentinian navy ship

#28

Post by molmalo » Thu, Oct 04, 2012, 5:33 PM UTC

Dylan16807 wrote: post #26

andyjohnson0 wrote: post #23

Earlier quoted context omitted.

As I understand it, the problem is that the debtor states are often unable to repay the debt, at least not without taking money away from areas like public health and education. The loans are often quite old. Presumably the original lenders often decide that the loans are never going to be repayed, and the debtor states budget on that assumption. Years later they find themselves pursued for debts they believed were l…

I have to think that in that case it's the original lender that resurrects the loan, it just took a reminder. A vulture wouldn't buy a loan that was truly dead. I guess you can blame vultures for incentivizing old lenders to resurrect loans but that's a pretty indirect thing to be upset about.

As sethg pointed out, there's a difference between privete companies and sovereign countries.

When you lend money to a company and that company can't pay you back, bankruptcy law gets in the game. But when you lend money to a state, you know that there's a calculated risk that they won't be able to pay you and you won't be able to do anything to force them to pay your money back. You protect yourself by adjusting the interest rate. But if the risk is just too high and you lend anyway, it's up to you to take that bet...

If that country can't afford their debt, they can try to renegotiate with you, so you can get paid at least something. If it were a private company and the creditor does not accept the new terms, they could ask for a bankruptcy. As you can't do that with a country, if you reject the new terms, then the sovereign state can say "screw you" and never pay you anything. You had your chance to get something, and you lost it.

Some vulture funds buy this kind of bonds, and then try to reclaim the money... As I said earlier... good luck with that.

Even the U.S. Supreme Court and the US Government agrees with this [1].

That's why they are now trying this kind of weird actions, in some place where they managed to make a judge put his signature to their service... But it's mostly a media show.

[1] Supreme Court Rejects Elliott's Argentina Appeal http://www.finalternatives.com/node/20864

And some more extra info, even mentioning US Administration's support to Argentina's claim: http://marceloballve.wordpress.com/2012/06/27/who-pays-when-...

Re: Some hedge fund managers walk onto an Argentinian navy ship

#29

Post by kylebrown » Thu, Oct 04, 2012, 5:47 PM UTC

spindritf wrote: post #21

sethg wrote: post #14

Earlier quoted context omitted.

For private borrowers who can’t make their payments and probably never will, there is bankruptcy law, which lays out a orderly procedure where the borrower asks for relief, the lenders make their claims, and a judge decides who ends up with how much. It’s not a perfect system by any means, but anyone who loans money understands the risk that the borrower will declare bankruptcy, and the credit markets still function.…

> For sovereign countries, unfortunately, there is no such procedure. Poor sovereign countries... Instead of having their assets wiped out and possibly facing years of payments (even if reduced), they have to deal with unbearable consequences, like a lot of finger waving and maybe a boat detained on request of someone not willing to finance political careers half way around the world. Dreadful. It may even come to th…

When the loan originates from another government (or IMF), it goes into the accounts of preferred companies for building the infrastructure (eg Halliburton), often explicitly specified in the terms. The sovereign countries are just the channel through which the public-private lenders (eg JP Morgan at the Fed window) pay themselves.

edit: see Confessions of an Economic Hitman by John Perkins for a first-person account.

Re: Some hedge fund managers walk onto an Argentinian navy ship

#30

Post by kylebrown » Thu, Oct 04, 2012, 6:26 PM UTC

Dylan16807 wrote: post #17

andyjohnson0 wrote: post #12

Earlier quoted context omitted.

For those not familiar with the term "Vulture Fund", there is some background at the following links: Cashing in on the crash http://www.economist.com/node/9687782 Vulture funds – how do they work? http://www.guardian.co.uk/global-development/2011/nov/15/vul...

I'm having a bit of trouble understating the problem with vulture firms. Is it the fact that they bought a lot of risky debt at low prices? That is how risk works; I feel like objections along these lines are focusing on specific cases where the vultures got lucky and are ignoring the big picture. Is it the fact that they are demanding money out of bankrupt countries? This seems odd to me; wouldn't the original debto…

> Is it the fact that they bought a lot of risky debt at low prices? That is how risk works;

The risk was already taken by the original lender, it was risk of default and was the reason for charging interest. The ability to default by declaring bankruptcy is a legal principal which distinguishes our society from a barbarous past full of relentless loan sharks.

So The risk assumed by debt collectors is less legitimate, and a collector's claim is on shakier legal basis (even less consensus in international law, of course). Societal norms change, children no longer inherit the debt of their parents. IMO, personal bankruptcy ought to default student loans (in the US, it no longer does due to a recent law). Hatred of debt collectors goes back to biblical times, and for good reason.