3 ms·

While the government of Argentina could not actually guarantee repayment they instead agreed to terms to eliminate every possible method to avoid repaying: deno

by spikels 12y ago

While the government of Argentina could not actually guarantee repayment they instead agreed to terms to eliminate every possible method to avoid repaying: denominated in foreign currency, cannot be subordinated, terms can only be changed voluntarily, subject to foreign law, etc. They knew exactly what they getting into but pushed ahead regardless because they wanted the money no matter what. Rather than think carefully about how to best default perhaps they should have been thinking carefully about how to best borrow or even better how best to spend.

conanbatt 12y ago
This whole situation arises from a clause in the bond restructuring deal that was common when it was made. If the exchange deal had a collective agreement clause, this would have been over 10 years ago, and contracts today normally have that clause (that if the majority of the bond holders accepts, the minority has to accept as well). I am willing to bet that the whole reason the new clause became common, was because of Argentina's or Congo's case with default swaps and hedge funds that exploit that loophole intro a 10000% profit lawsuit. Irresponsible spending is something that brought Argentina to its defaults, but not to the situation its now facing. The change in courts and terms are not part of the original default debt, but of the default swap in 2005: before that, Argentina didnt have to answer to the US supreme court for those bonds or to a hedge fund. When Argentina had economic recovery, and wanted to get rid of debt, it proposed a default swap bonds, at a discount rate. To make the deal appealing to bond holders and give trust to it, they proposed the US courts as a trustable mediator. 93% of the debt was restructured this way, and has given hefty returns, up to 77cents on the original bond dollar. However, the remaining debt is all owned by the hedge fund, whose entire strategy is the pari passu clause. Without it or with a collective clause, this situation would not happen, and the debt on these bonds would have been done and over.

by spikels 12y ago

conanbatt 12y ago

This whole situation arises from a clause in the bond restructuring deal that was common when it was made. If the exchange deal had a collective agreement clause, this would have been over 10 years ago, and contracts today normally have that clause (that if the majority of the bond holders accepts, the minority has to accept as well). I am willing to bet that the whole reason the new clause became common, was because of Argentina's or Congo's case with default swaps and hedge funds that exploit that loophole intro a 10000% profit lawsuit. Irresponsible spending is something that brought Argentina to its defaults, but not to the situation its now facing. The change in courts and terms are not part of the original default debt, but of the default swap in 2005: before that, Argentina didnt have to answer to the US supreme court for those bonds or to a hedge fund. When Argentina had economic recovery, and wanted to get rid of debt, it proposed a default swap bonds, at a discount rate. To make the deal appealing to bond holders and give trust to it, they proposed the US courts as a trustable mediator. 93% of the debt was restructured this way, and has given hefty returns, up to 77cents on the original bond dollar. However, the remaining debt is all owned by the hedge fund, whose entire strategy is the pari passu clause. Without it or with a collective clause, this situation would not happen, and the debt on these bonds would have been done and over.