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

by sciurus 12y ago

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

blowski 12y ago
> 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.
- dmarusic16 12y ago
  Yeah, that's very much not what the World Bank is about.
  - blowski 12y ago
    Well, I hadn't given it much thought. I just assumed that some international body (WTO, IMF, UN) would resolve disputes like this.
    - mikecb 12y ago
      You're both partly right: http://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputes http://en.wikipedia.org/wiki/International_Centre_for_Settle... The World Bank itself gives loans, advice, and research. But there are a large number of semi-associated agencies, under their own treaties, that do other things, such as settling investment disputes. But it's important to note, as rayiner said elsewhere, that contracts are private law, and you get to choose how to settle disputes unless some public policy decides otherwise.
- gizmo686 12y ago
  I am not a lawyer. My understanding of this type of clause is not that it makes New York the arbitrator, but rather clarifies for whoever does arbitrate that New York laws should be used. This seems important when working across national (or state) boundries do prevent ambiguity as to what set of laws is being used. I suspect that it is simmilar to copying the relevent laws into a contract and signing that, which is to say that local laws still apply.
  - pionar 12y ago
    >My understanding of this type of clause is not that it makes New York the arbitrator, but rather clarifies for whoever does arbitrate that New York laws should be used. I agree, but it would make sense, then that since the New York legal system is the final interpreter of New York law, then that would be where lawsuits would go.
    - mikecb 12y ago
      Not necessarily. It just means that whatever court does hear the case will apply New York law to it, because those are the rules the contracting parties have agreed to use, whether that court be in New York, California, or Scotland. Having the case actually heard in NY simplifies the application of NY law, but it's probably more for convenience: the parties know that if they have to litigate, they don't need to find new attorney's at some random location.
- herge 12y ago
  I'm not sure but I bet that a country can issue bonds under any law it wants. It's just more likely to get people to buy bonds if they are under New York law (as opposed to say Argentinian law, where foreign bondholders would hold no sway).
- rayiner 12y ago
  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 with New York. That's because New York law is well understood, there is a deep body of precedent involving sophisticated financial transactions, and the courts have a lot of experience resolving financial disputes.
  - davidw 12y ago
    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.
- smackfu 12y ago
  It's more like, if you keep defaulting on bonds by saying you don't have to pay them because you changed the rules, eventually no on will buy them unless you let someone else set the rules.
  - pessimizer 12y ago
    That's what it would be like if this were anything but a holdup. The US government is intervening in the market and preventing bondholders who have agreed on a change in rules from receiving their bond payments, rather than letting the market set the prices. That's the opposite of what you describe here. edit: What I'm saying is only crazy within the bubble of this thread. It's also the opinion of the US government and the American Bankers Association. http://www.bloomberg.com/news/2013-01-04/bankers-group-supports-bond-trustee-in-argentina-appeal-1-.html http://www.bloomberg.com/news/2013-01-04/bankers-group-suppo... "'Permitting injunctions against these trustees that preclude them fulfilling their pre-existing obligations whenever expedient to enforce a judgment against the debtor will have significantly adverse consequences for the financial system,' the ABA said in its brief." http://www.reuters.com/article/2012/12/13/argentina-debt-usa-idUSL1E8NDFJJ20121213 http://www.reuters.com/article/2012/12/13/argentina-debt-usa... "U.S. government lawyers reiterated their position that the court's interpretation of the 'equal treatment' clause in Argentina's defaulted bonds 'may adversely affect future voluntary sovereign debt restructurings, the stability of international financial markets, and the repayment of loans extended by international financial institutions.'"
    - blowski 12y ago
      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 it stands, though, it's easy to portray this as the US bullying Argentina in the interests of a small group of rich American citizens who behave like loan sharks. It just seems like it would be better to have an international body of law under which all international lending takes place, and when there is a dispute, a judge is chosen from an independent third party. Is there any serious effort to make that happen? I have no idea.
acqq 12y ago
Also see http://dealbook.nytimes.com/2014/07/30/in-hedge-fund-argentina-finds-relentless-foe/ 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 a federal court in Manhattan has ruled that unless Argentina settles its debt dispute with Mr. Singer’s firm, Elliott Management, it is barred from paying its main bondholders." (...) "“We’ve had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system,” said Joseph E. Stiglitz, the economist and professor at Columbia University. “We don’t know how big the explosion will be — and it’s not just about Argentina.”" (...) "It is legally challenging for American investors to sue foreign governments in United States courts. But in 2012, Elliott achieved a stunning breakthrough in the Federal District Court in Manhattan. Judge Thomas P. Griesa ruled that whenever Argentina paid the exchange bonds, it also had to pay the holdouts. Argentina could not ignore the ruling and pay the exchange bondholders because Judge Griesa also ruled that any financial firm that distributed payments to the bondholders would be in contempt. Argentina placed $539 million with the Bank of New York Mellon in June to pay its bondholders, but the bank did not transfer it."
- 001sky 12y ago
  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.
  - acqq 12y ago
    You're wrong. Elliott didn't give Argentina anything that it wants returned. The company just waited for the moment to buy bonds for almost nothing from the real creditors with the bet "if we get it on court, we win big, if we lose, we lose a little." From the same article: "Legal filings indicate that the face value of its Argentine government bonds was around $170 million, but the firm most likely acquired many of them for much less than that. Elliott and other investors are now seeking more than $1.5 billion, which includes years of unpaid interest." Elliott just blackmails Argentina to extract many times more than it would otherwise be reasonable (without the blackmail condition).

by sciurus 12y ago

blowski 12y ago

> 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.

dmarusic16 12y ago
Yeah, that's very much not what the World Bank is about.
- blowski 12y ago
  Well, I hadn't given it much thought. I just assumed that some international body (WTO, IMF, UN) would resolve disputes like this.
  - mikecb 12y ago
    You're both partly right: http://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputes http://en.wikipedia.org/wiki/International_Centre_for_Settle... The World Bank itself gives loans, advice, and research. But there are a large number of semi-associated agencies, under their own treaties, that do other things, such as settling investment disputes. But it's important to note, as rayiner said elsewhere, that contracts are private law, and you get to choose how to settle disputes unless some public policy decides otherwise.
gizmo686 12y ago
I am not a lawyer. My understanding of this type of clause is not that it makes New York the arbitrator, but rather clarifies for whoever does arbitrate that New York laws should be used. This seems important when working across national (or state) boundries do prevent ambiguity as to what set of laws is being used. I suspect that it is simmilar to copying the relevent laws into a contract and signing that, which is to say that local laws still apply.
- pionar 12y ago
  >My understanding of this type of clause is not that it makes New York the arbitrator, but rather clarifies for whoever does arbitrate that New York laws should be used. I agree, but it would make sense, then that since the New York legal system is the final interpreter of New York law, then that would be where lawsuits would go.
  - mikecb 12y ago
    Not necessarily. It just means that whatever court does hear the case will apply New York law to it, because those are the rules the contracting parties have agreed to use, whether that court be in New York, California, or Scotland. Having the case actually heard in NY simplifies the application of NY law, but it's probably more for convenience: the parties know that if they have to litigate, they don't need to find new attorney's at some random location.
herge 12y ago
I'm not sure but I bet that a country can issue bonds under any law it wants. It's just more likely to get people to buy bonds if they are under New York law (as opposed to say Argentinian law, where foreign bondholders would hold no sway).
rayiner 12y ago
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 with New York. That's because New York law is well understood, there is a deep body of precedent involving sophisticated financial transactions, and the courts have a lot of experience resolving financial disputes.
- davidw 12y ago
  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.
smackfu 12y ago
It's more like, if you keep defaulting on bonds by saying you don't have to pay them because you changed the rules, eventually no on will buy them unless you let someone else set the rules.
- pessimizer 12y ago
  That's what it would be like if this were anything but a holdup. The US government is intervening in the market and preventing bondholders who have agreed on a change in rules from receiving their bond payments, rather than letting the market set the prices. That's the opposite of what you describe here. edit: What I'm saying is only crazy within the bubble of this thread. It's also the opinion of the US government and the American Bankers Association. http://www.bloomberg.com/news/2013-01-04/bankers-group-supports-bond-trustee-in-argentina-appeal-1-.html http://www.bloomberg.com/news/2013-01-04/bankers-group-suppo... "'Permitting injunctions against these trustees that preclude them fulfilling their pre-existing obligations whenever expedient to enforce a judgment against the debtor will have significantly adverse consequences for the financial system,' the ABA said in its brief." http://www.reuters.com/article/2012/12/13/argentina-debt-usa-idUSL1E8NDFJJ20121213 http://www.reuters.com/article/2012/12/13/argentina-debt-usa... "U.S. government lawyers reiterated their position that the court's interpretation of the 'equal treatment' clause in Argentina's defaulted bonds 'may adversely affect future voluntary sovereign debt restructurings, the stability of international financial markets, and the repayment of loans extended by international financial institutions.'"
  - blowski 12y ago
    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 it stands, though, it's easy to portray this as the US bullying Argentina in the interests of a small group of rich American citizens who behave like loan sharks. It just seems like it would be better to have an international body of law under which all international lending takes place, and when there is a dispute, a judge is chosen from an independent third party. Is there any serious effort to make that happen? I have no idea.

acqq 12y ago

Also see http://dealbook.nytimes.com/2014/07/30/in-hedge-fund-argentina-finds-relentless-foe/ 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 a federal court in Manhattan has ruled that unless Argentina settles its debt dispute with Mr. Singer’s firm, Elliott Management, it is barred from paying its main bondholders." (...) "“We’ve had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system,” said Joseph E. Stiglitz, the economist and professor at Columbia University. “We don’t know how big the explosion will be — and it’s not just about Argentina.”" (...) "It is legally challenging for American investors to sue foreign governments in United States courts. But in 2012, Elliott achieved a stunning breakthrough in the Federal District Court in Manhattan. Judge Thomas P. Griesa ruled that whenever Argentina paid the exchange bonds, it also had to pay the holdouts. Argentina could not ignore the ruling and pay the exchange bondholders because Judge Griesa also ruled that any financial firm that distributed payments to the bondholders would be in contempt. Argentina placed $539 million with the Bank of New York Mellon in June to pay its bondholders, but the bank did not transfer it."

001sky 12y ago
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.
- acqq 12y ago
  You're wrong. Elliott didn't give Argentina anything that it wants returned. The company just waited for the moment to buy bonds for almost nothing from the real creditors with the bet "if we get it on court, we win big, if we lose, we lose a little." From the same article: "Legal filings indicate that the face value of its Argentine government bonds was around $170 million, but the firm most likely acquired many of them for much less than that. Elliott and other investors are now seeking more than $1.5 billion, which includes years of unpaid interest." Elliott just blackmails Argentina to extract many times more than it would otherwise be reasonable (without the blackmail condition).