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Something to note: Argentina issued those bonds under New York law because they could get better terms on debt enforced by the US judicial system than on debt e

by evanpw 11y ago

Something to note: Argentina issued those bonds under New York law because they could get better terms on debt enforced by the US judicial system than on debt enforced by Argentinian courts. Also "used the US government" makes things sound worse than they are. What the hedge funds actually did was sue Argentina in the jurisdiction in which the bonds were issued, and win. (Though the ruling is widely criticized.)

AnimalMuppet 11y ago
So they issued under New York law to get lower interest rates (because creditors/bond buyers felt that the law gave them more security, because it made it harder for Argentina to skate on the debt). Then Argentina defaulted. Hey, it happens. You didn't get any guarantee by buying a bond issued under New York law, you just got a better legal treatment if Argentina happened to default. But Argentina said, "We can't abide by the rules imposed on us by New York law; that's too expensive. Here's how much we can actually pay. Take it or leave it." Most of the creditors took it. But some speculators thought that they could use New York law as a club to force Argentina to give them more money. So they bought up a bunch of Argentina's debt (at a price that was set by everybody else's expectation, which was set by what Argentina said it could actually pay, which means it was a really low price.) Then they sued Argentina, under New York law, to try to force them to pay the speculators more than they paid everyone else. The speculators won in court. Argentina refused to pay them, but paid everyone else. The courts in the US refused to let Argentina's agent in the US pay the other bondholders, because Argentina wasn't paying the speculators what the court judgment said that they had to pay them. I can't find much to cheer for on either side of this. Argentina made a mess of their finances by bad government, and is being stubborn. The speculators are greedy vultures. But I note that it's really hard to force a sovereign government to pay you if they really don't want to...
beat 11y ago
Yes, it's definitely more complicated than my simplistic presentation. But the point stands, I think... nation-level financial crisis draws a certain kind of vulture capitalist who will exploit the crisis and then enforce misery at gunpoint through the long arms of compliant governments.

by evanpw 11y ago

AnimalMuppet 11y ago

So they issued under New York law to get lower interest rates (because creditors/bond buyers felt that the law gave them more security, because it made it harder for Argentina to skate on the debt). Then Argentina defaulted. Hey, it happens. You didn't get any guarantee by buying a bond issued under New York law, you just got a better legal treatment if Argentina happened to default. But Argentina said, "We can't abide by the rules imposed on us by New York law; that's too expensive. Here's how much we can actually pay. Take it or leave it." Most of the creditors took it. But some speculators thought that they could use New York law as a club to force Argentina to give them more money. So they bought up a bunch of Argentina's debt (at a price that was set by everybody else's expectation, which was set by what Argentina said it could actually pay, which means it was a really low price.) Then they sued Argentina, under New York law, to try to force them to pay the speculators more than they paid everyone else. The speculators won in court. Argentina refused to pay them, but paid everyone else. The courts in the US refused to let Argentina's agent in the US pay the other bondholders, because Argentina wasn't paying the speculators what the court judgment said that they had to pay them. I can't find much to cheer for on either side of this. Argentina made a mess of their finances by bad government, and is being stubborn. The speculators are greedy vultures. But I note that it's really hard to force a sovereign government to pay you if they really don't want to...

beat 11y ago

Yes, it's definitely more complicated than my simplistic presentation. But the point stands, I think... nation-level financial crisis draws a certain kind of vulture capitalist who will exploit the crisis and then enforce misery at gunpoint through the long arms of compliant governments.