Argentina defaults
So much for the strategy of preventing a foreign sovereign from defaulting through claiming sovereignty over its bonds:
At the stroke of midnight last night, Argentina officially defaulted on $29 billion worth of debt. It was the eighth time in its history, and the second time in 13 years, that Argentina told its foreign creditors it would not pay its bills.The defaults are still pretty small. But a fair amount of new credit will have to be issued to make up for that $29 billion contraction.
But this time was different, and rather bizarre. When Argentina last defaulted, in 2001, it had roughly $80 billion worth of debt it couldn’t pay back. It was, at the time, the biggest sovereign-debt default ever. This time, Argentina—Latin America's third- or fourth-largest economy, depending on who you're asking—had the money on hand to pay a $539-million bill due by close of business on Wednesday. It didn’t make the payment, and as a result has now technically defaulted on the entire $29 billion it owes international creditors.
37 Comments:
I believe Argentina had to submit to the US legal system to sell the bonds in the first place--that was also true of some of the Greek bonds and UK law. Argentina is run by ex-terrorists and habitually seizes assets and defaults on obligations.
I think a mass default by both governments and individuals alike is just what is needed. I have little sympathy for loan sharks no matter the size or name.
Is Kyle Bass on "Suicide Watch"?
Who keeps loaning them money?
And why?
We hope you're enjoying the easy money flight, thank you for flying Central Bank Airlines;
Ladies and gentlemen, as we start our descent, please make sure your seat backs and tray tables are in their full upright position. We'll be arriving at the scene of the crash momentarily.
I wonder if it's going to be like 2001 at all. I should really talk to my aunt and ask her what's what (I speak the language but don't know the country as well as she, obviously).
Argentina won't be the last, there's more waiting in the wings. As w/ nuclear weapons, small things can have big results.
Cassandra (of Troy)
AG OT, try flipping the sexes in this story and then ask yourself how the Feminists would think of it then:
http://rare.us/story/what-these-girls-did-to-a-boy-with-autism-is-sick-and-so-is-this-feminists-response/
once again, everything is permitted to women, nothing is permitted to men.
AG OT, try flipping the sexes in this story and then ask yourself how the Feminists would think of it then:
Ah...Hanna Rosin...why am I not surprised?
The US could default, but considering that about a third of US debt is owned by the US, that would be stupid.
> The US could default, but considering that about a third of US debt is owned by the US, that would be stupid.
Mayhap, but if current borrowing rates continue, it's also inevitable.
fish:
Ah...Hanna Rosin...why am I not surprised?
Yep, another 'well poisoner'.
swiftfoxmark2August 03, 2014 3:25 PM
The US could default, but considering that about a third of US debt is owned by the US, that would be stupid.
At what level? It strikes me that if a man lost $50,000 in assets to forgive $100,000 in debt, then he's generally ahead, yes?
"Yep, another 'well poisoner'"
Heh, heh, heh.
So lemme guess ... it will only be a few days before they start selling bonds again and someone will actually buy them chanting "this time will be different".
"So lemme guess ... it will only be a few days before they start selling bonds again and someone will actually buy them chanting "this time will be different"
Thread win.
So lemme guess ... it will only be a few days before they start selling bonds again and someone will actually buy them chanting "this time will be different".
And P.T. Barnum smiles: ''This way to the Egress''.
Probably doesn't matter any more now that Ebola seems to have arrived in the old First world.
Pretty fascinating considering that they actually had the money to pay the bill and still defaulted.
This is probably one of the smarter things a south american nation has done in the last 40 years.
http://krugman.blogs.nytimes.com/2012/05/03/down-argentina-way/
"Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar “convertibility law”. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.
I’d just add something else: press coverage of Argentina is another one of those examples of how conventional wisdom can apparently make it impossible to get basic facts right. We keep getting stories about Ireland’s recovery when there is, in fact, no recovery — but there should be, darn it, because they’ve done the “right” thing, so that’s what we’ll report.
And conversely, articles about Argentina are almost always very negative in tone — they’re irresponsible, they’re renationalizing some industries, they talk populist, so they must be going very badly..
Just to be clear, I think Brazil is going pretty well, and has had good leadership. 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."
-Paul Krugman, May 3rd, 2012
So even though they stole the retirement accounts of their citizens, they still got into trouble. When will the citizens rise up against this woman? Or is this normal behavior for Argentinians?
I was talking about this with a geologist friend last night. We had both come to the same conclusion - they are not going to pay the holdouts. I think Griesa has the same inkling, which is why he came up with the strict pari passu interpretation.
So far the markets seem to have priced in an eventual deal - even if it takes till the expiry of the RUFO clause in 2015. I don't know what will happen when they realize that the bitch be crazy.
Why not default? Is there any reason to think the banks will stop buying Argentinian bonds? If the USA was smart, we'd default on the USA debt. What's China gonna do, except start buying the new debt?
What's China gonna do, except start buying the new debt?
China's holding of US debt is collateral in their own house of cards economic model.
Will.....war.
The Atlantic story is not wrong, but severely incomplete and therefore misleading.
1) Argentina did pay the bondholders that accepted the two renegotiations, and days before the deadline. The money is in American banks. Judge Griesa has forbidden the banks to forward the money to the bondholders before Argentina settles with the vulture funds, so they didn't receive the money - but whether that qualifies as a default (since Argentina did and no longer controls the money) is debatable. Not that the financial markets will debate it for long, though.
2) Argentina will never pay the holdouts - at least until the end of 2015, when Cristina Kirchner's government ends. They have not only said so in so many words countless times since 2001, but they passed a law some ten years ago forbidding even negotiations about this. This is why Argentine officials had to tiptoe in the last few weeks, to give them some (im)plausible deniability that they weren't really negotiating with the vulture funds, just debating an American judicial decision, and so on - or they could be jailed.
3) Argentina will probably offer the bondholders whose payment has been held-up by Griesa to exchange their bonds for other bonds, issued on the European or perhaps even the Argentine market, with a small premium. If you think no one will take this up, even after the technical "default", the price Argentine bonds denominated in pesos and issued under Argentine jurisdiction has not budged.
4) The effects of this default on the Argentine economy will be minimal. The country is already considerably closed-off from the financial markets. The two debt restructurings took time, and the deal with the Paris Club is barely a year old, if I'm not mistaken. So the Argentine economy is already all but independent of the world financial markets, for good or ill. It has enormous vulnerabilities - just read a fact sheet about the current situation - but this isn't one of them.
3) Griesa's decision, if it stands to the end, will profoundly shake the world financial system. This is, actually, the most important part of the story. Third-world countries usually have to issue their bonds under first-world jurisdiction, or no one will take them. But sovereign debt defaults and restructurings are a very traditional part of the world financial system, going back in its modern form to Spain's defaults in the 16th century. Griesa's decision means there is no such thing as a sovereign debt default and restructuring - but since the events leading to it obviously happen, the decision has the effect of making the situation unsolvable. It means utter disaster. And if you think Argentina doesn't matter - OK, it barely does - remember that the UK was asking the IMF for help only forty years ago. What goes around comes around.
And if the recently-created BRICS' Development Bank really works in practice, in twenty years even poor countries will be able to tell Wall Street and The City to fuck off.
So even though they stole the retirement accounts of their citizens, they still got into trouble. When will the citizens rise up against this woman? Or is this normal behavior for Argentinians?
The renationalization of the pension funds was wildly popular with the Argentines, because the private pension funds were also stealing vast amounts from the depositors. They have been mired in scandals since their creation by the notoriously corrupt Menem administration. The government will surely steal from these funds all the same, but at least it has deeper pockets than any private enterprise - or so goes the thinking of the average Argentine.
When will the citizens rise up against this woman? Or is this normal behavior for Argentinians?
Nationwide white-knighting the pretty lady in charge...
Why not default? Is there any reason to think the banks will stop buying Argentinian bonds? If the USA was smart, we'd default on the USA debt. What's China gonna do, except start buying the new debt?
China owns quite a bit of our debt, but it's pretty small amount in the big scheme. The sovereign US debt is held mostly by private parties and.. the Federal Reserve.
It really is a huge house of cards.
Al, thanks.
So the front page of the Nationals is describing the Kirchners' new legal strategy - go after the court-appointed mediator Pollack, and eventually the judge himself. The law against negotiating with the holdouts has as much relevance as any other law that this government is currently ignoring. What they won't do is pay the political cost of paying the holdouts.
And to clarify - depositing the money in an intermediate account
is not payment according to the specific bond contract, so the default has occurred despite Kiciloff's and Kirchner's claims to the contrary.
And Al, the renationalization of the AFJPs was only "wildly popular" with the portion of Argentines who believed they were going to gain from it. The excessive fees charged were as much a consequence of government corruption as private sector greed. Now that many are experiencing the difference between the governments guarantees and the reality of a bankrupt pension scheme wildly unpopular would be closer to the mark.
“England has world class health care and disease control systems which are active permanently, regularly tested and proven to be effective."
Ha ha ha.
Stuck up English so self-importantly PC up to the degree of suicide. I'm amazed (then again, not really) that they still allow direct flight connections to these countries.
(In reply to this remark:
"Probably doesn't matter any more now that Ebola seems to have arrived in the old First world.")
new credit will have to be issued to make up for that $29 billion contraction.
I'm not sure this is correct. It's not yet a contraction. Default is not yet a loss. For example, a borrower may default on a debt of $1 but thereafter still pay back 70 cents. So the loss to the investor is only 30 cents (of the defaulted $1). Or the borrower might even pay back the whole dollar after all. In which case the loss is actually zero with no contraction whatsoever (despite default). IIRC, that is what happened with Freddy Mac Fanny Mae because USG stepped in in 2008 and made good any losses due to default.
The Atlantic story is not wrong, but severely incomplete and therefore misleading.
Yes I thought when I read it that it was quite a bit wishi washi. More feelings than hard information. Many thanks for supplementing this in-depth background information.
Lionheart,
Si tienes algo para contribuir al tema, por favor hagalo. Si estas nada más que un aplaudidor haciendo troling, que me chupas el pito. Y no imaginas que la gente aca estará más manzo con voz que yo si seguís cagando en nuestro patio.
Mendo, why this emotional outburst? Are you shit testing me?
If your Spanish reply was meant to associate myself with South America, you'd be wrong. I was pointing out above that credit default != credit loss. But the Atlantic story is noticeably short on detail exactly WHAT the difference is in this particular case. Al's comment went quite some way to close that gap. I get it that you have an opposing view, but your argument of not exactly satisfying the bond contract (thus technically defaulting due to failure to pay) sounds like ever so much legalese, where his argument was economical. Which, I gather, was precisely the point of the Argentinian government : to legally obey the judge's order, but to signal economic solvency to the financial markets.
The Argentine government pays people to troll sites that comment on their lunatic policies. Your comments were so surrealistically ignorant that I assumed you would speak Spanish.
The bonds are legally in default. $1B in CDSs on the default have been activated. This is not legalese. The government has repeatedly said that they will not pay the holdouts, which means they are blocked from paying the renegotiated debt - 93% of the bondholders at 30% (2005) and 35% (2010) - and are desperately searching for a way around the block.
The point that has gone completely above your head is that this government has no intention of obeying Griesa's order to pay, and he knows it. Argentina is not signalling solvency. The whole reason they want to settle the case - without paying - is that they are insolvent and absolutely need to borrow money to avoid triggering hyperinflation (arguably, we're already there).
If you want a quick and accurate summary of our situation in English, read this.
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