16 comments on “Timmy elsewhere

  1. It’s pathetically easy for Argentinian pols to distract the dagoes and get them all riled up over a few small islands hundreds of miles away that never belonged to them.

    So why should the likes of El Presidente Kirchner care about financial continence?

    Loved the Guardian article BTW. In one short piece she uses the word “vulture” 11 times – the last time I read such something so trotliciously tendentious was when I picked up a copy of the Socialist Worker on a train.

    And I’m pretty sure this is deliberately misleading bollocks:

    “Argentina’s large debt first originated from lending to the oppressive military junta of the late 1970s.”

    So they’ve been trying to run a tight ship since then? Nah, thought not.

    “including loans by the British government for weapons that were used to invade the Falklands”

    Right, so. The argument seems to be: those debts were run up by eeeeeevil fascists, (though most of the debts probably weren’t) therefore modern democratic(-ish) Argentina isn’t morally liable.

    But hang on a second – most Argies supported the unprovoked invasion of the Falklands Islands. Most Argies still support it.

    So if the cause of their financial woes is still a war they lost 32 years ago, a war they seem spoiling for a sequel to, then they can’t go blaming the junta for the inevitable cost of carrying out the people’s wishes. Can they? Or can Britain and the US get off the hook for their Iraq War debt by saying we don’t like Blair or Bush any more?

    Maybe Argentina’ll finance Falklands War 2 with a loan from Wonga.

  2. Every couple of decades, at least once a generation, the Argentinians run their economy into the ground. Myself, I am thinking of a genuine vulture fund. The economy can’t keep on like this for long. So eventually the Argentinian currency will be worth toilet paper. It is a matter of waiting.

    Buenos Aires has a lot of nice architecture. There are some nice state-owned companies. When they do go bust I am going to try to buy half of downtown BA (for about £40 I reckon) and any state-owned factory that is going. I will dismantle them and move them to Vietnam.

    Hey, nothing is going to stop the Argentinians being thoroughly Argentinian. It is the nature of the beast. They can do no other. Better if their assets help those who can help themselves.

  3. In fact most of Argentina’s debt was accumulated in the 90s under Carlos Menem, at a time when Argentina was held to be a shining example of the benefits of the Washington Consensus.

    The US lawsuits which seem finally to be reaching their conclusion haven’t really been about whether Argentina should pay its creditors (it doesn’t have to if it’s willing to accept the consequences of another default), but about the relative treatment of the “holdout” bondholders, who refused to accept restructuring after the 2002 default, and “exchange” bondholders, who did accept it.

    Argentina would like to treat the exchange bondholders more favourably, to reward them for agreeing to the exchange, but is willing to treat them equally, as a superficial reading of the pari passu clause would seem to require. The vulture funds have demanded, and the US courts have agreed, that instead the holdout bonds should be treated equally, so that the holdout bondholders, not having accepted a reduction in face value, get much more favourable treatment than the exchange bondholders.

    The Argentine government hasn’t helped itself by showing disregard for the US legal process. The result is that the US courts are now angry with it and are ruling against it at every step.

    I can see no general economic benefit in vulture funds being able to win actions like this.

  4. @ PaulB

    “I can see no general economic benefit in vulture funds being able to win actions like this.”

    Nor I. Except that the rights accrue to whomever owns the piece of paper, and so if I want to be sure that a bond in my pension fund will be given the legal status it warrants then I have to ask that the same be afforded to a bond held by a vulture fund.

  5. TTG. ” if I want to be sure that a bond in my pension fund will be given the legal status it warrants then I have to ask that the same be afforded to a bond held by a vulture fund.

    Yes and no. 90% of the bondholders agreed to take a cut. Had they not done so, no one, whether them or the “vultures” would have got paid. So your pension fund manager would have had to pay chicken/prisoner’s dilemma not just with Argentina, but also with other bondholders. What would you want your fund manager to do?

    I believe that following this case most foreign law sovereign issues have collective action clauses, so the likes of Elliott cannot (perfectly legally) freeload.

  6. I want the World to fight for my cause against the vulture bastard capitalist mortgage provider that is ‘holding out’ against me not paying back. They’re using the old neoliberal troll excuse of making the deal with me honorably honestly and fairly. Evil people like that don’t deserve to be treated with honesty, do they.

  7. @ironman, what’s missing from your analogy is your mortgage provider. having agreed with you to reduced repayments over a longer period of time, has subsequently sold your mortgage (bundled with a bunch of others) to someone determined to squeeze you until the pips squeak. It’s a legal question – is the new owner entitled to payment under the originally negotiated terms, or the renegotiated terms?

    And more importantly, are they entitled, in so doing, to see that those who agreed to renegotiated terms on some of the other loans (given that the alternative was worse) lose out as a result?

    This is why it’s called vulture capitalism. The use of legal trickery to ensure maximum self-enrichment with zero regard to other parties, or indeed to future consequences of such action. Those that lend to countries like Argentina should be aware of the risks involved and satisfied that the risk premium on their investment is adequate to cover their losses – not take both the risk premium and demand that others pay up for the risks they take.

  8. PaulB

    “Argentina would like to treat the exchange bondholders more favourably, to reward them for agreeing to the exchange, but is willing to treat them equally, as a superficial reading of the pari passu clause would seem to require.”

    If Argentina wants to reward the exchange bondholders, why don;t they just pay back the bonds in total + the interest owed?

  9. Bloke in Germany, you’ve mixed up the analogy. In this case there is one borrower, many lenders, whereas you’ve got one lender, many borrowers. A fixed analogy would be getting two mortgages from your bank and agreeing a reduced payment schedule on only one of them (for some reason). In this case I can’t see why a transfer of the mortgages to another party wouldn’t result in each payment schedule remaining in force.

    The bien-pensant argument here seems to be a kind of morality play, claiming that holdouts should be punished for making the right decision (ie. calling Argentina’s bluff of a default and demanding payment in full), based on a hypothetical Prisoner’s Dilemma argument that says too many holdouts would have caused a full default (in fact defaults of this kind are very rare thanks to the catastrophic reputation effects). Essentially the biens-pensants are trying to have it both ways: they repeatedly talk up Argentina’s good faith and probity in refusing an outright default, and then turn around and claim bondholders were lucky to be repaid at all and that they effectively had no choice but to take the haircut.

    Interestingly (to me), if we change the scenario to be a firm in danger of going under and asking its workers to take a pay cut, the biens-pensants would be raising the holdouts as heroes, but decrying the re-negotiators as scabs, calling for their murder (or actually carrying it out), etc. Well, it’s a funny old world.

  10. All analogies eventually break down. Here what seems to have happened is that the vulture funds, knowing that full repayment is unlikely and/or that the bonds are already subject to renegotiated terms, have bought in at steep discounts (reflecting the voluntary restructuring) and are insisting on repayment at face-value.

    Resorting to the straw-man “bien-pensant” is just silly, why not address the issues presented to you rather than trying to equate those presenting the issues with the hated “bien-pensants”? Incidentally this particular bien-pensant was among those who offered to take a pay cut when a former employer was in trouble.

    This vulture capitalism might be entirely legal, but it is also extremely cynical. I would suggest that the capital thus employed could have been put to more efficient use actually creating something of value.

    Defaults of this kind are actually extremely commonplace. I refer you to Reinhart and Rogoff’s “This time it’s different”.

  11. “Defaults of this kind are actually extremely commonplace.”

    They are damn near inevitable when Argentina is involved.

  12. Bloke in Germany:
    “Resorting to the straw-man “bien-pensant” is just silly, why not address the issues presented to you rather than trying to equate those presenting the issues with the hated “bien-pensants”… vulture capitalism”

    And the trap is sprung!

  13. It’s all very well us crying foul over the vulture funds, but their existence acts as a limiter on the abusive policies of governments like Argentina and Greece where they issue bonds in full knowledge of their eventual default.

    Partly because bond holders have been able to claim the full value of the bonds decades later government’s like Argentina are forced to negotiate eith recalcitrant bond-holders, because they have the ability to seize assets overseas and prevent Argentina from re-entering the international bond market at some later date.

    If it wasn’t for such vultures there would be fewer consequences for countries like Argentina who play fast and loose.

  14. So they’re doing us all a favour, and the 1600% profit margin is merely a side-effect?

    We could also discuss other unintended consequences of such actions, making voluntary restructurings less likely in future. After all, why would you be the sucker agreeing to take a hit, or sell out at sub-junk prices when you could stand your ground and get 100% at the expense of the suckers?

  15. And yes, free markets, capitalism red in tooth and claw notwithstanding, we can and should stop you making yourself richer when others, particularly innocent bystanders, are injured in the process.

    Straight out of John Stuart Mill’s playbook that.

Leave a Reply

Name and email are required. Your email address will not be published.