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Twisted Logic Contagion, WaPo Edition

posted by Anna Gelpern

From today's Washington Post editorial:

And the battle between Argentina and the hedgies has certainly clarified U.S. law, to wit: If you borrow money, sooner or later, you have to pay it back.

Wait. No one got paid back. In fact, the debt going unpaid has just gone waay up. In fact, it is all looking increasingly embarrassing precisely because, despite the best exertions of the legal system and zillions of dollars in costs to innocent bystanders, no one is getting paid.

To sum up: Argentina thinks that it is not in default, and The Washington Post thinks that the hedgies got paid. Sooner or later, one or both of them will be right. And collective action clauses will save the world. Or not.



Can you explain on what basis has judge Griesa's issued his order seeking to apply the pari passu clause to the exchange bondholders only? Given that the language of this clause covers all of Argentina's External Indebtedness (from what I could gather), on what basis has judge Griesa limited its application to just these bondholders? In particular on what basis has he purportedly exempted the Repsol bonds? Also why shouldn't his order cover External Indebtedness owed to government entities (including the US), such as Paris Club debt (I do not see the language making any reference to Public External Indebtedness, which is the usual way of limiting a clause to just debt in the hands of private investors)?

It seems to me that if his ultimate intentions are to upheld the letter of NY contract law, then he should not be making these type of exemptions. Is his logic sound, or is it me that fails to understand some of the subtleties of his argument? If his decision to limit the application of his order preventing payments to exchange bondholders is not correct, doesn't this raise some issues of inter-creditor equity, particularly in the context of some fraudulent conveyance construct (or why should just the exchange bondholders be made to suffer the consequences of his ruling, by not getting their payments, when the clause seemingly should be interpreted to affect ALL holders of External Indebtedness?

You expect any US media outlet to get this right? Mad optimism. The only thing the hedgies have accomplished (as if they care) is to ensure that NO ONE gets paid. To quote The Hunt for Red October (movie, much better than the book) when Stellan Skarsgaard steers his sub directly into an oncoming torpedo: You arrogant ass, you've killed US!

My feeling is the judge is not getting a lot of the basic facts right. Maybe he thinks he has the power to rule risk primes illegal. In the end, libertarians get to the same place communists did 100 years ago....

The - naive - assumption of most US media is that a judgement is forcing to act, and that what is "right" will prevail.

I never understood those moronic headlines "argentina played its last card" etc.

The main card argentina has is practically not paying. and it is playing this card very well. Maybe it has costs. But this is not the point.

The other stupidity in the media is that they know what is good for Argentina. THey know that a default will be too costly to bear. They know that a settlement is economically feasible. They know that RUFO is no risk. etc.

All of which is absolute nonsense. Argentina did win a lot from ignoring orthodoxy for a decade. And grew a lot meanwhile, while Greece nearly collapsed, and mind you Greece got endless grants from the EU.

RUFO is obviously a risk. Maybe the risk is not high. nobody knows the odds. But gambling on a $100-500 Billion is not a reasonable thing to do. At least not a clear cut right thing to do.

"Argentina thinks that it is not in default"

The correct wording would be: "Argentina pretends and claims that it is not in default"

Professional liars act like that, same as the official Argentine figures for inflation has been less than 11 percent a year 2009-2013 although all independent sources have shown 18 to 30 percent inflation.

Read about Argentine mentality, called viveza criolla: http://en.wikipedia.org/wiki/Viveza_criolla

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