Argentina’s Default, Vulture Funds and the US Courts


In order to avoid a new default in less than three weeks, Argentina and all of the holdouts must reach an agreement that is acceptable to every restructured bondholder of Argentine debt and Judge Thomas Griesa.

Otherwise, some of the possible outcomes include:

(1) An international cascade of competing “legal” claims involving many other sovereign defaults besides Argentina’s


(2) A pseudo-Lehman Brothers CDS and derivatives scenario, possibly with new 2008-type bail-outs


(3) Deepening of the current de-dollarization of international finances, with markets, governments and the Federal Reserve befuddled and dysfunctional as in the 2008 limbo.

The setting

The glaring absence of internationally acknowledged legislation on sovereign bankruptcy to abide by forced common sense to prevail without the need for judicial intervention. Thus, the largest nation state default in history was successfully left behind, and by 2015, Argentina was expected to return to international credit markets after 13 years of ostracism.

Nobel Prize laureate Paul Krugman, in a front-page high-impact 2012 New York Times piece, praised Argentina’s “remarkable success story.” Many other world-renowned authorities agreed that the decades-long conundrum of debt traps had finally been solved, with implications of genuine growth.

Enter the US Judiciary and Vulture Funds

The US judiciary decided to treat a sovereign debt default as if it were a run-of-the-mill New York business bankruptcy. The minuscule (1.6 percent) albeit horribly powerful holdout vulture funds had taken advantage of the occasion to implement their cunning and fully vetted business model based on the purchase of defaulted Argentine debt that was handed over at dirt cheap prices.

This utterly suspicious class of “plaintiffs” had simultaneously engaged in swift and handsomely expensive lobbying.

Finally, they gained heavy-weight legal support, manifest namely in very “curious” US judiciary rulings in disdain of the very nature of a sovereign debt default.

Judicial overreach

Now, circumstances are pushing financial momentum for a brand new Argentine default with as of yet unfathomable “un-intended” consequences, including multi-multi-billion arithmetically unpayable new claims worldwide as the decisions of the US judiciary decisions would be taken as precedent.

The problem is that such sanctions were imposed on a nation state without internationally-acknowledged sovereign bankruptcy rules to back them up. As per sovereign immunity (something to which nation states cannot waiver) and also by definition, sovereign debt is unenforceable. The patient has died, and no miracle drug can revive the corpse. Debtors may have rights, but not remedies. US law, judges, and a “special master” do not apply to nation states. Judge Griesa’s “pari passu” interpretation has been hotly and widely contested worldwide, even in the US.

As a matter of fact, Judge Griesa’s own moaning for months along these lines is on record. The US Judiciary has overstepped the mark of common sense and violated several important clauses of the delicate, unwritten code that rules amicable foreign relations. The US judiciary should not establish US foreign policy, nor is it a world court. As per Justice Ruth Bader Ginsburg’s dissent, the Supreme Court should not “exorbitantly approve” vulture funds’ direct access to US listings of Argentina’s seizable assets worldwide.

Eyes wide shut

Obviously, in view of the default that is being actively pursued, financial terrorists worldwide may now surely “join the party” by filing additional multi-billion claims through CDS’ Credit Default Swaps.

As the IMF is painfully aware, all of the above is bound to fuel a worldwide cascade of competing “lega” claims from vulture funds, plus restructured sovereign bond creditors and CDS holders, all of which would severely affect counterparties and possibly trigger systemic events that were absolutely unimaginable only a week ago.

It?s worth mentioning that CDS counterparty risk is concentrated in only ten ultra-highly leveraged “too-big-to-fail” banks, which may have to be bailed out yet again depending upon how events unfold.

Thus, the international financial system could needlessly find itself running around in circles, clueless and deeply submerged in a J.K. Galbraith type of “Age of Uncertainty.”

The question is whether the Fed is ready for any of this.

Jorge Vilches writes about trade and finances.


Jorge Vilches is a financial op-ed columnist based in Buenos Aires, Argentina. He can be reached at: jorgevilches@fibertel.com.ar

October 06, 2015
Vijay Prashad
Afghanistan, the Terrible War: Money for Nothing
Mike Whitney
How Putin will Win in Syria
Paul Street
Yes, There is an Imperialist Ruling Class
Paul Craig Roberts
American Vice
Kathy Kelly
Bombing Hospitals: 22 People Killed by US Airstrike on Doctors Without Borders Hospital in Kunduz, Afghanistan
Ron Jacobs
Patti Smith and the Beauty of Memory
David Macaray
Coal Executive Finally Brought Up on Criminal Charges
Norman Pollack
Cold War Rhetoric: The Kept Intelligentsia
Cecil Brown
The Firing This Time: School Shootings and James Baldwin’s Final Message
Roger Annis
The Canadian Election and the Global Climate Crisis
W. T. Whitney
Why is the US Government Persecuting IFCO/Pastors for Peace Humanitarian Organization?
Jesse Jackson
Alabama’s New Jim Crow Far From Subtle
Joe Ramsey
After Umpqua: Does America Have a Gun Problem….or a Dying Capitalist Empire Problem?
Murray Dobbin
Rise Up, Precariat! Cheap Labour is Over
October 05, 2015
Michael Hudson
Parasites in the Body Economic: the Disasters of Neoliberalism
Patrick Cockburn
Why We Should Welcome Russia’s Entry Into Syrian War
Kristine Mattis
GMO Propaganda and the Sociology of Science
Heidi Morrison
Well-Intentioned Islamophobia
Ralph Nader
Monsanto and Its Promoters vs. Freedom of Information
Arturo Desimone
Retro-Colonialism: the Exportation of Austerity as War By Other Means
Robert M. Nelson
Noted Argentine Chemist Warns of Climate Disaster
Matt Peppe
Misrepresentation of the Colombian Conflict
Barbara Dorris
Pope Sympathizes More with Bishops, Less with Victims
Clancy Sigal
I’m Not a Scientologist, But I Wish TV Shrinks Would Just Shut Up
Chris Zinda
Get Outta’ Dodge: the State of the Constitution Down in Dixie
Eileen Applebaum
Family and Medical Leave Insurance, Not Tax Credits, Will Help Families
Pierre-Damien Mvuyekure
“Boxing on Paper” for the Nation of Islam, Black Nationalism, and the Black Athlete: a Review of “The Complete Muhammad Ali” by Ishmael Reed
Lawrence Ware
Michael Vick and the Hypocrisy of NFL Fans
Gary Corseri - Charles Orloski
Poets’ Talk: Pope Francis, Masilo, Marc Beaudin, et. al.
Weekend Edition
October 2-4, 2015
Henry Giroux
Murder, USA: Why Politicians Have Blood on Their Hands
Mike Whitney
Putin’s Lightning War in Syria
Jennifer Loewenstein
Heading Toward a Collision: Syria, Saudi Arabia and Regional Proxy Wars
John Pilger
Wikileaks vs. the Empire: the Revolutionary Act of Telling the Truth
Gary Leupp
A Useful Prep-Sheet on Syria for Media Propagandists
Jeffrey St. Clair
Pesticides, Neoliberalism and the Politics of Acceptable Death
Lawrence Ware – Paul Buhle
Insurrectional Black Power: CLR James on Race and Class
Joshua Frank
The Need to Oppose All Foreign Intervention in Syria
Oliver Tickell
Jeremy Corbyn’s Heroic Refusal to be a Nuclear Mass Murderer
Helen Yaffe
Che’s Economist: Remembering Jorge Risquet
Mark Hand
‘Rape Rooms’: How West Virginia Women Paid Off Coal Company Debts
Michael Welton
Junior Partner of Empire: Why Canada’s Foreign Policy Isn’t What You Think
Yves Engler
War Crimes in the Dark: Inside Canada’s Special Forces
Arno J. Mayer
Israel: the Wages of Hubris and Violence
W. T. Whitney
Cuban Government Describes Devastating Effects of U. S. Economic Blockade
Brian Cloughley
The US-NATO Alliance Destroyed Libya, Where Next?