FacebookTwitterGoogle+RedditEmail

Argentina’s Default, Vulture Funds and the US Courts

by

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

And/or…

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

And/or…

(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

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

December 06, 2016
Anthony DiMaggio
Post-Fact Politics: Reviewing the History of Fake News and Propaganda
Richard Moser
Standing Rock: Challenge to the Establishment, School for the Social Movements
Norman Solomon
Media Complicity is Key to Blacklisting Websites
Michael J. Sainato
Elizabeth Warren’s Shameful Exploitation of Standing Rock Victory
David Rosen
State Power and Terror: From Wounded Knee to Standing Rock
Kim Ives
Deconstructing Another Right-Wing Victory in Haiti
Nile Bowie
South Korea’s Presidency On A Knife-Edge
Mateo Pimentel
Some Notes and a Song for Standing Rock
Bill Fletcher Jr – Bob Wing
Fighting Back Against the White Revolt of 2016
Peter Lee
Is America Ready for a War on White Privilege?
Pepe Escobar
The Rules of the (Trump) Game
W. T. Whitney
No Peace Yet in Colombia Despite War’s End
Mark Weisbrot
Castro Was Right About US Policy in Latin America
David Swanson
New Rogue Anti-Russia Committee Created in “Intelligence” Act
George Ochenski
Forests of the Future: Local or National Control?
December 05, 2016
Bill Martin
Stalingrad at Standing Rock?
Mark A. Lause
Recounting a Presidential Election: the Backstory
Mel Goodman
Mad Dog Mattis and Trump’s “Seven Days in May”
Matthew Hannah
Standing Rock and the Ideology of Oppressors: Conversations with a Morton County Commissioner
Kevin Zeese - Margaret Flowers
#NoDAPL Scores Major Victory: No Final Permit For Pipeline
Fran Shor
The End of the Indispensable Nation
Michael Yates
Vietnam: the War That Won’t Go Away
Michael Uhl
Notes on a Trip to Cuba
Robert Hunziker
Huge Antarctica Glacier in Serious Trouble
John Steppling
Screen Life
David Macaray
Trump vs. America’s Labor Unions
Yoav Litvin
Break Free and Lead, or Resign: a Letter to Bernie Sanders
Norman Pollack
Taiwan: A Pustule on International Politics
Kevin Martin
Nuclear Weapons Modernization: a New Nuclear Arms Race? Who Voted for it? Who Will Benefit from It?
David Mattson
3% is not Enough: Towards Restoring Grizzly Bears
Howard Lisnoff
The Person Who Deciphered the Order to Shoot at Kent State
Dave Archambault II
Standing Rock Sioux Tribe Statement on Dakota Access Pipeline Decision
Nick Pemberton
Make America Late Again
Weekend Edition
December 02, 2016
Friday - Sunday
John Pilger
The Coming War on China
Jeffrey St. Clair
Roaming Charges: The CIA’s Plots to Kill Castro
Paul Street
The Iron Heel at Home: Force Matters
Pam Martens - Russ Martens
Timberg’s Tale: Washington Post Reporter Spreads Blacklist of Independent Journalist Sites
Andrew Levine
Must We Now Rethink the Hillary Question? Absolutely, Not
Joshua Frank
CounterPunch as Russian Propagandists: the Washington Post’s Shallow Smear
David Rosen
The Return of HUAC?
Rob Urie
Race and Class in Trump’s America
Patrick Cockburn
Why Everything You’ve Read About Syria and Iraq Could be Wrong
Caroline Hurley
Anatomy of a Nationalist
Ayesha Khan
A Muslim Woman’s Reflections on Trump’s Misogyny
Michael Hudson – Steve Keen
Rebel Economists on the Historical Path to a Global Recovery
FacebookTwitterGoogle+RedditEmail