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

Weekend Edition
August 26, 2016
Friday - Sunday
Louisa Willcox
The Unbearable Killing of Yellowstone’s Grizzlies: 2015 Shatters Records for Bear Deaths
Paul Buhle
In the Shadow of the CIA: Liberalism’s Big Embarrassing Moment
Rob Urie
Crisis and Opportunity
Charles Pierson
Wedding Crashers Who Kill
Richard Moser
What is the Inside/Outside Strategy?
Dirk Bezemer – Michael Hudson
Finance is Not the Economy
Jeffrey St. Clair
Roaming Charges: Bernie’s Used Cars
Margaret Kimberley
Hillary and Colin: the War Criminal Charade
Patrick Cockburn
Turkey’s Foray into Syria: a Gamble in a Very Dangerous Game
Ishmael Reed
Birther Tries to Flim Flam Blacks  
Brian Terrell
What Makes a Hate Group?
Andrew Levine
How Donald Trump Can Still be a Hero: Force the Guardians of the Duopoly to Open Up the Debates
Howard Lisnoff
Trouble in Political Paradise
Terry Tempest Williams
Will Our National Parks Survive the Next 100 Years?
Ben Debney
The Swimsuit that Overthrew the State
Ashley Smith
Anti-imperialism and the Syrian Revolution
Andrew Stewart
Did Gore Throw the 2000 Election?
Vincent Navarro
Is the Nation State and Its Welfare State Dead? a Critique of Varoufakis
John Wight
Syria’s Kurds and the Wages of Treachery
Lawrence Davidson
The New Anti-Semitism: the Case of Joy Karega
Mateo Pimentel
The Affordable Care Act: A Litmus Test for American Capitalism?
Roger Annis
In Northern Syria, Turkey Opens New Front in its War Against the Kurds
David Swanson
ABC Shifts Blame from US Wars to Doctors Without Borders
Norman Pollack
American Exceptionalism: A Pernicious Doctrine
Ralph Nader
Readers Think, Thinkers Read
Julia Morris
The Mythologies of the Nauruan Refugee Nation
George Wuerthner
Caving to Ranchers: the Misguided Decision to Kill the Profanity Wolf Pack
Ann Garrison
Unworthy Victims: Houthis and Hutus
Julian Vigo
Britain’s Slavery Legacy
John Stanton
Brzezinski Vision for a Power Sharing World Stymied by Ignorant Americans Leaders, Citizens
Philip Doe
Colorado: 300 Days of Sunshine Annually, Yet There’s No Sunny Side of the Street
Joseph White
Homage to EP Thompson
Dan Bacher
The Big Corporate Money Behind Jerry Brown
Kollibri terre Sonnenblume
DNC Playing Dirty Tricks on WikiLeaks
Ron Jacobs
Education for Liberation
Jim Smith
Socialism Revived: In Spite of Bernie, Donald and Hillary
David Macaray
Organized Labor’s Inferiority Complex
David Cortright
Alternatives to Military Intervention in Syria
Binoy Kampmark
The Terrors of Free Speech: Australia’s Racial Discrimination Act
Cesar Chelala
Guantánamo’s Quagmire
Nyla Ali Khan
Hoping Against Hope in Kashmir
William Hughes
From Sam Spade to the Red Scare: Dashiell Hammett’s War Against Rightwing Creeps
Raouf Halaby
Dear Barack Obama, Please Keep it at 3 for 3
Charles R. Larson
Review: Paulina Chiziane’s “The First Wife: a Tale of Polygamy”
David Yearsley
The Widow Bach: Anna Magdalena Rediscovered
FacebookTwitterGoogle+RedditEmail