Did Argentina ‘Default’?

By T. Sabri Öncü, (sabri.oncu@gmail.com), a financial economist based in Istanbul, Turkey who was recently the Head of Research at the Centre for Advanced Financial Research and Learning, Reserve Bank of India, and Jorge Vilches, (jorgevilches@fibertel.com.ar) is a financial op-ed columnist based in Buenos Aires, Argentina. Originally published in Economic and Political Weekly

A US court ruling has warped the otherwise precise meanings of three key words – “republic”, “sovereign”, and “default” – leading to absurdities like a New York district court holding the Republic of Argentina in “contempt of court”! The entire understanding of sovereign debt and its restructuring is being read through private “contract law” that cannot address the complex questions that are inherently public in nature, à la questions around restructuring Argentina’s debt. It appeared that a misreading of key words could benefit some vulture funds, but so far no one has seen as much as a penny! Maybe they never will.

The Setting

As lawyers know all too well, semantics does matter, and Argentina’s case is no exception. Accordingly, terms such as “republic”, “sovereign”, and “default” take centre stage.

Ever since the mess the United States (US) Judge Thomas Griesa created (Öncü 2014b), the word “default” has been misused hundreds of times regarding Argentina’s 2014 sovereign debt payments.

So, let us start with “default”. Financial default means “failure to meet financial obligations”.

So, did Argentina “default”?

This should be of the utmost legal, financial, and political interest worldwide, in view of recent headlines – think Europe, think Greece, think PIIGS (Portugal, Italy, Ireland, Greece and Spain) (Pope 2014).

The Mess

Due to the glaring lack of (and badly needed) international framework for sovereign debt restructuring, Argentina’s New York Law bonds today are basically in the hands of (a) the US judiciary with its non-performing “default” rulings, and (b) the International Swaps and Derivatives Association (ISDA), under direct oversight of the Federal Reserve Bank of New York, for credit default swap (CDS) settlement purposes where (beyond belief!) Elliot Management Corporation – the parent company of plaintiff NML Capital – is a voting member (Hayakawa 2014). Logically and geographically, (a) and (b) should not be applicable to Argentine bonds issued under other jurisdictions such as London or Tokyo.

Unfortunately, in this case, logic is rarely the rule. Judge Griesa leads the lot, including his sophomoric judgments declaring the sovereign Republic of Argentina in “contempt of court” or that its payments are “illegal”. After six turbulent months, neither Argentina’s legitimately restructured bond holders nor have the Cayman Islands’ vulture funds collected a penny. Possibly they never will, unless Judge Griesa’s rulings are revoked or something to that extent, as was proposed in a piece in The New York Times (Norris 2014b).

The US judiciary, including its Supreme Court of Justice (SCOTUS), has been clearly ineffective regarding the Argentine case (Vilches 2014). Indeed, US Supreme Court Justice Ruth B Ginsburg has openly dissented with the “exorbitant” 16 June 2014 decision taken by her SCOTUS colleagues whereby financial service providers – clearinghouses, banks, trustees, fiscal agents worldwide – are now sovereign debt enforcement agents.

Default Check

The US judiciary authorities have ruled that despite timely and proper disbursement of restructured due payments, Argentina has supposedly defaulted by failing to meet an unprecedented interpretation of its financial obligations towards 1% of its restructured bondexchange holdouts (Öncü 2014a).

Furthermore, terms such as “technical default” and/or “selective default” and/or “partial default” have been artificially and hurriedly coined by third parties in their attempt to capture the essence of the resulting confusion.

Insisting again on proper semantics, we doubt the value of this widely-used “ex-post-facto” terminology. Being in default “somewhat” is like being “somewhat” pregnant.

Be it as it may, not so fast.

For example, the ISDA is the only authority entitled and empowered to enforce the settlement of Argentina’s CDS obligations.

Interestingly, the ISDA does not even attempt to invoke the term “default” or any of its respective flavoured variations in the case of Argentina. Instead, the ISDA declared that Argentina has incurred in a “failure to pay credit event”.

The Federal Reserve Bank of New York was actively involved in establishing timelines for dispute resolution and auction hardwiring of CDSs, while supporting “the permanent incorporation of the auction-based mechanism in order to increase the certainty, transparency and orderliness of settling CDS transactions following a credit event” (FRBNY 2009: 6).

Once again, interestingly, the New York Fed also does not deal with any type, shape or form of “defaults” (Duffie, Li and Lubke 2010).

The Good, the Bad and the Ugly

We argue that the inconsistency of terminology used throughout the financial community and the lack of common definitions may not be all that innocent.

One explanation is that the entire financial world has not been able to get its act together on some fundamental matters, thus making the whole system inconsistent and, thus, ineffective.

Another possibility is that the above confusion was allowed and perpetuated on purpose so as to have all possible options open, as with Argentina’s case today, making it fully discretionary rather than “certain, transparent and orderly” as the New York Fed and ISDA say it is supposed to be.

Or maybe it is just another glaring case of international financial incompetence.

Jurisdiction and Applicable Legislation

True enough, the Republic of Argentina did issue New York Law restructured bonds. But such bonds are not within the legal scope of parochial “contract law”. Semantics again. The Latin etymology of the term “Republic” is “res publica” meaning “public thing, matter or affair”. So public law rules here, not private law.

Georgetown University academic Adam Levitin has described Argentina’s case as “a high-stakes game of chicken with a sovereign state…that US courts cannot and should not win… abstention would have been the right approach” (Levitin 2014).This case involves a sovereign state with 45 million people and their futures are at stake. This is not a family gourmet restaurant in Upper Manhattan under a run-of-the-mill Chapter 11 bankruptcy process whereby creditors jockey for anything up for grabs, refrigerators included.

“Sovereign” means “supreme independent authority not subject to any other power or state”. It is not called “sovereign debt” for nothing. In the case of a sovereign state such as the Republic of Argentina, local legislation is an acknowledged part of its bonds wherever they are issued, New York or elsewhere. The Republic of Argentina has specific legislation regarding its sovereign debt payments, which it necessarily has to abide by. Otherwise, Argentina would be violating its own laws while simultaneously ceasing to be a sovereign republic.

In case of a disagreement with what was accepted by 92.4% of the original creditors, the 1% of the remaining creditors should sue before Argentine Courts of Law, not before the Wall Street tribunals.

In turn, the US judiciary should abstain from getting involved in a case completely outside its scope as it will not solve, nor help to solve, sovereign debt restructuring processes such as the many that are threatening to hard land upon the world’s economy these days.

Effective Payment

The trustee banks’ “Trust Indenture and Prospectuses” of Argentine restructured exchange bonds foresaw two different payment mechanisms. The first one was through intermediary trustee banks. The second one was direct payment to bondholders who wished to get paid without intermediation.

In the first case Argentina’s responsibility ended as soon as trustee banks received the funds. In the latter case, it was Argentina’s specific responsibility to ensure that bondholders received the payment.

Argentina has regularly paid 92.4% of the original creditors who agreed to the restructuring through its intermediary trustee banks as allowed by the Trust Indenture and Prospectuses, thus making trustee banks responsible for delivering payment to bondholders, not the Republic of Argentina.

But then Judge Griesa surprised the whole jurisprudential world yet again by deciding to “freeze” Argentine payments as an additional unprecedented nuclear option of an “exorbitant” US court system.

Accordingly, bondholders (including George Soros and Kyle Bass) have already sued trustee banks thus contributing to the relentless confusion and nonperformance. Adding insult to injury, the above “freeze” includes the British and Japanese Law bonds also, not only the New York Law bonds. Top-tier sovereign debt international authority Anna Gelpern is on record saying, “It’s scary” (Norris 2014b); “The world of sovereign debt is deeply dysfunctional” (Gelpern 2014).

The jurisprudential impact of this transnational overreach is unfathomable. Let us just imagine a Chinese judge saying: “If you don’t pay us you are violating the Chinese law”.

Argentina continues to insist on paying the remaining holdouts including the vulture funds exactly the same it has always paid the other 92.4% of creditors at a 300% profit for vulture funds (Herman 2014). Common sense indicates that this should be good enough for any bankruptcy situation. Otherwise a 99.99% creditor’s agreement would also mean “default” (sorry, “credit event”). Think Detroit (Davey and Walsh 2014).

A Quick Quiz

Q: Did Argentina “default”?
A: No, because it did not “fail to meet its financial obligations” as Argentina did pay 100% of its restructured bondholders duly and fully through its trustee banks as foreseen in the restructured bond Trust Indentures and Prospectuses.

Q: Did Argentina incur in a “failure to pay credit event”?
A: No, because Argentina’s officially registered trustee banks duly received 100% of the restructured sovereign debt payments in full compliance with the bond Prospectuses.

Q: Did Argentina fail to comply with the “pari passu” clause specified in its bond Prospectuses?
A: No, because Argentina has repeatedly and emphatically proposed to pay every single original sovereign debt creditor exactly the same that was agreed with 92.4% of its creditors.

Q: Has Argentina been victim of judicial extortion?
A: Yes, among other things, because the US judiciary has (a) illegally “frozen’” Argentine payments that belong to their rightful owners, namely, the restructured bondholders, and (b) because it has allowed vulture funds direct access to US listings of Argentina’s seizable assets worldwide.

Q: Should the restructured bond holders make any claims on Argentina?
A: No, because Argentina opted to pay them through the officially registered trustee banks, not directly. It is Judge Griesa and the trustee banks they should go after.

See the original article for references

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45 comments

    1. R. Foreman

      Does the USA perpetually default by devaluing its currency nearly 100% over the past 100 years? Yes. Details matter.

      Is the default of a government borrowing in another currency a slap in the face to the foreign government? Yes, this looks like a personal affront, and one which is intended to send a message. US politicians and bankers should recognize their own medicine when they see it.

      Does the lender know that the risk of default exists, even with a government? Yes they do, and if they are wise they will hedge this risk. However sometimes these lenders engage in pure speculation instead of investment, and we are all saddened when they lose all their principle. This is typically driven by extreme greed and loose or non-existent controls.

      Did the lender in this case learn a lesson? I certainly hope they did. Market feedback mechanisms such as this are important to keep them running smoothly. Hopefully no money managers were fired for making bets on risky bond issues by a hostile government.

  1. Jim Haygood

    All this legalistic sophistry … and not a word acknowledging that a month after expiration of the RUFO (Rights Upon Future Offers) clause, Argentina still refuses to negotiate with the plaintiffs.

    Argentina’s president is a recalcitrant debtor who plans to run out the clock on her term posing as the victim of vulture funds, in the same way that she’s somehow painting herself as a victim in the mysterious death of prosecutor Alberto Nisman, the night before he was to present evidence against her in Congress.

    On 25th October, a new president will be elected to step in and clean up the mountain of dog poop left behind by the flakette. Until then, enjoy the melodrama!

    1. diptherio

      What percentage of bondholders need to refuse a re-structuring in order for you to declare it a default? 1%? 0.1%? 0.01%?

      Also, why is 300% profit not good enough for the vulture funds? I understand that people are often greedy f**ks, but I don’t understand why the gov’t of Argentina should be forced to act based on that greed. Please explain your moral reasoning.

      1. craazyboy

        hahaha.

        Vulture fund manager screams “Make Me Whole!”.

        Judge awards 3 cents on the dollar.

        Prolly should work that way.

    2. YankeeFrank

      The tenderness of your sympathies towards this vulture fund is touching. Your convenient omission of the fact that Elliot’s “negotiation” is to demand 100% payment on the debt it purchased for pennies on the dollar is not quite so touching. Your omission of the fact that if Argentina agreed to pay what Elliot demands it would force Argentina to then pay all its creditors those same terms, thereby forcing Argentina into an economic collapse is also not so touching. Your conflation of this situation with highly charged political homicide/suicide is also not so touching. Your omission of the fact that the debts in question were incurred by a corrupt and criminal military junta that managed to loot the funds in question that never went to benefit the people of Argentina, and that the creditors who so lovingly agreed to loan money to aforementioned corrupt despots conveniently deny any culpability for these deals; that you serially deny, in the grand neoliberal tradition, that creditors bear equal responsibility as debtors for the loans they make… all make you singularly ill-equipped to comment on this mostly ridiculous situation with any degree of objectivity, balance or integrity. Perhaps you should invite Judge Griesa on an open-ended vacation so the two of you can continue your incoherent, immature and irresponsible jabberings on this subject in a bubble of your own making, thereby reducing the chances that he will do any further damage to the law.

      1. jsn

        Beautiful! I’ve copied this to deploy, with full credit, whenever necessary. Thanks!

        “Thinking fast and Slow”: Jim thinks fast, but our moral heuristics always go awry when deployed on infrastructures that are the products of man rather than nature. In this instance Justice and finance, two infrastructures dependent on intricate logical structures absent in our natural habitat, have masked the facts beneath a dense matrix of the logical and with them the practical realities underlying a situation. The veil of logic is so opaque that Jim just deploys his moral heuristic to the headline icons, conflates the whole thing into a personal soap opera and then blames the victims (people of Argentina) without even realizing it.

      2. Christopher D. Rogers

        One of the best, well argued and well reasoned “put downs” I’ve read for a long time. +11 for that in reverence to Spinal Tap.

    3. Doug Terpstra

      Jim, your consistent advocacy of vultures’ interests in Argentina begs full disclosure of your personal interests. You don’t foam like a rabid russophobe, but your exceptional focus does seem like the vendetta of a scorned investor or disgruntled emigrant.

      If not, I wonder how what looks to my lying eyes like classic IMF/neoliberal looting in Argentina really differs from the debt entrapment by economic hitmen so pervasive throughout Latin America, and obviously now in Southern Europe. How does Argentina’s crisis differ from its previous one or from Greece’s today?

      “… the economic suffering of so many is largely gratuitous, economic predation carried out under the pretense of material constraints. As with Argentina in the early 2000s, Greece has an ‘internal’ kleptocracy with ‘external’ alliance to international bankers through the economic lever of external debt…

      “…When an audit of Argentina’s [c.2000] debt was conducted some 70% of it was found to be fraudulent, private debt undertaken by private interests for their own benefit that was turned into public debt to rob the Argentinian people.”

      http://www.counterpunch.org/2015/01/30/greece-the-us-and-the-neo-liberal-coup/

      1. Katniss Everdeen

        This is an extraordinarily great article. It reads like the Cliff Notes for The Shock Doctrine.

        It’s impossible to pick out the pithiest sentence, since they are all pithy.

        But the concept of ” fraudulent, private debt undertaken by private interests for their own benefit” deserves particular attention, in my opinion.

        Especially when this comment from Llewelyn Moss on the Links Page is considered:

        Speaking of Pallets of Lost War Cash

        “The United States Congress has appropriated nearly $65 billion towards training Afghan security forces since 2002 — but how that money is spent just got a lot more difficult to track.

        The American command in Afghanistan has decided to classify details on how money is being used, according to a quarterly report released on Thursday by the Special Inspector General for Afghanistan Reconstruction (SIGAR).”

        http://www.pbs.org/wgbh/pages/frontline/afghanistan-pakistan/how-is-american-money-being-spent-on-afghan-security-forces-its-classified/

        It’s ALMOST hard to believe that these vulture funds are being allowed to press their case as viciously
        as they are. If TPTB aren’t careful, people are going to find out what’s really going on. As the Greeks and Argentinians evidently have.

    4. Massinissa

      You comment on Venezuela and Argentina every single day. Whatever you have against them is highly personal for you to devote this much time and effort into talking about it. Are you in finance?

    5. skippy

      Jim are you channeling Locke again… ???

      Is Argentina a defeated combatant whom is relegated the status of slave or lessor bound by an authority clause for limited self rule as long as it pony’s up indefinitely.

      Skippy… not to forget that suicide is forbidden clause [debt is not allowed to – off its self – voluntarily]… only Gawd gets to decide that outcome… or his agents… imagine all the slaves repudiating their debt in a mass exodus… horrifyingly worse than a bank[s run….

      1. ambrit

        All those slaves Exodusing became a real pain in the a–e for the Philistines too! What’s a Baal got to do to get any respect around here?

    6. George

      Beloved Jim,

      To RUFO or not to RUFO ?
      Wrong question my friend.

      Your only question should be :
      Will vulture funds accept what Argentina has offered them and everybody else, including 92.4% hold-ins ?
      Yes or no ?
      That’d mean a 300% ROI for vulture funds.
      Fair enough Jim ?
      I’ll tell ya man, they’d better accept it, and not just because it is a VERY handsome profit by any standard…

      What do I mean ?
      Well, I’ll now have to let you in a dirty little secret that everybody in the know has already digested.
      Are you listening ?
      Argentina, for the rest of this century, will not have the foreign reserves to pay for anything other than hold-in compensation and ONLY if and when agricultural commodities maintain or increase their current price and the barrel of oil maintains or decreases its current price. Argentina is a huge exporter of the former and a huge importer of the latter. Otherwise, not even that… and the world’s current debt-deflation trap doesn’t seem to be helping any for this price ratio, is it ?

      So tell your vulture buddies for their own good to grab the money already offered and run away fast.
      Because debts that can’t be payed, won’t be.
      It’s not an opinion guy, it’s history.
      For starters, think Germany 1953 and Greece 2015.
      And if Argentina is forced to (really now) default again, literally no one will get a single cent (no matter which party is elected in October) because no money no pay. You follow ?

      ‘Not fair’ I hear you say ?
      Well, as fair as the 15% p.a. interest Argentina’s bonds offered when US T-Bills payed 10 times less.
      Why the difference ? Maybe the implied risk had something to do with it ?

  2. susan the other

    Shades of a TPP tribunal. This is the ghost of things to come if Scrooge doesn’t mend his ways. Griesa seems to think he is immune from the law. And he doesn’t care whether it is international law or private contract law. Funny. He can and should be removed from the bench. Because even tho he is a dedicated and aggressive idiot he can still set judicial precedent. In this case he would be setting a sovereign law precedent via a private contract trial. Not good. Why no change of venue here? To a different country; different code altogether.

    1. susan the other

      Plus Griesa might even be very clever. Allowing a sovereign default and legitimate restructuring to be redefined as a “credit event.” It’s as if he wants everyone to think the law itself is also a credit event, instead of a political institution.

    2. Oregoncharles

      I believe Argentina has taken their case to the World Court – so yes, there is another venue.

      The article doesn’t even quite do justice to the breathtaking quality of Griesa’s overreaching. He’s essentially ruled that no other nation is sovereign.

      What he’s actually accomplished, though, may be a very good thing: he’s ended New York’s control of sovereign bond issues. Never again will another country agree to use US banks or exchanges for this purpose. That’s bad for those banks, of course, especially cionsidering they’re now between a rock and a hard place with Griesa himself, but it should be an improvement in the world financial system.

      Ultimately, of course, we have to end the rule of the bond “markets.” Anything Thomas Friedman sang the praises of is obviously a bad thing. How that is to be done … I have no idea. But this event and the default Greece is obviously headed for should be important steps on the way.

  3. susan the other

    And the Greeks too. The ECB/Troika has been maneuvering to define the GIPSI’s debt as “sovereign debt” while at the same time preventing any sovereign solutions to their debt. The EU situation is every bit as illogical as the US civil courts defining away the significance of the word “sovereign.” But the EU has been more subtle in its deceptions.

  4. Yuri

    Obviously the entire purpose of issuing the “New York Law restructured bonds” was to be under the jurisdiction of the New York courts.
    Also a restructuring is a restructuring. If Argentina did not want to pay the 1%, it shouldn’t have signed the restructuring agreement.
    Clearly a default.

    1. George

      Yuri,

      A nation state by definition is necessarily (1) duly recognized by all or other nations on planet Earth and (2) also, by definition, it is “sovereign”. Sovereignty is an inalienable right and, as such, it can’t be signed away, no matter what, the same way you and I can’t sign away ours.
      So far this is plain high school Civics 101.

      Now then, yes, the jurisdiction is New York courts… but duly taking into account that you are dealing with a sovereign nation-state (with 45 million people in it and their future descendants).

      When you say a “restructuring is a restructuring” I guess that you are trying to say is that a deal is a deal.
      And that’s exactly why if 92.4% accepted the offer, common sense indicates that a tiny sub-group of less than 1% can’t just torpedo the whole deal.

      Argentina has repetadly insisted it can and will pay every single one of its creditors the same restructured terms and conditions it has payed the 92.4% of hold-ins. What more ‘pari passu’ could you want man ?

      So, no, it’s clearly not a default.
      It’s rogue US courts.

      Yuri, I suggest you re-read the whole article slowly, particularly the “Jurisdiction and Applicable Legislation” paragraph.

      1. Yuri

        George,

        Personal sovereignty is an inalienable right while state sovereignty is not.

        Here is an example and there are many others:

        The Newlands Resolution said, “Whereas, the Government of the Republic of Hawaii having, in due form, signified its consent, in the manner provided by its constitution, to cede absolutely and without reserve to the United States of America, all rights of sovereignty of whatsoever kind in and over the Hawaiian Islands and their dependencies, and also to cede and transfer to the United States, the absolute fee and ownership of all public, Government, or Crown lands, public buildings or edifices, ports, harbors, military equipment, and all other public property of every kind

        In the case of Argentina it had ceded its sovereign rights as related to the restructured bonds to the state of New York. The elected government of Argentina did it acting in a sovereign manner.

        We are not dealing with a sovereign nation of 45 million people even less with their future descendants. We are dealing with the government of Argentina and the documents they sign. It is the government of Argentina who is dealing with its own people and is answerable to them.

        92.4 % accepted the offer and the remaining 7.6% did not. And that is exactly what the restructuring agreement states. Violating the restructuring agreement or attempting to re-negotiate it is a default.

        1. George

          Yuri,

          So you are now suggesting that Argentina ceased to be a nation-state from the instant it issued these New York Law bonds. Wrong Yuri, wrong. Argentina did not become Hawaii nor any other US State or Province or Territory or Base for that matter, unless you take inspiration from “Tricky Dick” Nixon-appointed Judge Griesa (85) and his ilk.

          And wrong wrong again Yuri, because state sovereignty is just as inalienable as any other nation-state right. Semantics does matter as the authors say, and it’s not called “sovereign debt” for nothing man, or else it would be called plain ‘debt’ not SOVEREIGN debt !!

          Argentina, same as any other sovereign nation-state, never ceases to be such.
          It has its own laws and, in this case at least, utterly specific for default situations which Argentina has undergone many times already, as is widely known.

          Yes Yuri yes, you are dealing with a “sovereign nation of 45 million people and their future descendants” not with the government of Argentina as it (obviously) has no money. What you propose means waterboarding taxes and slave work from Argentines leading to pretty much immediate death (literally). But killing the host wouldn’t get anyone paid…

          1. Yuri

            George,

            Not sure why you keep insisting that state sovereignty is an inalienable right when there are many examples to the contrary. State sovereignty could be ceded in full ( as in the case of Hawaii ) or in part as in the example below:

            http://www.theguardian.com/politics/2014/jan/29/independent-scotland-cede-sovereignty-currency-union-uk
            Independent Scotland ‘needs to cede sovereignty’ for currency union with UK.

            Argentina clearly ceded its sovereignty with respect to the restructured bonds by issuing them as “New York Law restructured bonds”. If you have another interpretation of this please let us know, but the argument regarding the Inalienability of the state sovereignty is simply not valid.

            The government of Argentina issued the restructured bonds as “New York Law restructured bonds” acting in the best interest of the 45 million people it represents, This is exactly what makes it a sovereign.

            Argentina is not paying because it has no money as you state, or Argentina has the money but is refusing to pay to the “vulture funds” as a matter of principle as I see it,. one way or another it is a default.

            1. George

              Yuri,
              So you are now telling us how well the Euro sovereignty problem worked out.
              Gee, thanks for the help, and welcome to the Mother of all Sovereignty problems in the history of mankind. As per your own article cited, Carney (BoE):
              …”…Those risks have been demonstrated clearly in the euro area… with SOVEREIGN debt crises and financial FRAGMENTATION”

              Can’t you see it just doesn’t fly ?
              And that’s precisely Europe’s bloody drama (literally) TODAY.
              No political union, no fiscal union, no banking union… but yes, currency union with loss of monetary sovereignty (ha !)
              Think Greece, think PIIGS, think war… which is the only way they’ve always solved it, whatever the packaging.

              Republic of Argentina = “Res publica”.
              It doesn’t get any more “public” than that Yuri.
              Semantics again.
              Parochial private contract law does not apply.
              Application of New York law doesn’t mean excluding what the authors explain.
              Do re-read the article Yuri, particularly the “Jurisdiction and Applicable Legislation” paragraph.

              –“Real hurt, real people” —
              Judge T. Griesa announced without batting an eyelash (Bloomberg News, 22 July, 2014)
              No, it’s not a family restaurant in the Upper East Side…

            2. George

              Yuri,
              So you are now telling us how well the Euro sovereignty problem worked out.
              Gee, thanks for the help, and welcome to the Mother of all Sovereignty problems in the history of mankind. As per your own article, Carney (BoE) :
              …”…Those risks have been demonstrated clearly in the euro area… with SOVEREIGN debt crises and financial FRAGMENTATION”.

              Can’t you see it just doesn’t fly ?
              And that’s precisely Europe’s bloody drama (literally) TODAY.
              No political union, no fiscal union, no banking union… but yes, currency union with loss of monetary SOVEREIGNTY (ha !)
              Think Greece, think PIIGS, think war… which is the only way they’ve always solved it, whatever the packaging.

              Republic of Argentina = “Res publica”.
              It doesn’t get any more “public” than that Yuri.
              Semantics again and again.
              Parochial private contract law does not apply.
              Application of New York law doesn’t mean excluding what the authors explain.
              Do re-read the article Yuri, particularly the “Jurisdiction and Applicable Legislation” paragraph.

              –“Real hurt, real people” —
              Judge T. Griesa announced without batting an eyelash (Bloomberg News, 22 July, 2014)
              No, it’s not a family restaurant in the Upper East Side…

              1. Yuri

                George,

                I am not talking about Europe or Hawaii, just providing examples to illustrate that state sovereignty is not inalienable.

                Argentina did exercise its sovereignty when ceding a portion of it to the state of New York with respect to a given issue. As a sovereign it chose to subject the restructured bonds to the New York law. Parochial private contract law does apply because Argentina decided and chose so when it signed the restructuring agreement as a sovereign. This is true unless you believe that Argentina signed the agreement under some sort of a military pressure.

                As a sovereign Argentina can now decide to the contrary. It can say we changed our mind and no longer want to be under the New York law. But that is exactly what default is with respect to the restructuring agreement it had signed previously.

                1. George

                  Unless you have something really new to add, please just re-read my previous posts. I rest my case.

                  1. Yuri

                    I will re-read your posts as soon as you go back to that “plain high school Civics 101” class and as long as you promise to pay better attention this time around.

                2. George

                  Yuri, your definition of default (see last sentence above) is certainly unique (just like Griesa’s rulings, hmmm…) and it would establish spanking new jurisprudence. You should nominate yourself for SCOTUS membership ASAP.

                  No Yuri, you are wrong, again.
                  Did you read the article ?
                  ————————————————————————–
                  Q: Did Argentina “default”?
                  A: No, because it did not “fail to meet its financial obligations” as Argentina did pay 100% of its restructured bondholders duly and fully through its trustee banks as foreseen in the restructured bond Trust Indentures and Prospectuses.

                  Q: Did Argentina fail to comply with the “pari passu” clause specified in its bond Prospectuses?
                  A: No, because Argentina has repeatedly and emphatically proposed to pay every single original sovereign debt creditor exactly the same that was agreed with 92.4% of its creditors.

                  Q: Has Argentina been victim of judicial extortion?
                  A: Yes, among other things, because the US judiciary has (a) illegally “frozen’” Argentine payments that belong to their rightful owners, namely, the restructured bondholders, and (b) because it has allowed vulture funds direct access to US listings of Argentina’s seizable assets worldwide.

                  Q: Should the restructured bond holders make any claims on Argentina?
                  A: No, because Argentina opted to pay them through the officially registered trustee banks, not directly. It is Judge Griesa and the trustee banks they should go after.

  5. Peter Pan

    A US court ruling has warped the otherwise precise meanings of three key words – “republic”, “sovereign”, and “default” – leading to absurdities like a New York district court holding the Republic of Argentina in “contempt of court”!

    Well, by golly gosh, surely this equates to WMD’s and the GWOT, so let’s go to full scale war with Argentina and imprison the entire population as war combatants in Guantanamo Bay for contempt of court.

  6. cripes

    It appears this is just an application of the supra-national law concepts embodied in trade pacts like the TTP and TTIP. Judge Greisa is just speeding up the calendar and reducing it to “we are the sovereign.” Is there any clearer illustration of economic empire?

  7. James Cole

    I think you’re reading a little much into the use of the phrase “credit event” by ISDA. “Credit Event” is the term used in the set of legal definitions published by ISDA that practically all credit default swaps incorporate into their terms. A “Credit Event” is a broader concept than “default” because market participants want credit default swaps to pay on a broader set of occurrences than only those that can be categorized as “defaults.” But the determination by ISDA that there was a “Credit Event” shouldn’t affect the legal proceedings over the bonds themselves, the same way that bets on football games in Vegas shouldn’t affect how referees rule in the games.

  8. George

    The ISDA ,and its oversight institution the Federal Reserve Bank of New York, never ever use, apply, invoke, or define the term “default” except in the very name they both assigned to the financial instrument they created, namely Credit “Default” Swaps (CDS). It’s definetly curious, isn’t it ? Markets should be necessarily be mislead by such mis-nomers. The authors state that such inconsistency may not be by accident. Please re-read carefully.

    1. James Cole

      George,
      I did read carefully, and I am saying that author’s statements regarding ISDA’s and the FRB’s non-use of the term “default” are simply incorrect.
      “The ISDA ,and its oversight institution the Federal Reserve Bank of New York, never ever use, apply, invoke, or define the term ‘default'”
      1. The Federal Reserve of New York does not formally supervise ISDA. ISDA is a private global trade association with many non-bank members.

      2. The main proposition is incorrect: here is the word “default” in the title of a Board of Governors report from 2012:

      http://www.federalreserve.gov/pubs/ifdp/2012/1047/ifdp1047.pdf

      Another report with ample references to sovereign default:
      http://www.federalreserve.gov/pubs/ifdp/2014/1104/ifdp1104.pdf

      Here is ISDA using “default” on its webpage explaining how credit default swaps work:
      http://www.isdacdsmarketplace.com/about_cds_market/how_cds_work

      and many times over in the exhibit to the CDS definitions:
      http://www.isda.org/publications/isdacredit-deri-def-sup-comm.aspx#isdacrd14

      1. George

        Dear James Cole
        Sorry to tell you, the authors are right, you are wrong.

        You say:
        “1. The Federal Reserve Bank of New York does NOT formally supervise ISDA.”
        Yes it DOES. Check out these official Fed sources related to Derivatives Supervisors :
        * http://www.newyorkfed.org/markets/otc_derivatives_supervisors_group.html
        * http://www.newyorkfed.org/newsevents/news/markets/2009/ma090312.html
        * www2.isda.org/attachment/NDM1NA==/AGM2012_DCanniversary_appendix_043012.pdf

        2. Yes, they do mislead anyone and everyone in an organized yet non-readily-visible fashion.
        So, they do use the word “default” here and there…
        Of course, that’s the trick, specially in the very NAME of the financial product, i.e., Credit DEFAULT Swaps, but
        (a) they never ever define it
        (b) ISDA uses the term “failure to pay credit event” instead (remember “show me the money” ?)
        (c) Standard & Poor’s coins the term ‘selective default’ (?) (how creative but… what does it mean ?)
        (d) TBTF banks talk about ‘partial default’ or ‘technical default’ (??) (join the party)

        Semantics, semantics… is invoked in the very first sentence of this article, isn’t it ?
        Come to think of it (wow) semantics is the heart of the article !

        Guys, stop beating around the bush.
        (a) Argentina paid hold-ins duly and promptly.
        (b) Argentina is willing to pay hold-outs the same as hold-ins, also duly and promptly (‘pari passu’)
        (c) Octogenarian, health-impaired, sleeps-naps-anywhere Judge Griesa with his all-over-your-face extraterritorial overreach instituted his now arch-famous “Griesafreeze” and no one (literally and for an undefined period of time) gets paid a single penny starting June 2014 (seven months ago)

        That is, a non-performing ruling, exactly the opposite of what judgments are supposed to be.

        Just re-read the article guys.
        Its short, to the point, factual.
        I liked it !

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