Ignacio Portes: Paul Singer v. Argentina – A Thriller Reaches Its Climax

By Ignacio Portes, a freelance journalist who lives in Buenos Aires. He has been published in English at PandoDaily and NsfwCorp

The protracted legal saga between Argentina and NML Capital, Paul Singer’s hedge fund, owner of a fraction of Argentina’s non-restructured, pre-2001’s default debt, went through a decisive moment last week, when the Supreme Court of the United States declined to hear Argentina’s appeal. This means that the Bank of New York Mellon is still forbidden from allowing any payments made from Argentina to the ample majority of bondholders that accepted the restructuring to go through, unless NML Capital is also paid in full, with no reductions, in the same act, because of New York’s Southern District Judge Griesa’s ridiculously harsh interpretation of the “pari passu” clause as meaning that NML Capital can’t be “discriminated” from full payment just because it didn’t accept the restructuring offers.

With the “stay” order lifted after the Supremes Court’s decision, Argentina faced a huge conundrum that needs solving before June 30th, when an interest payment on its restructured debt is due. The country could either pay both the restructured bondholders and Paul Singer’s vulture funds, or get creative to find workarounds to avoid default without paying them.

Swallowing national pride and paying NML Capital the roughly $1.5 billion of debt it owns might look feasible at first sight, but it isn’t. After Singer is paid, the rest of the holdouts would demand equal treatment and, given the legal precedent, they would probably get it. If all the holdouts that own the 7% of debt that Argentina couldn’t restructure after its 2001 default get their way, it could multiply the amount Argentina is forced to pay by about ten. And $15 billion is half of Argentina’s already weak FX reserves, which, with Argentina’s currency already punching above its weight, would surely mean a big devaluation or a run against the peso.

And that wouldn’t even be the end of it: there’s still the Rights Upon Future Offers (RUFO) clause in the exchanged bonds’ contract, which says that the 93% of debt that Argentina did restructure cannot get worse treatment than the other 7%, so if the 7% is paid in full, the haircut given to the other 93% could be declared null too, and Argentina’s massive 2005 debt renegotiation could even fall completely: in that scenario, Argentina would suddenly have to pay an extra in the range of 100 to 200 billion dollars to the bondholders that had originally accepted restructuring. It might not get that bad, as there could be negotiations and reductions with both the holdouts and the holders of restructured debt, but it would still be massively bad news for Argentina’s debt.

The other option is getting creative. And this is the route that Argentina has apparently decided to take and, despite what some Very Serious Economists in Argentina might tell you, it seems the most responsible one.

The possible creative paths were all difficult. One of them was trying to set up a payment to the holders of the 93% of bonds, that Argentina has so far been paying without trouble, outside of New York, where no US Judge will block the payment until Paul Singer and co. get theirs, but many would consider that a violation of the terms originally agreed, and a technical default too.

Another (murkier) avenue some finance commentators suggested exploring was making a deal behind the scenes with a third party, such as an international bank, or a conglomerate of Argentine investors in which the government could trust, which should buy Singer’s bond at a price that would suit him (full value, or close to it), then accept Argentina’s restructuring offer, with a reduction similar to what the other bondholders accepted, and be compensated in some dodgy way behind everyone’s back. Give them some new bonds after the operation was completed and the RUFO clause avoided, promise them access to some unrelated, juicy state contracts in the future, whatever it takes to ensure the RUFO clause doesn’t get triggered. But there’s little time to pull that off, as the next payment to exchange bondholders is due on June 30th, and a court of law might object to the procedure too, if the holders of some of that 93% of restructured debt legally protested about this being just a convoluted mechanism to avoid paying them as much as they were paying the inflexible vultures.

So Argentina seems to have settled on something close to what Georgetown law professor Adam Levitin suggested at Credit Slips.

Hours ago, economy minister Axel Kicillof announced that Argentina has just deposited the money for the June 30th payment to the restructured bondholders, just short of a billion dollars, most of it at the Bank of New York Mellon (BNYM), which is contractually in charge of most of the operation. As New York’s Southern District Judge Judge Griesa’s ruling forbids BNYM from effectively transferring that money to each of the bondholders, a prohibition that NML Capital reminded BNYM minutes after the Kicillof’s announcement, the situation could enter a sort of legal limbo, that could be in line with Levitin’s described scenario:

I think this tees up two intriguing scenarios that would potentially play well for the Republic.

Scenario 1: No Payment, and No Default. In the base scenario, Argentina avoids default by offering to pay BNYM, and BNYM declines the payment without any liability. Argentina, then hasn’t paid anyone and still hasn’t defaulted. The result is that the obligation remains in a sort of suspended animation. In theory this could continue indefinitely. But no default, so no cross-defaults, and the Republic gets to hold on to all of the funds (interest would accrue, but that’s nothing different). This actually seems like a reasonably good outcome for Argentina, as it puts Argentina in a good position to force some sort of negotiated settlement and incentivizes the exchange bondholders to buy out the holdouts so that they can get paid on the exchange bonds.

Scenario 2: Trustee Files an Article 77 Petition in NY State Court and Gets a State Court Ruling on Pari Passu. Faced with the base scenario’s strange limbo of no payment and no default, BNYM could go to New York Supreme Court with an Article 77 petition seeking advice from the state court about what it, as a trustee, is supposed to do. Article 77 is a rarely used procedure, but BNYM has used it before, such as in the $8.5 billion Bank of America MBS settlement. What is particularly appealing about Article 77 here is that it is a very open-ended, ill-defined inquiry. That means that it might be possible to get the NY State court to rule on the interpretation of the pari passu clause (perhaps through an intervention by the Republic in the Article 77 proceeding). If that happens and the Republic got a favorable interpretation, then the Republic could then turn around and seek to get the federal court to rescind its injunction on something like a Rooker-Feldman doctrine basis. At the very least, going into state court with an Article 77 proceeding would buy the Republic some time, and it might be a way to get to what the Republic really wants, which is a New York State court ruling on pari passu.

And buying some time is absolutely vital for Argentina, because it means that it’s getting closer to the magic deadline of December 31, 2014, in which the dreaded RUFO clause that could, in the worst-case scenario, all but bankrupt the country’s finances, mercifully expires.

If Argentina manages to get to New Year without paying the vulture funds, at least it ensures that the 2005 and 2010 discounted bonds won’t suddenly cost the Republic a lot more money than the 35% of their pre-default and renegotiation value, plus interest, which is what they are costing right now. What’s more, it would also put Paul Singer’s hedge fund in a weaker negotiating position, as he wouldn’t have the threat of a new default hanging over Argentina’s neck to bully the country into paying him in full.

Singer’s lawyers know this, which is why they wrote this infuriated response to Argentina’s decision to deposit the money for the holders of the remaining 93% of bonds, in which they managed to spell wrongly the surnames of both Judge Griesa and Economy Minister Axel Kicillof.

It would all be an exciting, funny, financial thriller if it wasn’t for the fact that the destiny of lots of ordinary people depends on its outcome. Managers and CEOs in Argentina are already firing employees citing the negative impact of the increased risk of default as a reason. Conversations in the street deal with the courts in New York almost as often as they do about the World Cup in Brazil.

That scene could soon be repeated elsewhere: If Paul Singer wins this battle, it would set a bleak precedent for any sovereign in need to restructure a debt that becomes un-payable. Why would any Greek bondholder accept an agreement with some kind of reduction of capital or interests if he can then sue and get full value?

There’s more to be said on Argentina’s public debt saga: its history is long and damning for many, full of lessons on what’s been wrong with international finance these last four decades. We’ll get back to reconstructing that obscured part of the past and its relation with the future of sovereign debt policies soon. For now, hope the best for Argentina.

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  1. John

    Sad story. There seems to be no solution except for Argentina to pay up without the ability to do so. Argentina tried to avoid the IMF austerity edicts but may have to reach out.

    1. Nathanael

      There is no way that Argentina will pay the vultures; it lacks the US dollars. The US cannot enforce its rulings extraterritorially; gunboat diplomacy would be unsuccessful these days, and deeply unpopular.

      The US may attempt to lock Argentina out of the US-centric payment system. In which case the future lies in a Mercosur / Mercosul payment system. Watch for it.

  2. MikeNY

    I know there are usually (at least) two sides of a story, and I know Argentina has a spotty history of economic management…

    …but stories like this lend credence to the popular perception that Wall Street titans survive on a daily diet of babies’ blood.

  3. Jim Haygood

    La Nación says a hearing before Judge Griesa is scheduled this morning. Seems he’s got his own self in a bit of a box. Evidently, within the scope of prior rulings, all he can do is order BNYM not to distribute the funds they’ve received to exchange bondholders, absent payment to Singer et al (which Argentina did not remit).

    Kicillof showing up in New York and claiming that the plaintiffs are ‘unwilling to negotiate’ is just flaky. Naturally his antics angered the plaintiffs, and the judge likely will take their side.

    Arguably this whole mess is the result of Argentina’s hardball refusal to negotiate for the last four years. Portes is right that the court’s interpretation of pari passu is ridiculously harsh, but this dispute could have been settled before pushing it to the point of a ruling. Now the ruling has come down, and Argentina still refuses to negotiate. Prepare for fireworks from an outraged Griesa.

    If Kicillof dares to show up in court, he might be hauled out in shackles after a contempt citation.

      1. Jim Haygood

        Just as I said:

        Bank of New York Mellon Corp. must return a $539 million deposit from Argentina intended for restructured bondholders, a U.S. judge ruled, calling the transfer an “explosive action” that disrupted potential settlement talks with holders of defaulted debt.

        “This payment is illegal and will not be made,” Griesa said today at a hearing in Manhattan federal court. He warned that any attempt to pay restructured bondholders would be in contempt of court. Argentina, which defaulted more than a decade ago, said it would face a second default if forced to pay both.

        “It would be desirable, if it is possible, to have a settlement,” Griesa said to lawyers for both sides.


        Any questions?

      2. Jim Haygood

        From La Nación in Buenos Aires:

        ‘In another defiant move, today the government published a proclamation in all the local newspapers which formally announces a payment of $1 billion to bondholders who entered previous exchanges. In the notice, the Casa Rosada says that it thereby “disclaims any [further] responsibility or obligation that might be imputed” to Argentina.’



        Doubtless NML will submit a translation of this article to Judge Griesa as further evidence of Argentina’s defiance.

        What it comes down to is that Argentina has to pick up the phone and call their opponents … or else default on July 30th, which looks like their implicit choice.

        1. Nathanael

          Argentina doesn’t need to default — Argentina can tell its (restructured) bondholders that they’re free to come pick up their interest payments in Buenos Aires. I’d expect this.

    1. susan the other

      Wouldn’t pari passu have to do with the individual underlying contracts – if there are differences how can a judge say one size fits all? Or are they all the same? And another question, Do Singer et. al. only want to trigger a credit default because they also hold debt instruments that could clean out AIG again? Or is this something else altogether?

      1. Ignacio Portes

        Argentina suspects that Singer might own CDS, and that there lies the reason for his intransigence. NML’s lawyers have denied it, but in a not very convincing way. “I am told we don’t own any CDS on Argentina, but it wouldn’t make any difference if we did”, they said in court (I’m quoting from memory, but that was the message).

  4. EoinW

    How about a third option(not a very nice one and a high risk one)? All countries have agents and spies whose duty is to protect the interests of the country(government). Why not send a hit man to visit Paul Singer? Call it the Charlotte Corday Solution – kill one and the rest will be afraid. Do you think these vulture capitalists will want to tangle with Argentina after that? They are financial bullies because there’s no risk to their activities. Throw in a little life threatening risk and see them switch to preying on more docile victims. You can’t tell me only NATO governments put next to no value on human lives.

      1. EoinW

        Nice point, however I don’t think an entire country – not one the size of Argentina – can simply be exterminated. I guess my point was how absurd it seems for a country to be bullied by some Wall Street stuffed shirts. Surely the country has all the power, while the financiers rely on endless threats, hoping their bluff is never called. Naturally if financiers control the governments of these countries then they’ve got both sides of the argument covered. Which explains why the global economy is what it is.

    1. Deaf Smith County

      Yves herself made the comment to Bill Moyers that there are a lot of guns available in this world without needing to elaborate that there are enough people crazy, desperate, and outraged enough at arrogant, parasitic, sociopathic, banksters for them to go merrily out shopping, dining and carousing without body armor, armed escorts watching their backs, spouses, girl friends, and children, and turning their homes into fortresses.

  5. Chen

    “If Paul Singer wins this battle, it would set a bleak precedent for any sovereign in need to restructure a debt that becomes un-payable.”

    Can’t they just leave this pari passu clause out of future debt offerings? It doesn’t sound like it’s required by NY securities law. Alternatively, issue bonds under your own country’s laws and pay the risk premium.

    1. Jim Haygood

      Contemporary bond indentures have collective action clauses, so that two thirds or three fourths of bondholders can cram down a settlement on holdouts.

      Having a pari passu clause without a collective action clause may enter the Guinness World Records as one of the costliest legal drafting errors ever.

    2. Ignacio Portes

      The problem is many of those bonds are already issued, so the pari passu clause might already be there in large parts of the debt from troubled countries that is already in the markets. If another Paul Singer doesn’t accept to exchange them for new bonds (which is the definition of being a holdout) then you don’t get to decide if the clause is added or not, it’s already there in the bonds you defaulted because your country went broke.

  6. drfrank

    This lightweight piece of journalism doesnt cut it when complex legal matters are at stake. It just cirles back on Levitan’s casual speculations. From the point of view of a restructured bond holder, a default will occur if the interest payment does not arrive the designated payment address, no matter if the funds intented for payment are sitting in the account of paying agent or under control of a court. And along these lines, why should the restructured bond holders sit still for a narrow legal interpretation of the RUFO clause? Pari passu fairly applied would mean that the restructured bondholders have a right to equal payment with the holdouts. The international community needs to find a way to resolve sovereign debt defaults and provide for equitable restructures which do not leave any creditors out. Preservation of the right of a sovereign to choose whom to pay and not pay, as Argentina would like, doesnt help countries access the capital markets and it likely adds a risk premium to the cost of borrowing.

  7. Banger

    I don’t really understand the specifics of the case but it is interesting. Both sides are at fault but fundamentally we have, on the one hand the most despicable human beings on the planet and on the other a sovereign country. Which side to pick? Hmmmm. Having said that rule-of-law is a very important principle that is worth defending even if it rewards the criminals. However, rule-of-law effectively does not exist in the way we usually view it. We have rule-of-the-strong in American law, for the most part, and even more so in international law. In my view we are dealing with a national and international political order that is illegitimate and, therefore, we are not morally required to support that regime.

    I’m sure they’ll work out something or we’ll have yet another failed state owned by the finance oligarchs who are going around the world buying up bits and pieces of sovereign countries and there seems to be no way to stop this trend.

    1. susan the other

      What about odious debt? Can’t Argentina look into the circumstances whereby Singer came to have all those billions to lend it in the first place, and also into Singer’s due diligence to determine Argentina’s ability to pay it back? Black Letter Law cuts both ways: If the law can be upheld without undue and unjust suffering and clearing all possibility of fraudulent origins then it might be good to never waver from the actual statute and/or contract. Don’t hold your breath on that event. But if the underlying circumstances and facts are as disgusting, as most vulture lenders are, and these facts are ignored or glossed over, then going black letter is not a good thing and it only reinforces bad law, and probably serious fraud, in the first place.

  8. drfrank

    There is a default if payment does not reach the bondholder on time within the grace period. It doesnt matter that the money has been desposited somewhere if it is not paid. There is no such thing as a technical default. Pari passu logically would pertain to the restructured bonds if the holdouts are paid anything better than the restructureds. The legal theory that the RUFO clause can be avoided if the better payment to the holdouts is involuntary pursuant to a court order is a theory that ought to be tested in court, in Griesa’s court. If the restructure was accepted under the presumption that a sovereign had a right to pay nothing to anyone who refused the restructure, and that presumption later turned out to be false, there may be grounds to return to the original bonds on a pari passu basis with the holdouts. The lack of activism among the restructured bond holders is surprising. The international community needs a means for dealing with all creditors on equal footing in the event a debt restructure is needed. Without this borrrowers will pay a premium for the the right to restructure unilaterally, as Argentina claims is its due.

    1. Yves Smith Post author

      You are missing that the trustee is governed by trust law, and New York was chosen as governing law, hence the means by which it might not wind up in front of Griesa again. And given the collective alarm about how Singer’s move makes sovereign restructurings well nigh impossible, BNYM might very well choose to follow the interests of what most members of the financial community would prefer, which is not to have such an extreme decision become operative. Levitin is an expert on both New York trust law and bankruptcies. But only BNYM can throw a spanner in the works by going to a New York court. Of course, Singer would try to get that derailed, and how that would play out is over my pay grade.

  9. Chauncey Gardiner

    In the context of John Perkins’ “Confessions of an Economic Hitman”, does the International Court of Justice at the Hague and human rights trump state and sovereign law?

  10. dutch

    All Argentina needs is a legal finding from it’s Office of Legal Counsel (or equivalent) which identifies Paul Singer as an imminent treat to the republic’s national security. The presidente of the republic could then legally order a drone strike on Singer’s mansion on Long Island whenever intelligence indicates that he may be present.

    1. hunkerdown

      Killing members of the lumpen proletariat is one regrettable thing, but killing oligarchs is an attack on the very soul of the nation (where “the nation” is defined in terms of a set of exclusive cocktail parties) and martial law, “responsibility to protect” doctrines and ethnic cleansing would surely follow in short order.

  11. redleg

    I’m surprised that Argentina doesn’t put the money, and I mean pallets of currency, at Third Army Division HQ in Patagonia and tell them to come and get it if they want delivery. Meanwhile, issue them a receipt like an ETF.

  12. Wat Tyler

    Wasn’t it Stalin who asked how many divisions the Pope had? So – how many divisions does Singer have?


  13. Bob

    To me the real issue, albeit not one subject to litigation and the rule of law, is the obscenity perpetrated by Singer et al. when they swooped in in 2003 to buy up all those bonds for mere pennies on the dollar, holding out for over 11 years, and then expecting to be paid full face value. Meanwhile, 93% of the bondholders, many of them pensioners, people not in a position to wait or to retain premium-priced legal counsel for over a decade, sucked it up and took their haircuts.

    In any but our sadly misbegotten financial system, somebody like Paul Singer would be ostracized from the world financial community for craven exploitation of a nation’s financial distress. In all fairness, has Argentina been guilty of financial mismanagement? Is the Pope a Catholic? However, should people like Paul Singer be rewarded for being an evil blackguard? Does a bear shit in the woods?

    Regardless of the outcome, one thing is for certain. It is the people of Argentina who will continue paying the price and living under the bootheel of the global financial system.

  14. Jess

    Yves mentioned Argentina’s history of debt problems and seem to indicate that she would revisit the topic in greater detail soon. In the meantime, I’m not well acquainted with Argentina’s lending history but my general understanding is that it has habitually and repeatedly borrowed money and then defaulted. If I’m correct, isn’t there an argument to be made that at some point the Argentine people need to be made to understand that their government can’t keep rat-f&*king investors? That if you’re gonna borrow it, you gotta repay it, in full?

    I have no love lost for the fat cats in the financial industry, and I know that the sharpies on Wall Street are great at fleecing borrowers, but I also wonder about some of the investors in the bonds that took the haircut. Any of these pension funds? Any of these small (relatively) investors whose $100K was part of a bond pool and then were told to take $35K in inflation-depreciated dollars and suck a lemon? And I’m really concerned about the idea that a country can just become a serial defaulter. If money is being sucked off the top by Argentinian oligarchs, then any costs added to the cost of future borrowing don’t mean squat because the government will pay it, or it will part of the next default.
    Anybody able to enlighten me as to why Argentina should get to continually abuse investors?

    1. Pat

      There is a sucker born every minute.
      Would you care to enlighten me as to why I should care that investors who risk their money on bad risks lose that money?
      If Singer were the original owner of those bonds, I might actually have some sympathy for his position. That he purposely bought them knowing the situation and deciding that he could make a fortune doing nothing but fuck a country…well… Let’s put it this way I think it is long past time a whole lot of hedge funds/bankers/investment houses were not made whole by government edict and understand that the reason they make more then .5% a year on their investments is because they can lose it all. And since the bankers who should be asking if you want fries with that order (or producing license plates in a prison somewhere) aren’t, I would be happy to see Singer lose this game of chicken. Unfortunately even if he loses, he won’t experience the austerity he would so willingly inflict on millions.

      If you haven’t figured this out, I’m pretty damn sure my villian in this piece is far more despicable then the millions of Argentinians who have about as much say about their country’s finances as most Americans do about the fact that this country wastes millions giving rich people more money.

    2. Luciano Moffatt

      It is the other way arround. We, argentinians, as well as the rest of the world, were continuously abused by foreign banks.
      2001 default was a consequence of unsustainable economic policies of the 90s. That policy was the peg of the peso to the US dollar. Very similar in nature to the problems of the mediterranean countries, which become uncompetitive. We artificially keep that peg by borrowing overseas. When that game became unsustainable, guess what: we did the megacanje. The “magacanje” was a swap of bonds, which allowed the foreign institutions and the rich to get our dollars out of the country. And the megacanje was devised by a pro-business economy officer, Domingo Cavallo. So, we postpone the unavoidable (devaluating the peso) at the cost of incresing the services of the debt from 50 to 98 billions dollars. Then, fearing or smelling the devaluation, there was a continuous withdraw of money from the country. We lost several billions. And then Cavallo froze the bank accounts, people was prevented to withdraw money from their own accounts. That was done to prevent an hyperinflation bout. Finally, after the events of december 20, with 20 people dead, President de La Rua resigned and the default was declared and the dollar peg was lifted.
      The default was declared because there was no money to pay the debts. We followed a wrong economic policy (the convertibility of the peso to the dollar, resigning our soveraignity to fix our exchange rate) and we pay the price: 20 people murdered in the repression of the revolt, and a big decrease in our living standard. For the record I have to say that I was not living in Argentina at that time so I did not live those times. My father started a self-assembled community to feed people in the suburbs (the villas miserias) and I saw people gray their hair. However, the new government did a couple of things right. First, they started programs to help the poor and house evictions were stopped. We did not suffer as much as the russians after the collapse of the Soviet Union, thanks to the peronism tradition of helping the poor. Of course we became a credit pariah. And that was the best thing that happen to us, since we start living with our own money and after a while Nestor Kirchner offered to start paying our debt. We also withdraw form the IMF, so we got free from their poisonous “advice”. In the offer we made there was a substantial cut, but there was an element of justice in the cut. We offer to pay more if we grow. And we grew a lot, so what initially was a 70% cut after how much our GDP grew the cut is about 40% or less (I do not know the exact number).
      Now the vulture funds.
      Vulture funds buy defaulted loans by the penny and then they litigate to get for the dollar. The problem is of course, that there is no bankruptcy law for sovereign nations and that after the 70’s or 80’s all the credit to underdeveloped countries was offered only after “voluntary” resigning our sovereign.

  15. Jess

    Thanks for the explanation. Not hard to imagine that pegging the peso to the dollar was probably influenced behind the scenes by the Wall Street types. And I could never blame anyone for cutting lose from the policies and grip of the evil IMF.

    However, one issue that wasn’t addressed was about looting of the loans by the Argentinian elite. Did that happen, and if so, how much did it contribute to the problem? The reason I ask is that I see lots of instances where the economy of a country gets hammered because the local and/or international oligarchs loot the treasury of money that was supposed to help the wider economy. (Ukraine, Greece, and Spain are all countries where I’m led to believe this kind of skimming is a big contributor.)

    1. Luciano Moffatt

      To honor the truth, the peg to the dollar was extremely popular during the 90’s. Once Cavallo set it up, by law, it was political suicide to broke it, also resembling what it is going on with the Euro. In 89 and 91 we have hyperinflation in Argentina. I remember that on 89 the inflation was more than 100% PER MONTH in july, so you can imagine that killing the inflation to zero was very popular. Interestingly the poverty levels that we reached when we lifted the peg were greater than the poverty we reached on hyperinflation.
      After 2001 we cut loose with the international credit markets (we keep receiving some money from the world bank and the Interamerican development bank) and we are much better with a thriving industry low poverty level and low devels of unemployment. We have some unbalances in our car industry related with the fact that we lost most of our native industrialist (many of them even desaparecidos in the 70s) and there is a sense of optimism. We decided to become part of Latin America instead of looking to Europe as a model and we are proud that our part of the world is the only one with decreasing levels of unequality. Probably that is because we were the guinea pigs of the neoliberalism (it started with Pinochet on Chile in the 70’s, we got full fledge neoliberalism with Menem on the 90’s) and we are recovering from it. But, we rock bottom and I think that bouth the US and the EU are far from that.
      About your question regarding the local elite. You know, if you are an imperialist (suppose) you better make a deal with a local elite willing to surrender to your interest, it is a win-win for both for you the imperialist and the local elite and a complete loose for the local population. That kind of deals work better if the local elite is racially distinguishable from the local population and that is sort of truth in Argentina where the elite is white and a good portion of the population is mixed with ancient population. But, actually the white population is too large to properly function as an elite and that probably explains the fact that many of the grandson of the early XX inmigrants have chosen thanks to the peronism (we have a peronist pope, guarda) to embrace the cause of the poor. The other half, as always happens, choose the elite. But, you know, now the imperium does not have a credible program for us, so I guess that if we are lucky we might be good.
      About looting the treasury… I dont really know.. What I can tell you is that many loans served well the people that wanted to get their money out of the country both elite and multinational local branches.

    2. Ignacio Portes


      “However, one issue that wasn’t addressed was about looting of the loans by the Argentinian elite. Did that happen, and if so, how much did it contribute to the problem? The reason I ask is that I see lots of instances where the economy of a country gets hammered because the local and/or international oligarchs loot the treasury of money that was supposed to help the wider economy. ”

      The answer is a resounding yes. It really is part of the reason why sovereign debt is special: ordinary people sometimes have to pay for generations because their country was looted by foreign invaders (Haiti’s case is just brutal) or local dictators / corrupt statesmen and banks. It’s yet another instance of losses being socialized while earnings are privatized. There’ll be a part II of this article talking about how this happened in Argentina. Stay tuned. :)

  16. Jess

    BTW: Thanks for defining vulture fund. I’m not really an econ or business guy, more interested in politics and civil liberties and didn’t know if “vulture” was just a nickname or, as you explained, applied to funds with a certain questionable business model.

  17. cebepe

    I love this story, I would call it a drama more than a thriller. In the old days, the bankers lent money to sovereigns, who spent the money on wars and then the bankers, like the Fuggers and Weisers, went bust. Modern bankers all want to be too big to fail, meaning they all want to be “bailable.” Who wouldn’t want this kind of privilege, which makes lending so much less effort? But Greece has not defaulted, being part of the euro puts more than just Greeks at risk. Argentina took the plunge, unrestrained by the IMF and World Bank, the modern bankers’ enforcers, and bankers would prefer it be made to pay, to encourage other countries not to challenge the system, which always ends in a country’s inhabitants picking up the bill. What will happen as the various deadlines approach? In a sense, it is an epic battle between sets of very highly paid lawyers in Manhattan; I should like to see the movie or at least the play, when it is written. I’m for Team Argentina, on the side of incompetence but also for the little guy, against the holdout investors, on the side of smart but “vultures.” What if something amazing happened, like Paul Singer making a gift to the Argentine people and getting a statue in Buenos Aires? But then it would be neither drama nor thriller, but comedy in the old theatrical sense. And of course, his investors would then sue him.

  18. alex morfesis

    hmmm…this is interesting for me as a dual greek citizen. Have not followed the case as I suspect the trust indenture act is being ignored in this matter. But the notion that a country can’t get away from its obligations unless everyone agrees to a settlement or restructuring….hmmm…. Germany is the worst government for defaults in the last 100 years yet moodys and S & P bring knee pads to meetings with los alemanes and thank them for the napkin to at least wipe off the remnants from their faces after the fact. Argentina should follow the german finance ministries lead and expect AAA ratings for defaulting each and every time. But…the BIS was designed to administer the annuities from WW1 that germany was to pay its claimants, including greece. Not talking about the original nor the Dawes plan (adjustment) but the young plan which was put together at the very time of the 29 crash, which was “suspended” by the 1932-3 gift from Herbert Hoover to the Nazi Party (Lausaane). Although the germans love to suggest that somehow there were “agreements” adjusting and with settlement and accord, but no such realities were ever put together with ink to paper as

    the Young plan had already reduced the reparations to 10 cents on the dollar

    (which of course the germans had no interest in paying…’vee are germans, vee don’t pay’).

    Forgetting WW2 reparations and the removal of gold from the Greek Central bank which was classified as a “loan”…the BIS was to accept and distribute annuity payment for ww1 until 1966 (I think that is the right year) and greece was to have been one of the recipients. Turns out the German Rail line has a mortgage that the BIS was to hold in trust for the claimants. Maybe us greeks should file suit for a distribution or at least an accounting. Maybe us greeks should thank the evil paul greedy monster…for opening a door…hmmm….

    just sayin…

  19. Anders

    There is much information out there on why Paul Singer is particularly terrible even among vulture capitalists. Here are two articles that explain more about his affiliations with right-wing pro-war Republicans in the US, and his attempt to buy up powerful LGBT rights organizations to support him (even when he tries to bankrupt very gay-friendly Argentina!): http://paper-bird.net/2014/06/24/vultures-over-iran/

  20. AdamN

    Paul Singer isn’t just a symptom of capitalism in its late phase of predatory extremism. He is also a major force behind US neoconservative groups that push for war with Iran and are unceasing in their support of Israeli terrorism. And, as a funder of gay rights internationally, he claims to promote the same policies of which Argentina — one of the most pro-LGBT countries on the planet — is a beacon …. http://paper-bird.net/2014/06/24/vultures-over-iran/

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