Argentina vs. Nixon zombie judge deadline on July 30

Since Nixon-appointed zombie judge Thomas Griesa has made a securities decision arguably unprecedented in 6-8 centuries of securities law, I wouldn't try to predict what happens after the July 30 deadline on Argentine debt coming this week.

Nixon-appointed federal Judge Thomas Griega

Floyd Norris discusses the state of affairs in The Muddled Case of Argentine Bonds New York Times 07/24/2014.

But Cristina Fernández' government hasn't panicked and seems to have played their side smartly so far. Had Argentina simply capitulated to the Nixon zombie judge's ruling, they would have blown out their foreign exchange reserves and pushed themselves in actual default. That could have had very damaging effects in international bond markets and even exacerbated the euro crisis. But if the bond markets panic this week, it won't be because Argentina has flaked out, unless something radically changes in their approach the next few days.

We should remember that the Roberts Supreme Court at the end of June let the Nixon zombie judge's goofy decision stand by not reviewing it. It was once of the sloppiest, most reckless decisions the Court has taken in at least the last couple of decades. Fortunately, Cristina isn't the sort to take something like this without a serious fight.

The Nixon zombie judge's decision is so screwy that even an Argentine President eager to surrender would have had a hard time doing so. Cristina says she ain't declaring "default" next week, because Argentina is paying interest on schedule on its current debt. But the Nixon zombie judge is blocking the banks from giving the money Argentina paid to the bondholders - and he clearly doesn't even understand what his order on that means. She says a new word will have to be invented for it. I vote for "Nixonzombiejudging"?

Meanwhile, the hedge funds ("vulture funds" as Argentina accurately calls them in this case) that the Nixon zombie judge is siding with may actually be hoping for a default because they are hoping to be paid on credit default swaps made on the risk of Argentine default. (And you thought Dodd-Frank put an end to financial gambling that could wreck the international financial system? Ha!) As Norris puts it, "As Wednesday approaches, the judge has a lot to think about. It would be better if he had done some of that thinking before he issued his order, or if the appeals court or the Supreme Court had forced him to do so."

Raúl Dellatorre in El fantasma del 30-J y el precipicio anunciado Página/12 27.07.2014 interviews international law specialist Stella Maris Biocca and economist Jorge Marchini on the case. Both want to de-dramatize the matter, because they think Argentina is in a relatively strong position. If the Nixon zombie judge keeps blocking the banks acting as paying agents from paying the renegotiated bondholders from giving them the money Argentina is paying according to their agreements, the legitimate creditors can renegotiate the payment arrangements to pay them in other currencies and in jurisdictions over which New York Federal courts and Nixon zombie judges have no jurisdiction.

Fermín Koop interviews sovereign attorney Eugenio Bruno in 'There has been no progress and the situation is stalled' Buenos Aires Herald 07/27/2014. One of the issues he addresses is the RUFO (Rights Upon Future Offers) clause, which is a big part of what makes the Nixon zombie judge's decision upheld by the Roberts Supreme Court so problematic. Under the RUFO clause, if any creditors like the vulture funds receive terms more favorable than the 92-93% of debtors who have renegotiated terms, the latter have the right to claims exactly the same terms. Since the Nixon zombie judge's decision required full payment of the holdouts, all the other creditors could have claimed the same repayment terms. The RUFO CLAUSE is in effect only until the end of 2014:

What are your hopes regarding the case?

[Bruno:] It depends on the parties, not the judge. The Argentine position is that it may not pay or negotiate during the effectiveness of the RUFO clause which is until December 31, 2014. For such reason there are no concrete actions towards reaching an agreement or an agreement to discuss on the part of Argentina. The plaintiffs have expressed their willingness to negotiate, including the possibility of getting paid through a combination of cash and bonds with haircuts and give additional time by way of a new stay but subject on Argentina taking certain actions to show that it is willing to negotiate. Because of this lack of sinergy there has been no progress and the situation is stalled.

Bruno's comments are a little ambiguous on whether the Wednesday deadline would be an actual default. "The situation of course is legally complicated," he says with tremendous understatement.

Bruno also thinks that the vulture funds and the Nixon zombie judge won't be able to easily go after assets of majority state-owned gas company YPF:

Can the holdouts seize Argentine assets abroad soon? There have been rumors lately that they have been asking about YPF.

[Bruno:] It's very difficult because the laws of the US protect sovereign assets. YPF assets would not be attachable because the company is separate from the executive power and is not an alter ego of the Republic (it has a professional management, its own business plan, etc.) which is the basis for attaching its assets.

Tags: argentina, cristina fernández