Thursday, July 31, 2014

What if they declared a default and nobody defaulted? You have a #Griefault!

Argentina's deadline for making a deal with the vulture funds backed by a ridiculous ruling from Nixon-appointed zombie federal judge Thomas Griesa has come and gone.

Shane Ferro reports in Argentina’s default: Here’s what’s happening 07/30/2014, "the ratings agency S&P cut the country’s credit rating to selective default."

Given the horrendous record of S&P and the other rating agencies before the 2008 crisis, what S&P has to say about doesn't much worry me. I'm surprised anyone listens to them at all.

Argentine President Cristina Fernández has been saying that since Argentina is paying its legitimate debts, i.e., everything but the debt defaulted in 2002 still being held by the vulture funds, you can't call what's happening a default. And that is the government's official position. She says they will have to invent a new word for what's happening.

There is a Twitter hastag, though, #GrieFault, which may suffice, incorporating the Nixon zombie judge's name.

Anna Gelpern gives a run-down on various alternative scenarios from this point: It Depends, Argentina Edition Credit Slips 07/30/2014.

One of the mysteries in this has to do with credit default swaps (CDS). The vulture funds may have bought CDS's in the hope that Argentina would default. And in our international financial system which allows high-finance gambling, anyone with enough money could buy a CDS against an Argentine default. Depending on the terms of the CDS, what is considered "default" matters a lot. Ownership of CDS's isn't public information, so this is one of the uncertainties going on behind the scenes.

Right now, Argentina is paying on the debt renegotiated from the 2002 default, paying to money to the financial institutions acting as paying agents under the agreements. The Nixon zombie judge is blocking the banks from paying those funds to the creditors. So Argentina is paying their debt service, but the creditors aren't receiving the money.

A new session with the Nixon zombie judge on the case is scheduled for Friday.

Eyder Peralta has a roundup of several major stories on the #GrieFault, Argentina's Default: 5 Headlines That Tell The Story NPR 07/31/2014. One of the links is to this New York Times story by Peter Eavis and Alexandra Stevenson, Argentina Finds Relentless Foe in Paul Singer’s Hedge Fund 07/30/2014:

... some debt market experts say that the battle may already have shifted the balance of power toward creditors in the enormous debt markets that countries regularly tap to fund their deficits. Countries in crisis may now find it harder to gain relief from creditors after defaulting on their debt, they assert.

"We've had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system," said Joseph E. Stiglitz, the economist and professor at Columbia University. "We don’t know how big the explosion will be — and it’s not just about Argentina." [my emphasis]
The head of Cristina's Cabinet, Jorge Capitanich, said this was a failure of the entire judicial system of the United States - the Nixon zombie judge's bizarre ruling was allowed to stand by the Roberts Supreme Court refusing to take the case - which showed in this instance that "es independiente de la racionalidad, no es independiente de los fondos buitre" ("it is independent of rationality, but not independent of the vulture funds"). ("Ha habido una mala praxis del Poder Judicial de EEUU" Página/12 31.07.2014)

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