Argentina Ignores US Court Decision, Will Not Pay Elliott And Holdouts

Tyler Durden's picture

Several weeks ago we summarized the highly entertaining (if largely futile) fight between naval commodore second class Paul Singer of Her Majesty's Elliott Capital Navy, and the defaulted and soon to be re-defaulted state of Argentina. The punchline, much to the chagrin of all those other "sophisticated" bloggers who read so very much into the recent decision of the 2nd Circuit Court of Appeals, was the following: "What this really means is that Western courts have decided that Elliott has not been stripped of pre-petition rights despite, or rather in spite of, holding out, and is entitled to collecting up to par recovery. There is one problem: there is absolutely no enforcement mechanism! And therein lies the rub: because how does a court located on Pearl Street in New York order the Argentina State Treasurer located in Buenos Aires to wire a payment on bonds, via intermediary banks, that Argentina effectively has disowned? It can't." Today, Argentina just made it very clear that once again those desperate for page views by analyzing and overanalyzing an utterly meaningless court decision's implications for rogue sovereign debtor will have to try even harder, following Reuters' report confirming precisely what we said would happen - that Argentina would completely ignore the appeals court decision, and not pay holdout, read Elliott, bondholders.

Now comes the realization that in a broke sovereign world, pretty much anything goes, unless enforced by trade (or naval) blockades, and/or, well, war. And as long as the impaired party is simply a uber-prosperous hedge fund, the probability of either happening is negligible. Said party, however, may continue confiscating Argentinian ships at will: hopefully it is capable of creating an efficient clearing market for three-mast frigates.

From Reuters:

Argentina will not pay creditors who own defaulted bonds despite a U.S. federal appeals court ruling in favor of the holdout creditors, the economy minister was quoted as saying in an interview published on Sunday.

 

The 2nd U.S. Circuit Court of Appeals in New York last month ruled that Argentina discriminated against bondholders who refused to take part in two debt restructurings as the nation tried to recover from a $100 billion default a decade ago. The decision upheld a ruling by U.S. District Judge Thomas Griesa.

 

The South American country appealed that ruling, and on Friday told Griesa that sovereign debt repayments made outside the United States are immune to U.S. law and seizures by holdout bondholders.

 

"Argentina is responsible and will fulfill all commitment it has made to its creditors. ... Our creditors are all those who participated in the two restructuring proposals in 2005 and 2010," economy minister Hernan Lorenzino told newspaper Pagina 12.

 

"We're going to continue to oppose any alternative that goes beyond that. We're going to continue presenting and defending our position to each legal entity."

 

The judge is expected to give a speedy response, given that Argentina is due to start making $3.3 billion worth of payments to exchange bondholders starting Dec. 2.

We, for one, can't wait until this tragicomedy hits the ridiculously politicized US Supreme Court... and CNN's reporting on the decision:

"Argentina reiterated to judge Griesa that the decision taken about pari passu (equal treatment) cannot prejudice creditors who entered the debt swaps," Lorenzino was quoted as saying.

 

"We're going to continue our legal defense in all areas possible, including in the United States' Supreme Court," Lorenzino added.

We conclude this post with what we said last month, as this response from Argentina merely confirms our expectations:

As for the Argentina vs Elliott bare-knuckled match, enjoy it while you can: very soon the Latin American country will likely proceed with yet another round of creeping selective defaults, exchange offers, consent solicitations, and other debt reorganizations, which will make the current free-for-all into a total and epic labyrinth of creditors, interests, bondholder classes, general unsecured claims, and other total confusion which we are confident, will soon lead Elliott to give up in disgust and just walk away.

Those curious what really happens next are urged to take a quick glance at the chart from "Meanwhile in Argentina..."

Finally, we can only hope that other "financial bloggers" who tend to opine on these, and other topics of importance, can at least read the first chapter of "Sovereign defaults for dummies" because endlessly writing on the issue from a presumed position of "expertise" while being wrong constantly and without remorse, does little to augment their credibility.

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Neethgie's picture

Fact of the matter is argentina never intended to pay out anyone including elliot suspecting otherwise is an idiot..

vast-dom's picture

breaking news: argentina courts rule that no foreign court can tell their courts how to govern. 

valley chick's picture

no no no....new phrase coming out.... "debt forgiveness".  /sarc

 

JPM Hater001's picture

Debt forgiveness isnt a new word...

New Word: Consequences

knukles's picture

Jubilee.

They're using the term Jubilee.

As in Hourrah! It's gone!  Fucking Amazing!  Just refill the EBT cards, save Hostess so the Ho Hos keep coming and the masses won't burn down somebody other than their own underwater homes in the city center owned by Fannie, Freddie, FHA, et al (as in peasantry taxpayers who carry the fucking boat for everybody else, as in being a fucking minority with No Special Privileges, Cocksuckers!)

TNTARG's picture

Who is using the term "Jubilee"?

knukles's picture

IMF working paper, recent promulgations from Another One of the Endless Fucking Acronym Entities in the EU ("AOEFAEEU") ....
Were discussing default, forgiveness, abrogation, moratoriums and simply inserted a New and Improved Politically Correct Appealing Name of "Jubilee"

All the one and the same walk the debt solution to the symptom of too much debt rather than addressing the unsustainable nature of the financial condition.

(and there, to get the Birkenstock crowd interested, used the term "sustainable')

TNTARG's picture

Oh yeah, those guys. Forgive me, I missunderstood (About the use of the "Jubilee" term, I mean).

Harbanger's picture

We can learn a few things from Argentina. 

1) A default is not necessarily the End.

2) When Central Planning doesn’t work, they do it again and they do it bigger.

 

CPL's picture

nTrepid.com

Sock puppet software.

 

http://www.nytimes.com/2012/08/14/us/trapwire-antiterrorist-software-lea...

http://www.wired.com/dangerroom/2012/08/trapwire-strafor-biz/all/

 

Abraxas

 

http://www.bizjournals.com/washington/stories/2007/03/12/story9.html?pag...

 

Reis is the former president of the U.S. subsidiary of i2, a U.K. maker of software that law enforcement and intelligence agencies use to identify links between suspects. Publicly traded ChoicePoint acquired i2 in January 2005 for $90 million.

 

Research firm Frost & Sullivan last year estimated sales of that type of software would reach $415 million by 2012

 

nTrepid

Mark Arehart

mark.arehart@ntrepidcorp.com

www.virtustranslator.com

Ntrepid Corporation

 

Bot Maker of this Annoyance on the web.

Contact your brokerages and sell all your equity in them

Then get into a short position.

Cubic Corporation - NYSE:CUB

 

Cubic Corporation is a US Military/Defence contractor, with subsidiaries including Cubic Defense Applications Inc, and Cubic Cyber Solutions, Inc. As revealed in tax filings from 2010, Cubic also wholly owns cyber security firms Abraxas and Ntrepid. The latter provides Persona Management services to the U.S. and unspecified "multinational forces" in conjunction with CENTCOM information operations program Operation Earnest Voice, as provided for in a 2010 contract.

 

Amongst the Security Services offered by the firm we learn that "Cubic subsidiaries are working individually and in concert to develop a wide range of security solutions" that include: "C4ISR data links for homeland security intelligence, surveillance and reconnaissance missions;" a Cubic Virtual Analysis Center which promises to deliver "superior situational awareness to decision makers in government, industry and nonprofit organizations," human behavior pattern analysis, and other areas lusted after by securocrats.

 

macholatte's picture

The 2nd U.S. Circuit Court of Appeals in New York last month ruled that Argentina discriminated against bondholders who refused to take part in two debt restructurings as the nation tried to recover from a $100 billion default a decade ago. The decision upheld a ruling by U.S. District Judge Thomas Griesa.

 

Deja vu or Kopy Kat?

see: Greece, General Motors (and probably several others)

Debt-Penitent's picture

total confusion which we are confident, will soon lead Elliott to give up in disgust and just walk away.

Block quoted

Be sure to pull the plug on that Frigate when walking away.

Coke and Hookers's picture

For some reason American courts think they have global jurisdiction. I've noticed this phenomenon many times through the years. I think it's a symptom of a bigger problem with America; bizarre arrogance ingrained in the national psyche - which is pretty pathetic for a failed (soon to be) third world state run by a gang of crooks.

Urban Redneck's picture

Actually Argentina a signatory to both the Washington Convention and the New York Convention.  Why a hedge fund is running to a US court for a ruling which may or may not be enforceable against Argentina is a another matter.  International investment protection and dispute resolution are a rather specialized area with private international law.

https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDataRH&r...

http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvent...

samcontrol's picture

you did not get seven arrows for that,,, ! the guys iq is like in the80s,

Manthong's picture

So how much in derivatives that will never pay out is riding on that paper?

Tirpitz's picture

That don't matter at all -- they are fully hedged through other shaky bets.

hustler etiquette's picture

All the the problems stem from bondholders refusing to take a haircut. More importantly it's time for some Formula 1

jewelin's picture

Take a drink of that soda with a lime in it, Felix.

holdbuysell's picture

Counterparty risk at its finest.

Joebloinvestor's picture

A Latin American country says it all.

Everything is hunky dory till it isn't, and then no one is gonna get paid, but the government keeps right on going...........

knukles's picture

Now...

Wonder how that effort by Spain to borrow from Argentina is gonna work out?

TNTARG's picture

You think the US sovereign debt is gonna be paid? The Eurozone's countries sovereign debt is gonna be paid? The UK sovereign debt is gonna be paid? How? I believe party is coming to an end.

Matt's picture

The US debts will be paid. The Federal Reserve can buy all the bonds the Treasury issues if needed, and the Treasury can pay off those it owes. Or the Federal Reserve can buy the bonds from those that no longer want them. In effect, the United States can simply print money.

TNTARG's picture

Technically it could because of the Kennedy's silver dollar act 1110  ("Executive Order 1110 gave the US the ability to create its own money backed by silver.")

http://www.john-f-kennedy.net/executiveorder11110.htm". http://rense.com/general44/exec.htm 

But the US government doesn't do that. US GVT sticks to the Federal Reserve Act. The Fed isn't a government institution. "The Fed basically works like this: The government granted its power to create money to the Fed banks. They create money, then loan it back to the government charging interest. The government levies income taxes to pay the interest on the debt."  

We all know how it works. These guys don't want to be paid. They want to own countries (+ interests) and... In many cases they actually do.

Matt's picture

The profits after operational costs of the Federal Reserve are paid back into the next year's Treasury as income. As the Federal Reserve owns more and more of the debt, the amount of money lost as interest to investors declines.

The bigger problem with fiat money created through debt, is that paying down your gross debt is bad, since it reduces the money supply. Which is why western nations, instead of paying down their gross debt, spend any surpluses on acquiring the debts of other countries. That way they have lower net debt, without reducing the amount of money+bonds in the system.

The problems with this include that some countries have to run deficits while others run surpluses, and the system has to grow (more GDP) to keep gross debt-to-GDP levels under control.

monad's picture

Just discount the judgement to the professional money lenders put out of work by WS loansharks. They'll get the money, Elliot won't be responsible for how it gets done, and the Argentine people won't have to suffer for the stupidity of their ruling class.

CrashisOptimistic's picture

This is a far reaching case.  This deals with the ability of governments to "declare bankruptcy", even though there is no international bankruptcy court.

Tyler is going too far in his conclusion that Argentina can just refuse to pay and that constitutes what we might call successful default.  It does not.  Argentine assets outside Argentina will always be vulnerable to court confiscation to enforce court decree.

Argentina can indeed try to hold assets only within its borders, but the consequences can amplify -- like perhaps confiscating any prepayment of office space lease for trade missions.  If they make a prepayment, the property owner will just be told to find another customer and the money will be grabbed by the court and awarded to the plaintiff (bond holder).

This largely is as it must be.  You cannot allow countries to borrow money and then "declare bankruptcy" by defaulting on all payments, without the creditor having the ability to split up sovereign assets.  That would not be bankruptcy.  That would be theft.

 

knukles's picture

Payment not received upon contractual due date is an event of default, period, end of conversation.

Anything after that is a cure, remedy, workout, solution, refinancing, whatever... but it's post no payee the coupon holder, Default.

CrashisOptimistic's picture

Well, we get into definitions.  Default has very specific swap triggering ramification.  Bankruptcy derives from default.  Governments have started watering that down as of February of this year in Greece.

The point is default is not "successful" default.  It is not adjudicated bankruptcy.  Refusing to pay doesn't mean the debt is expunged.

knukles's picture

Ah, well then that's a whole different kettle of rotten fish...

How it applies to swaps, etc., associated contracts.
Used to be way back in the good olde days, default for swaps, etc., was held to be same condition as indenture of reference debt obligations.  Made it easy, clean and neat.  One for all and all for one.
As time passed, volume of outstanding notional grew (and thus somebody's P"or"L) ISDA et al took over the designation responsibility and as we all know, a default is not a default unless the default interested parties adjudging the event of default decide that the default has been realized as separate from any other contractual event of default, by default, that being who gets or pays.

Example.... AIG swaps... paid out in full without auction, main beneficiary being Goldman's Snatch... and guess who just happens to have representation and indirectly great influence upon which ISDA committee....
Oh, come on, venture a guess.

Shy?

 

Goldman?

Great guess!!!!!!!!!!!

Yorp. 
For anything other than an event of default, there might or might not be an event of default, profit related thereto depending upon the eye of the beholder.
Geez.... you'd think it was a rigged deal....

CrashisOptimistic's picture

Greece in Feb was precisely this.

 

Bottom line: Countries may not be permitted to unilaterally declare bankruptcy with creditors having no recourse.  The result of that would kill people.  

You borrow the money.  You pay it back.  It's not a rocket science thing.  You borrow too much money to pay back, you lose your toys.

Things that go bump's picture

That might be only fair if what they borrowed had some intrinsic value and was not fiat created out of thin air, which I have been told is the case with debt.  Did they indeed borrow something with intrinsic value?  Or did they borrow paper or computer digits that didn't exist until it was borrowed, or was it leveraged nonexistant fiat that was lent to them.  

CrashisOptimistic's picture

It was precisely what you know it was, and they can pay it back in the same form, on time, as they agreed.

taraxias's picture

One word, BULLSHIT.

I'm tired of explaining it to you over and over.

You lend money to those who can't pay you back, you lose your money......and they get to keep their toys. It's happened that way in many sovereign defaults before, it will happen this way many times again.

Paul Slinger went and bought that shit paper for pennies to the dollar thinking he is going to uleash his army of lawyers and he would be paid at par. Argentina just told him to go fuck himself and there's not a damn thing he can do about it.

Tyler is also delusional and ignorant of Argentina's economy if he thinks they are about to default again.

samcontrol's picture

i like your post until the end. Argentina will default before year end.

TNTARG's picture

Too linear way of thinking. Doesn't apply to reality.

Urban Redneck's picture

You need some better bullshit to baffle them with.

samcontrol's picture

dood what part of the theft did you not understand, "You cannot allow countries......" well they did, i got 32% back 5 years later....

Wolferl's picture

If they don´t pay they´ll lose their B rating. Maybe they´ll get a D for default. Not nice.

Nobody For President's picture

Great story line downsteam: Some really rich asshole buys that 3-masted frigate, goes sailing on the bounding main, and gets intercepted on the high seas and boarded by...

The Argentine Navy.

Who arrest the 'owners' and return all to Argentina, to the huzzahs of the crowds...

 

I want 10% of the movie rights, unless Segal is involved, in which case - 20%.

CrashisOptimistic's picture

Much too simple a premise.  The proper scenario is the Argentine Navy attempts to seize the ship and the court orders confiscation of the Argentine Navy to satisfy creditors.  

The police ask for US Navy help in doing so.

TNTARG's picture

We like our historical and traditional boats but we don't eat glass anymore. Elliot can keep it, as far as I'm concerned. But you know? I think the Fragata is gonna be back soon under the International Law (as relative as it is). Immagine a judge ruling over some US Navy boat.

DaveA's picture

Two questions: Who are the idiots who've been lending money to Argentina for the last ten years, and how can I get them to lend me money?

TNTARG's picture

The debt mechanism. You should read about it. About the "idiots" they're the same who have been lending money to the Eurozone countries. They own the Federal Reserve as well, so they're the same who have been lending money to the US government.

TNTARG's picture

(They won't lend you any money unless you have something they want).

buzzsaw99's picture

Elliott Capital Navy

I get it! :groan:

One can only hazard a guess to which "sophisticated blogger(s)" this piece alludes. lulz

Paul Singer should pilot that very vessel from his cayman island monetary love nest right on down to Argentina and pick up the check personally. I'm sure he would receive a warm south american welcome. [/sarc.]

Of course if poor little me sued argentina i'm sure the scumbag uk and usa courts would afford me the same protection and collection privilidges they extend to a billionaire hedge fund maggot. [/sarc. again]

Collection services, tax shelters, all free. Sweet deal. Suck it Singer you swine.