Wednesday, December 5, 2012

On necessary debt restructuring

The MAIN reason the world needs to restructure the insane amounts of existing debt is that they are crippling the possibility for doing anything about the serious problems we face.  I mean, just TRY to imagine Greece or Ireland trying to do anything significant about their CO2 emissions.  They cannot even afford basic services now because so much of their public income stream has been channeled to debt service.

There have been a few countries that have actually restructured their debts.  Argentina is perhaps the finest example.  Once they redid their debts, they have been a model nation making on-time debt payments.  But this was not enough for Paul Singer of Elliot Management—a vulture fund.

Singer has a long nasty history but is probably most notorious for what he did to Delphi Automotive during the GM "bailout."
The facts are simple. Mitt Romney's blind-trust invested more than a million dollars in a "vulture fund" managed by Paul Singer, a Romney adviser. In 2008, while Delphi Auto Parts was in bankruptcy, Singer's fund bought, for twenty cents on the dollar, Delphi bonds -- lots of them. With Delphi under Singer's control, he threatened to shut it down unless the taxpayer bailed it out -- holding General Motors and Chrysler hostage, because if Delphi shut down, the companies would lack steering columns and other essential parts. After getting his way, and a $7.3 billion bailout from the public, Singer then closed all but five U.S. plants to move these operations and 25,000 jobs to China.
So this Predator is looking around for other targets of opportunity.  He discovers there are Argentine Bonds that were not covered under the various restructurings and since they are now non-performing loans, they are now about as worthless as Confederate Bonds and can be bought for pennies on the dollar.

So now that Argentina is mostly back on her feet and is making regular payments on her restructured debt, Singer figured he may as well try to collect on his defaulted bonds.  He finds a crooked judge to sign off on an order demanding that Argentina pay Singer 100 cents on the dollar.  The crooked judge even allowed Singer to seize an Argentine tall ship used by their navy for basic training.  In other words, Singer is willing to anger a nation and the rest of the honest investors to collect a "debt" he is clearly not owed.

Here's the big problem.  If white collar crooks like Paul Singer are allowed to throw wrenches into something as basic as a simple debt restructuring, how will it ever be possible to reform the economy so it can address problems like climate change?  The answer is—it cannot.  So right now, we are stuck with the situation where the planet cannot save itself because some greedhead who already has more money that he can meaningfully spend wants to collect money that should be going into better things.

The global economy cannot do its job when every good idea can be sabotaged by thieves.

Go Argentina!  I know you have your share of problems these days but on this issue, you are clearly on the side of the angels.

Argentina's President Basically Just Declared War On New York

Linette Lopez | Nov. 29, 2012

Yesterday, Argentina won a substantial victory when a New York Appeals Court ruled that its legal battle with hedge fund billionaire Paul Singer would continue on without the country having to make a $3 billion payment to bond holders on December 15th.

You would think that Argentina's President, then, would be breathing a sigh of relief.

Instead she's breathing fire.

Throughout her country's lawsuit with Singer and other holders of Argentina's 2001 sovereign debt, President Cristina Fernandez de Kirchner's rhetoric has always been... heated. She calls the group of plaintiffs "vulture" fund managers because they did not take a haircut and restructure their debt (as others did) when they had the chance in 2005 and 2010.

We've explained how, to Fernandez de Kirchner and her late husband, former President Nestor Kirchner, this is a matter of national sovereignty. She has vowed never to pay the "vultures."

It's a powerful narrative for a President who has seen her popularity plummet by half in the last year. And as the Appeals Court in New York was deciding her favor, Fernandez de Kirchner was widening the divide between her country and the powers that, she believes, encroach on its liberty.

At an Argentine Industrial Union conference yesterday, with Brazilian President Dilma Rousseff at her side, Fernandez de Kirchner reiterated that was right to only pay bond holders that took the opportunity to restructure, and drew a line in the sand between her country and its perceived oppressors (from MercoPress):
“We constitute the counter model of a world where the financial capital has become king and master and wants to punish us..."

“It’s inconceivable” that a court of New York should have ruled “against a country which restructured 93% of its sovereign debt and has been paying regularly. We have been paying on date since 2005 to the last cent with resources of our own and we'll keep on paying to honour our country's obligations”.

“Part of our self-esteem is to honour our obligations knowing that the country is the counter model of the IMF recommendations and precisely to show a greater willingness to reach an agreement and to pay we reopened the debt swap in 2010 until we reached 93% of restructured bonds”, said Cristina Fernandez adding that the Monday presentation before the Appeals court in New York was “another evidence of our good will”.

The president explained that “the heart of the Monday presentation was that what the New York court was demanding is not a ‘pari pasu’ which means equal conditions in legal terms, but rather ‘an absolute unfairness’ towards the 93% who did accept the debt swaps in 2005 and 2010”.

“Yes we were broke in 2003, but with faith and effort and the reindustrialization of the country and developing our domestic market we moved forward and have been successful. Maybe that is why we are the counter model” insisted the president.
Hugo Chavez much?

It should be noted that the Appeals Court ruled in Argentina's favor only because of those 93% of exchange bond holders. They argued that it was unfair that they should take a 70% haircut while Singer got 100 cents on the dollar and have moved to enter the case as interested non-parties. more

Paul Singer Just Set Up The Next Battle In His War With Argentina

Linette Lopez | 3 DEC 12

Elliott Management's Paul Singer wants $250 million from Argentina in one week, MercoPress reports.

Singer suffered a set-back in his years long legal battle with the country last week, when an Appeals Court disagreed with an earlier ruling by Judge Thomas Griesa. Griesa had ruled that Argentina would have to pay Singer and other investors in its sovereign debt all of the over $1 billion the country owes them.

Argentina refuses to pay these "vulture funds" because they didn't restructure debt in 2005 and 2010 when they had the chance.

Had Griesa's ruling held, Argentina would be shelling out $3 billion to investors by December 15th. However, the Appeals Court thought the decision was unfair to the majority of bond holders (exchange bond holders) that did restructure and take a haircut because Argentina may jilt them in an effort to avoid paying Singer.

So that's the hot topic of discussion in sovereign debt circles right now — what's the point of restructuring if a guy like Singer can win a knock-down drag out legal battle and not take any kind of loss?

As this is all being sorted out, though, Singer isn't sitting around and waiting until another ruling in February. Late on Friday his lawyers asked the Court to force Argentina to make a $250 million by December 10th.

But here's the thing: Argentina isn't paying Singer on principle, not because it doesn't have the money. So even though $250 million is just a fraction of what the holdouts are owed (Singer's fund is owed $665 million), it's doubtful that they'll want to pay one red cent of that until...

Until, as Bloomberg reports, the country is done contacting all the holdouts to see if they'll agree to restructure their debt along 2010 terms. This has to be done by February 27th. If the investors somehow agree (to terms they've already rejected before) Argentina has indicated that it would be happy to pay up.

But without that agreement, the country will likely remain as steadfast as ever.

From Reuters:

"Even the taxi drivers know who Elliott is and curse them," said one New York investor who participated in the debt exchanges in 2005 and 2010.

All that means is that Singer may be setting himself (and the Court) up for disappointment on this one.

So we'll see how the deal making works. A source close to the situation told Reuters that Singer would likely accept a combination of bonds and cash to settle all this.

We'd be staying clear of Argentine bonds if we were him.  more

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