Yesterday, Argentina's lawyers made closing arguments in what some are calling the 'the debt trial of the century.' Today, the country's bonds are committing suicide.
This case has been going on for years. Billionaire hedge fund manager Paul Singer invested in Argentine sovereign debt on the cheap in the 1990s, and now he wants to get paid 100 cents on the dollar for his investment.
The problem is, a ton of other people that invested at that time took two rounds of haircuts on their debt. They're only getting paid 30 cents on the dollar, and Argentina thinks Singer should do the same. Politicians across the country calling him (and his fellow holdouts) "vulture capitalists."
Vulture or no, Singer won't quit. He even got a Ghanaian Court to impound an Argentine naval vessel last year.
Here in NYC, Judge Thomas Griesa ordered Argentina to pay up, arguing that Argentina could not pay the investors that restructured without paying holdouts as well, but that order went to a Court of appeals.
The two lead lawyers on the case (who also faced off for Bush v. Gore) made their closing arguments to the 2nd Circuit Court of Appeals yesterday. That's where Argentina's lawyer uttered the words that have sent the country's bonds into a dramatic tailspin.
Jonathan Blackman, the attorney for the South American nation, said yesterday that Argentina would default on its restructured debt if it’s forced by a three-judge appeals panel in New York to pay holders of the defaulted debt.
“So the answer is you will not obey any order but the one you propose?” U.S. Circuit Judge Reena Raggi asked Blackman during more than two hours of arguments.
“We would not voluntarily obey such an order,” Blackman said. Hernan Lorenzino, Argentina’s minister of economy, and Vice President Amado Boudou sat at the counsel table as the lawyer addressed the panel.
Blackman claimed that a lower-court order obliging Argentina to pay the defaulted bonds whenever it makes payments on restructured debt violates its sovereignty, threatens to trigger a new financial crisis and would quadruple the number of Argentine bond cases in New York federal court, rather than resolving them.
“If that’s the confrontation the court seeks with the injunctions, that is the court’s decision,” Blackman said. “We’re representing a government and governments will not be told to do things that fundamentally violate their principles.”
Essentially, no matter what the Judge orders, Argentina says it will not pay.
It's arguable whether or not paying holdouts would trigger a new financial crisis in Argentina, even though central bank reserves are at their lowest level.
What is certain is that this taking a nasty toll on the bond market, and if the government is depending on investors to finance itself, the Court's ruling may not even matter. Disaster may strike regardless of who wins this case.
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