George Soros & Hedge Fund Wolves: 1992 Black September Mugging of British Taxpayers

George Soros & Hedge Fund Wolves 1992 Black September Mugging of British Taxpayers  SOURCE Price Economics Rohin Dhar - May 15, 2014 http://priceonomics.com/the-trade-of-the-century-when-george-soros-broke/ SUMMARY TITLE:  'The Trade of the Century: When George Soros Broke the British Pound' May 15, 2014 ""I've learned many things from [George Soros], but perhaps the most significant is that it's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong.”Stanley Druckenmiller, 1994" -- 1992 George Soros brings BANK OF ENGLAND to its knees -- Soros nets OVER 1 BILLION DOLLARS -- by DEMOLISHING THE MONETARY SYSTEM OF GREAT BRITAIN -- nation-shaking BET -- hedge funds -- RESTRICTIONS ON CAPITAL FLOWING ABROAD LIFTED -- 24-hour news cycle only in infancy -- SOROS MADE FORTUNE BETTING AGAINST BRITISH POUND -- exchange rates between countries -- equals macroeconomic tools of govt to stimulate economies -- Soros led GROUP OF TRADERS to -- BREAK ENTIRE FOREIGN CURRENCY SYSTEM OF BRITAIN -- to profit at BRITISH TAXPAYER expense Post WWII -- European countries to INTEGRATE ECONOMIES more tightly -- tighter economic relations aim reportedly:     -- to prevent wars every few decades     -- to create large pan-European market to compete with USA     -- culminated in EUROPEAN UNION (EU)     -- EU assumed single currency:  1999         -- 1979 precursor to single EU currency:         -- European Exchange Rate mechanism (ERM)     -- countries agree to FIX EXCHANGE RATES     -- versus FLOATING CURRENCY & letting CAPITAL MARKETS set rates         -- Germany had strongest economy in Europe     -- *comment: OCCUPIED GERMANY     -- so each European country set their currency's value in DEUTSCHMARKS     -- agreement to maintain exchange rate between NATIONAL CURRENCY     -- & Deutschmark (within acceptable margin of 6% plus or minus agreed rate)         -- however, fixed rates cannot just be set & 'forgotten'     -- currency is traded EVERY DAY     -- currency is exchanged to:         -- buy imports         -- sell exports     -- market 'applies pressure' based on what 'actual' rate 'ought to be'     -- based on SUPPLY & DEMAND for currency     -- to keep exchange rate FIXED     -- government must PARTICIPATE in MARKET & NUDGE currency in DIRECTION             1.  take reserves of foreign currency & BUY OWN CURRENCY on open market             -- causing CURRENCY TO APPRECIATE                 2.  set INTEREST RATES             -- ie raise rates to entice buyers of own currency             -- lend that money at higher rates of interest                         -- cut interest rates so capital shifts elsewhere in search of profit                 -- however, INTEREST RATES affect ENTIRE ECONOMY     -- plus affect govt spending         -- INTEREST RATES are main lever govt uses to adjust economy     -- eg. if economic recession, govt may cut interest rates to spur:         - investment         - spending      -- eg. if high inflation, govt may raise interest rates to shrink supply of money         -- there are consequences to maintaining FIXED EXCHANGE RATE     -- described as external forcing function, tying govt hands on monetary policy     -- which limits govt doing what it needs to do to keep domestic economy on track *comment:  isn't it only 'external' if it is done in agreement with others, eg the ERM?  Otherwise, couldn't a fixed exchange rate be done solo?    Britain -- 1990:     -- inflation high     -- productivity low     -- exports uncompetitive     -- prime minister:  Margaret Thatcher     -- Thatcher long opposed entering ERM, insisting price of pound be set by markets     -- Conservative party members, however, wanted to FIX exchange rates with Europe     -- John Major, Chancellor of the Exchequer (ie British head of treasury)     -- Major championed joining ERM     -- 1990 Britain enters ERM at rate:         -- 2.95 Deutschmark (DM) per British pound (GBP)                 *British limited to keeping rate b/w 2.78 DM to 3.13 DM         *by provisos of the ERM agreement     -- Major replaces Thatcher as PM shortly thereafter     -- ERM seen as British monetary policy on 'autopilot'     -- given hands tied by exchange rate agreement     -- 1990 - 1992:  inflation decreased, interest rates eased, unemployment low (by historical standards)         -- BUT 1992:  MASSIVE GLOBAL RECESSION     -- British unemployment spiked:  to 12.7%  (from 7.7% 2 years prior)     -- were Britain not subject to the ERM agreement     -- Britain could stimulate investment & spending by cutting interest rates in unemployment crisis     -- but was UNABLE to do so pursuant to ERM     -- as it would have PUSHED THE VALUE OF THE POUND BEYOND AGREED AMOUNT     -- Britain had to ride out recession with hands tied     New York City -- 1992:  George Soros 62 years old -- head of QUANTUM FUND, hedge fund he founded 1970 -- to BET on macroeconomic trends -- at time he was wealthy, but not as wealthy as today or as public -- in 1992, hedge funds weren't part of public consciousness Hedge Fund -- 'hedge' - investing capital to make a specific bet that something will happen -- use of market instruments to 'hedge' against other risks -- to isolate bet that hedge funds want to make eg.  AT&T mobile phone network -- say you consider it a poor performer -- opportunity to then 'short' the stock -- making money when the stock goes down -- but if the mobile phone market is booming -- AT&T may still be attracting customers & stock could go up -- in that case:  money could be lost shorting -- to 'hedge' against this risk:  buy some Verizon stock also -- if you think AT&T is crappy relative to Verizon -- if mobile phone stocks increase:     -- money made if Verizon goes up more than AT&T -- if mobile phone sector decrease:     -- money made if AT&T stock goes down faster than Verizon -- creation of this position = 'hedge' of general risks, making specific bet -- in this case AT&T poor prospect compared to Verizon -- if hedge funds are very sure of their bet -- they BORROW funds to put even more money behind bet -- using mostly borrowed monies they can buy a LOT OF SHARES -- without fronting much capital -- hedge fund managers typically invest other wealthy people's money -- hedge fund managers receive MANAGEMENT FEES to cover expenses, incl. salary -- standard is 2% of funds under management -- regardless of how fund performs, if you manage a large fund, you stand to make big bucks -- but not billionaire level -- hedge fund managers become billionaires placing successful bets -- hedge fund managers earn about 20% of returns created by fund -- summarising:  hedge funds make isolated bets using financial instruments -- & borrowing money to make potential rewards greater Britain 1992 -- Jonathan Portes, economist says: -- problem obvious -- interest rate in relation to weak demand = much lower than needed -- to maintain GBP position in ERM -- GBP overvalued -- large current account deficit (even in deep recession) -- Britain joined ERM at wrong rate / sterling overvalued & stuck with -- structural current account deficit -- market also knew pound overvalued -- pound trading at lower end of agreed band w. Deutschmark -- British govt guarantee to keep pound propped up, prevented pound from plummeting -- as long as Britain indefintely committed to buying pounds for 2.95 Deutschmarks -- status quo maintained “Markets can influence the events that they anticipate.” - George Soros         -- 1992 pound held its position -- until Germany throws Britain under bus -- German central bank officials made on & off-record comments     Reimut Jochimsen     Bundesbank Council member     -- issues statement saying:  potential for realignment within the ERM     -- GBP then weakened         Unnamed Bundesbank official official, quoted:     -- devaluation of serling inevitable & pound to fall     Prof Helmut Schlesinger     President     German Bundesbank     -- interviewed by:  WALL STREET JOURNAL interview + German newspaper     -- terms:  permission to quote involved first obtaining review by him of direct quote     -- BUT indirect quote / paraphrase, NO PERMISSION REQUIRED         -- newswire Sept. 1992 reports re Schlesinger indicating     -- not ruled out that even after realignment & cut in German interest rates     -- one or two currencies could 'come under pressure' ahead of referendum in France     -- Soros & entire financial markets see:  GBP could 'come under pressure' -- ie. could be devalued -- one paraphrased quote result:  market ceased to believe Britain could maintain currency exchange rate -- the belief in the pound was all that kept it from plummeting -- results:  brought devastation to Bank of England -- netted George Soros over billion dollars in profit “There is no point in being confident and having a small position.” - George Soros -- a month prior, Soros & Quantum Fund were building $1.5 billion betting position -- that pound would fall -- Stanley Druckenmiller saw importance of German Bundesbank president report -- Druckenmiller figured the Quantum gang should add to position (ie bet more) -- Soros strategy:  “Go for the jugular” -- plan was to use the Schlesigner quote as opportunity to devalue pound -- by short-selling sterling on unprecedented scale, to hasten plummet of pound -- to increase Quantum gang's profit LONG EXPLANATION OF SHORTING - in article *I find it hard to focus on this, so I am going to skip -- money is made if pound devalues -- by buying and selling or exchanging money, or something -- Soros was on a winner because everyone knew (b/c of Bundesbank statement) -- that British pound was going to tank -- so if pound to devalue, Soros & Quantum gang win -- were pound increase they would have lost, but they knew it was IMPOSSIBLE -- as the British pound was OVER-PRICED or overvalued re Deutschmark -- biggest risk Soros was taking was that pound could maintain value -- but, in that case, he & the Quantum gang wouldn't lose much money -- so there was not a massive risk factor, but there was a massive potential gain factor -- that morning, Soros & the Quantum gang -- increase their short position against pound -- from $1.5 billion to $10 billion -- the perfect bet:  mitigated down side & limitless up side -- described as like betting on coin flip:     -- heads:  pound devalues / make lots of money     -- tails:  pound rate remains fixed / lose small amount of money on LOAN INTEREST "... In fact, when Norman Lamont [the British finance minister] said just before the devaluation that he would borrow nearly $15 billion to defend sterling, we were amused because that was about how much we wanted to sell." - George Soros, 1992 Black September 1992 -- as EUROPE SLEPT -- Soros borrowed pounds from anywhere he could -- Quantum gang position exceeded $10 billion shorting the pound -- other hedge funds:     -- got wind of brisk trade     -- got wind of report from Bundesbank     -- started to follow Quantum gang strategy, borrowing & selling British pounds -- by time British treasury began their day, BILLIONS of British pounds sold -- pound dangerously close to trading below levels mandated by ERM -- British treasury begins buying pounds in the billions at 8:40am -- but no effect on price of pound -- WHOLE WORLD WAS SELLING -- British govt did not have BUYING POWER to fight off worldwide sale -- British govt spent est.  £27 billion of RESERVES buying up pounds:  to no effect -- 9am:  Norman Lamont, finance minister under Major -- advises Major impossible to buy up enough pounds to keep currency propped -- only option for British govt to keep currency trading at 'right level' -- equals:  DRAMATIC INCREASE of INTEREST RATES to attract buyers of pound -- MAJOR REFUSED -- Britain in recession & INCREASE OF RATES would FURTHER SHRINK ECONOMY -- POLITICAL SUICIDE -- blood in the water -- GLOBAL CAPITAL kept betting against pound -- hour later, Norman Lamont pleads with John Major -- John Major relents -- 11am - British govt announces:  INCREASE interest rate from 10% to 12% -- nothing happened -- pound continues to plummet -- Norman Lamont consults to John Major:  rates increase - 12% to 15% -- no effect -- Soros, Druckenmiller & other currency speculators know victory is at hand -- market expected Britain to devalue currency -- no amount of interest rate or currency buying could change that -- market expectation that Britain would exit ERM & devalue currency -- described as 'self-fulfilling prophesy' -- comment:  how so?  isn't it currency speculator manifested? Black Wednesday - 16 Sept 1992 -- 7:30pm Norman Lamont announes Britain exiting ERM & floating currency on market -- Soros, the Quantum hedge fund gang & currency speculators won -- Britain floated its currency -- pound fell 15% against Deutschmark -- pound fell 25% against US dollar -- when pound floated, Soros Quantum gang hedge fund -- value increased instantly from $15 billion to $19 billion -- months later, same fund worth almost $22 billion -- Soros & partners in hedge fund made at least 20% - ie $1.4 billion -- nature of Wall Street trading -- to win big, someone else must lose big -- in case of Black Wednesday: ENORMOUS WEALTH TRANSFER FROM BRITISH TAXPAYERS TO GEORGE SOROS & OTHER HEDGE FUND MANAGERS -- In the lead up to devaluation, -- British taxpayer lost out again: -- treasury kept spending its foreign currency buying British pounds -- which pounds became LESS VALUABLE after treasury floated the exchange rate COST TO BRITISH TAXPAYERS ESTIMATED AT £3.3 billion *comment:  bet that doesn't factor in the cost of having shrunk the British economy (through interest rate raising), when the economy had to be stimulated, during an existing money-lender & speculator created 'financial crisis'. -- John Major, Conservatives -- centrepiece of monetary policy:     -- entering ERM     -- plan to bring austerity to Britain -- Black Wednesday destroyed his credibility -- party lost next election -- Thatcher was right, article concludes:  Britain had no business propping up currency artificially *comment:  I don't think that was the issue - the issue is that they were locked into agreement  in which the pound was OVER-VALUED to begin with & their hands tied re interest rates BLACK WEDNESDAY REAL PROBLEM *era when handful of private hedge fund speculators can assemble MORE CAPITAL IN FEW HOURS THAN BANK OF ENGLAND HAD AT DISPOSAL -- amount of money in 'GLOBAL MARKETS' so enormous it can bring British govt to knees in one day -- article concludes regulations are a problem, as they create unexpected loopholes *comment:  LACK OF REGULATION *IS* THE PROBLEM HERE - regulate better -- article says, event shows the power of the one-sided bet -- 1992 bet described:  "well-designed macroeconomic trade against fixed exchange rates" -- if Soros & his Quantum gang were wrong, down side was almost zero -- up-side was enormous -- article concludes: "Bets like that almost never come along, but when they do, enormous transfers of wealth take place from the sheep to the wolves." SOURCE Price Economics Rohin Dhar - May 15, 2014 http://priceonomics.com/the-trade-of-the-century-when-george-soros-broke/ ---------------------- ---------------------- COMMENT That was a good article. I don't really understand how money works and reading even this small explanation of how it works isn't my thing (had to skip some of the boring detail, because I don't readily understand even simple explanations, and I sort of don't care to torture myself trying to understand).   But I guess if you're going to gamble, why not gamble like this?  Surprised all those addicted gamblers don't put their money in currency buying and selling.  A casino system that rips off millions of taxpayers by clubbing together large enough funds to make bets at an opportune time sounds insane.

ARGENTINA - TAKING U.S. TO THE HAGUE

Cry for Argentina: Fiscal Mismanagement or Pillage? Posted on Aug 15, 2014 By Ellen Brown, Web of Debt This piece first appeared at Web of Debt. Argentina has now taken the U.S. to The Hague for blocking the country’s 2005 settlement with the bulk of its creditors. The issue underscores the need for an international mechanism for nations to go bankrupt. Better yet would be a sustainable global monetary scheme that avoids the need for sovereign bankruptcy. Argentina was the richest country in Latin America before decades of neoliberal and IMF-imposed economic policies drowned it in debt. A severe crisis in 2001 plunged it into the largest sovereign debt default in history. In 2005, it renegotiated its debt with most of its creditors at a 70% “haircut.” But the opportunist “vulture funds,” which had bought Argentine debt at distressed prices, held out for 100 cents on the dollar. Paul Singer’s Elliott Management has spent over a decade aggressively trying to force Argentina to pay down nearly $1.3 billion in sovereign debt. Elliott would get about $300 million for bonds that Argentina claims it picked up for $48 million. Where most creditors have accepted payment at a 70% loss, Elliott Management would thus get a 600% return. In June 2014, the U.S. Supreme Court declined to hear an appeal of a New York court’s order blocking payment to the other creditors until the vulture funds had been paid. That action propelled Argentina into default for the second time in this century—and the eighth time since 1827. On August 7, 2014, Argentina asked the International Court of Justice in the Hague to take action against the United States over the dispute. [...] Blame has also been laid at the feet of the IMF and the international banking system for failing to come up with a fair resolution mechanism for countries that go bankrupt. And at a more fundamental level, blame lies with a global debt-based monetary scheme that forces bankruptcy on some nations as a mathematical necessity. As in a game of musical chairs, some players must default. Most money today comes into circulation in the form of bank credit or debt. Debt at interest always grows faster than the money supply, since more is always owed back than was created in the original loan. There is never enough money to go around without adding to the debt burden. As economist Michael Hudson points out, the debt overhang grows exponentially until it becomes impossible to repay. The country is then forced to default. [...] Fiscal Mismanagement or Odious Debt? Besides impossibility of performance, there is another defense Argentina could raise in international court – that of “odious debt.” Also known as illegitimate debt, this legal theory holds that national debt incurred by a regime for purposes that do not serve the best interests of the nation should not be enforceable. The defense has been used successfully by a number of countries, including Ecuador in December 2008, when President Rafael Correa declared that its debt had been contracted by corrupt and despotic prior regimes. The odious-debt defense allowed Ecuador to reduce the sum owed by 70%. [...]         EXTRACT ONLY - FULL @ SOURCE http://www.truthdig.com/report/item/cry_for_argentina_fiscal_mismanagement_or_pillage_20140814

This is a really fantastic article. Only an extract. Recommend linking to full article.

Blown away by how greedy the vulture hedge fund is, holding out for a 600% return - over a decade of fighting.

It should be interesting to see how Argentina goes fighting this.

UK - DAVID CAMERON'S MASSIVE HEDGE FUND DONATIONS & THEIR MASSIVE TAX CUTS

David Cameron’s election bankrolled by a small pool of big money donors     August 13, 2014 (2:56 pm) - Latest figures from the Electoral Commission reveal that hedge funds have given to the Tories a total of £45.7 million in donations, and have received a £145 million tax cut - Analysis of Conservative Party donations shows that almost £2m of donations in the last quarter came from donors who attended private dinners with David Cameron and other senior Ministers, taking the total to £5m from dinner donors in 2014 Jonathan Ashworth MP, Labour’s Shadow Cabinet Office Minister, said: "Families are struggling with their finances but Tory Party coffers are booming. "The Prime Minister wants to buy the next election with a small pool of big-money donors bankrolling his campaign. In contrast Labour has thousands of activists across the country working in communities. "When millions are flowing in from hedge funds and exclusive groups of donors, is it any wonder David Cameron stands up for the privileged few? "Millionaires and hedge funds have been given a tax cut while hardworking families suffer from a cost-of-living crisis. David Cameron is leading an out-of-touch, hollowed-out party which has no answers to the major challenges our country faces." Ends http://press.labour.org.uk/post/94629826764/david-camerons-election-bankrolled-by-a-small-pool-of

So who do you think Cameron answers to: the voter or the finance sector? LOL

Also, note the massive tax cuts these hedge fund pirates are getting.

Argentina - what's likely to happen following default

 LAHT Article

"Barings tried for years to reach a settlement on the debt, repeatedly sending representatives to Buenos Aires, but it was not until 1857 – 29 years after the default -- that Barings and bondholders (backed by the threat of some stiff English gunpowder diplomacy) reached a settlement with what was now the Republic of Argentina -- by issuing new bonds, of course.

And with Argentina’s credit now restored with a £1.6 million Barings recapitalization of the arrears, Barings went on to market another £550,000 for Argentina in the first portion of a £2,500,000 33 year Argentina 6% bond maturing in 1899 and even more issuance followed.

By 1890, however, Argentina was on the brink of default again and almost took Barings down with it. With the Bank of England becoming the world’s lender of last resort, it was Baring’s old rival, Rothschild, who would persuade the British government to put together what became a £17 million rescue on the principle that the collapse of Barings would be a “terrific calamity for English commerce all over the world.” [LAHT]

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COMMENT

The world of bonds/debt and investment seems to have:

* a villain (defaulting debtor)
* a victim (investor)
* a rescuer (financial group or even foreign government bank)

What seems to happen is that someone comes along (a group of big investors or a goverment) and offers a bail-out and restructured terms ... and the debt carries over in some shape or other.

If nations that are indebted aren't careful, they stand to lose territory (and maybe even sovereignty), is what I got out of it. 

So that maybe explains why people are prepared to continue to invest in a 'bad' lender.  Countries have value:  resources, territory, strategic location etc.

What's going to happen?  I'm guessing there's going to be a buy-out and restructuring on terms that probably aren't favourable to Argentina? 

But having read about the 65% 'haircut' or whatever it was, it doesn't sound like the terms are all that great for the lenders.  But it depends on how you view profits, I guess.  In other words, how much profit is enough profit?

Argentina - Bonds - And history of 'bondage'

Eighth time unlucky 

Cristina Fernández argues that her country’s latest default is different. She is missing the point 

Aug 2nd 2014 

ARGENTINA’S first bond, issued in 1824, was supposed to have a lifespan of 46 years. Less than four years later, the government defaulted. Resolving the ensuing stand-off with creditors took 29 years. Since then seven more defaults have followed, the most recent this week, when Argentina failed to make a payment on bonds issued as partial compensation to victims of the previous default, in 2001.

Most investors think they can see a pattern in all this, but Argentina’s president, Cristina Fernández de Kirchner, insists the latest default is not like the others. Her government, she points out, had transferred the full $539m it owed to the banks that administer the bonds. It is America’s courts (the bonds were issued under American law) that blocked the payment, at the behest of the tiny minority of owners of bonds from 2001 who did not accept the restructuring Argentina offered them in 2005 and again in 2010. These “hold-outs”, balking at the 65% haircut the restructuring entailed, not only persuaded a judge that they should be paid in full but also got him to freeze payments on the restructured bonds until Argentina coughs up.

Argentina claims that paying the hold-outs was impossible. It is not just that they are “vultures” as Argentine officials often put it, who bought the bonds for cents on the dollar after the previous default and are now holding those who accepted the restructuring (accounting for 93% of the debt) to ransom. The main problem is that a clause in the restructured bonds prohibits Argentina from offering the hold-outs better terms without paying everyone else the same. Since it cannot afford to do that, it says it had no choice but to default.

Yet it is not certain that the clause requiring equal treatment of all bondholders would have applied, given that Argentina would not have been paying the hold-outs voluntarily, but on the courts’ orders. Moreover, some owners of the restructured bonds had agreed to waive their rights; had Argentina made a concerted effort to persuade the remainder to do the same, it might have succeeded. Lawyers and bankers have suggested various ways around the clause in question, which expires at the end of the year. But Argentina’s government was slow to consider these options or negotiate with the hold-outs, hiding instead behind indignant nationalism (see article).

Don’t try to flee, Argentina

Ms Fernández is right that the consequences of America’s court rulings have been perverse, unleashing a big financial dispute in an attempt to solve a relatively small one. But hers is not the first government to be hit with an awkward verdict. Instead of railing against it, she should have tried to minimise the harm it did. Defaulting has helped no one: none of the bondholders will now be paid, Argentina looks like a pariah again, and its economy will remain starved of loans and investment.

Happily, much of the damage can still be undone. It is not too late to strike a deal with the hold-outs or back an ostensibly private effort to buy out their claims. A quick fix would make it easier for Argentina to borrow again internationally. That, in turn, would speed development of big oil and gas deposits, the income from which could help ease its money troubles.

...

EXTRACTS ONLY ... FULL @ ...

SOURCE - Economist - here.

http://www.economist.com/news/leaders/21610263-cristina-fern-ndez-argues-her-countrys-latest-default-different-she-missing

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COMMENT

Good article.  

Never imagined I'd find something to read in this kind of publication.  Barely know what a bond is.  LOL

Bond issuer is indebted to bond holders and the bond issuer must pay interest (coupon ... periodic interest rate to maturity) to bond holders, or pay up the principal and interest owed.

Banks and financial organisations buy bonds and on-selling them to investors. 

Argentina issued it's first bond 1824 -- so this is when it made it's first big borrowing.  

I thought it was a typo so I checked it out elsewhere.

Bond was $1mil to mature 46 years later, underwritten by Baring Brothers [LAHT].

The first default 4 years later was because of a war with Brazil [LAHT] that began a couple of years after the bond was issued (or borrowing was made).

British bondholders ('lenders/investors') were pissed off that Argentina couldn't repay its debts:

disgruntled bondholders in 1832 took to the London papers in a huge press campaign against Argentina, vilifying the Argentine government for its delinquency, and later that year, Britain would send ships to occupy the Falkland (Malvinas) Islands. [LAHT].

Check out the LAHT article - it's got some awesome history ... Argentina almost took Barings down with them ... Rothschild to the rescue ... forced 'pegging' peso to gold ... history repeats itself 100 years later with IMF as lender of last resort.

I'm still learning, but it looks pretty exciting to a learner.

Looks like the technicality clause expires at the end of the year.  But what does that mean?  

Is Argentina going to renegotiate or is Argentina going to fight it out with appeals?

The writer says to look to history, so I'm going to have a closer look at the article.  :)

Argentina - Injustice?

Updated August 1, 2014 3:29 PM The Justice of Argentina’s Default A federal judge in New York has ruled that Argentina must pay a small group of creditors in full — about $1.5 billion — even though it got 93 percent of its other bondholders to accept partial payment in a debt restructuring after its 2001 default. Now it faces default again because the judge has refused to let it pay any other creditors until it pays these hedge-fund investors, whom critics call “vultures.” Critics of the ruling say it will encourage other creditors to demand full payment, scuttling the debt deal and make future debt restructurings elsewhere impossible. Is it fair to make Argentina choose between defaulting and paying some of its past creditors in full? Could that help prevent struggling countries from recovery economically? Source - New York Times - here.

Hmmmm ... I'm a tad confused.

Argentina didn't choose to default, if the bank Argentina paid the money into was barred from making the transfer.

Shouldn't the headline read:  'The injustice ... "

GIF - Wall Street Hedge Funds vs Argentina

❌ G O O G L E SUCKS  ❌ _____ ❌ WALL STREET HEDGE FUNDS Vulture Funds vs ARGENTINA   ❌  GIF Vultures swooping on a carcass | Wall Street street sign G O O G L E SUCKS  ❌ Wall Street Sucks Harder

Argentina and the Hedge Fund Vultures

Meet the billionaire hedge-fund manager at the center of Argentina’s default By Rebecca Robbins July 31 at 3:32 PM When Argentina defaulted on its debt for the second time in 13 years this week, it was largely because of the legal pressure applied by one group of investors led by billionaire hedge fund manager Paul Singer. ...  missed a deadline for more than $500 million in interest payments that were due to bondholders. ... case even more curious is its link to Singer, who has become known for picking — and winning — fights with foreign governments over his hedge fund Elliott Management’s investments. He’s tussled with Peru, taking the country to the brink of default in 2000. He’s taken on Congo-Brazzaville, pushing the country to settle after he uncovered alleged corruption within the country’s government. But he’s never gone as far as he has with Argentina, which the ratings agency Standard and Poor’s declared in selective default on Wednesday, meaning that it has the wherewithal to pay its creditors but will not agree to. Argentina’s debt troubles date back to its last default in 2001, when it gave up on its sovereign debt payments to its bondholders. As the country’s finances rebounded, the majority of the country’s creditors agreed to a restructured debt package, but a handful turned the deal down. Led by the NML Capital division of Singer’s hedge fund, a group of holdout creditors have pushed Argentina to repay them in full, $1.5 billion. (Elliott officials have also said they would be willing to negotiate the terms.) Argentina says a large payment could expose it to a cascade of claims that it cannot afford to pay. The creditors have sued the Argentinian government, scoring a victory in 2012 when a federal court in Manhattan ruled that Argentina must first pay the holdouts before paying its other bondholders, leading to the country’s default on Wednesday. Argentinian politicians and their supporters have blamed the hedge funds for refusing to compromise, but Singer’s hedge fund denied culpability for the default of one of Latin America’s largest economies and say they have been willing to negotiate a deal. ...These hedge funds say they are simply collecting on their legitimate debt holdings, but critics call them “vultures” who prey on developing countries and unsettle the global economic balance. ... While distressed-debt investing remains a niche investment strategy, it has boomed since the recession. Total assets in the 300 hedge funds that buy up distressed and restructuring debt reached about $183.8 billion at the end of the second quarter of this year, a $100 billion increase since 2008, according to Hedge Fund Research. Within the distressed-debt market, Singer is a leader. A prominent Republican donor with libertarian views, he’s never been one to shy from a fight and has been an ardent critic of the Federal Reserve. It’s unclear just how much Singer stands to make if he can force Argentina to pay up, because it’s not known how much his hedge fund originally bought the defaulted debt holdings for. But Mark Brodsky of Aurelius Capital Management, another one of the creditors holding out against Argentina, said last year that his hedge fund stands to make some $500 million in profit if it wins the dispute. Several financial historians said they can’t remember another time that hedge funds had pulled a government into default, though they noted that there was some precedent for litigation surrounding sovereign debt. “The whole affair is reminiscent of vulture investors 25 years ago who would buy up distressed debt at a deep discount and hope to profit on subsequent good news,” Charles Geisst, a finance professor at Manhattan College, said in an e-mail. “But taking a large debtor to court is a more recent development and illustrates the extent of the profit to be made if they are successful.” Although talks between Argentina and the hedge funds have been unsuccessful thus far, an accord could still be reached out of court. Citing an unnamed source, the Wall Street Journal reported Thursday that JPMorgan Chase could step in to buy the disputed bonds. ... Source - Washington Post - here.

Hedge funds buy up debts and somehow make massive profits, by look of it.

Looks like Argentina shouldn't have given up its sovereign debt to bondholders back in 2001.

Not entire clear on that, but expect they gave over their 'foreign debt payments' to hedge funds.

Argentina can pay; but payment is at issue because it exposes them to other claims.

Like the bit about hedge funds being 'vultures' preying on developing countries.  Probably accurate.


 

US COURT RULING re ARGENTINA - Argentina receives support from over 100 economists and prominent academics

Argentina blames US for debt woes, denies default AFP By Paula Bustamante 2 hours ago  US District Judge Thomas Griesa has blocked Argentina from paying its "exchange creditors" -- those who agreed to take a 70-percent write-down after the country's 2001 default -- without also paying two American hedge funds that took it to court demanding full payment. Argentine stocks plummeted Thursday, closing 8.43 percent down as the repercussions of the default began to set in. President Cristina Kirchner's cabinet chief, Jorge Capitanich, blamed the US government, Griesa and a court-appointed mediator for the messy legal dispute, which made Argentina miss a $539 million payment to exchange bondholders. "If there's a judge who's an agent of these speculative funds, if the mediator is their agent, what is this justice you're talking about? There's a responsibility of the state here, of the United States, to create the conditions for the unconditional respect of other countries' sovereignty," he said. He accused Griesa and mediator Dan Pollack of "incompetence" and said Argentina would take the matter to international courts. Argentina says paying the holdouts the $1.3 billion it owes them could expose it to claims for up to $100 billion from exchange creditors, who are entitled to equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause. ... Argentina got a show of support from more than 100 economists, including Nobel laureate Robert Solow and other prominent academics, who sent a letter to the US Congress urging it to intervene. "The district court's decision... could cause unnecessary economic damage to the international financial system, as well as to US economic interests (and to) Argentina," said the signatories, warning the ruling created a "moral hazard" by guaranteeing creditors full payment no matter how risky their investment. With Argentina scrambling to find a way to placate the hedge funds until the RUFO clause on its restructured debt expires at the end of the year, sources close to the case told AFP that JP Morgan and other banks were in negotiations with the holdouts to buy some or all of their bonds. JP Morgan declined to comment. Analysts said the damage could still be controlled if the default was fleeting, but warned a lengthy standoff would deepen Argentina's current recession, fuel inflation and unemployment and further the country's isolation from global financial markets. Argentina's 2001 default on $100 billion in foreign debt, the largest in history at the time, plunged the country into crisis. Rioting left 33 people dead after the government froze savings accounts to halt a run on the banks. But analysts say the global impact of the new default will be far smaller, since Argentina has since been locked out of international capital markets. Extracts only - full @ Source - Yahoo News - here.

This sounds full-on.

Wonder if the letter to Congress will make any difference?

Don't know anything about hedge funds, so I don't know what's going on. 

But it's obvious whatever is going on is punitive towards Argentina and likely damaging to Argentina, by the sound of it.