Understanding Argentina’s Coming Default, For Real This Time

Nicolás Cachanosky has an article discussing the matter over at mises.org, which sadly misses all the very good bits. Let's fill in together.

Following the 2001 default, Argentina offered a debt swap (a restructuring of debt) to its creditors in 2005. Many bondholders accepted the Argentine offer, but some of them did not. Those who did not accept the debt swap are called the “holdouts.” When Argentina started to pay the new bonds to those who entered the debt swap (the “holdins”), the holdouts took Argentina to court under New York law, the jurisdiction under which the Argentine debt has been issued. After the US Supreme Court refused to hear the Argentine case a few weeks ago, Judge Griesa’s ruling became final.

This is factual. Perhaps worth noting why the offering in question was made under NY law, and the implications of this ruling for 3rd world sovereigns.

Specifically, it was made under NY law because Argentina (in the sense of, the Argentine government) has been a festering shithole of plain nonsenseⁱ to the degree that nobody'd take them seriouslyⁱⁱ ; and the implication is that nobody's going to give a shit about your sovereignty, so if you put that shit in there you may as well go home.ⁱⁱⁱ

The ruling requires Argentina to pay 100 percent of its debt to the holdouts at the same time Argentina pays the restructured bonds to the “holdins.” Argentina is not allowed, under Griesa’s ruling, to pay some creditors but not others. The payment date was June 30. Because Argentina missed its payment, it is now under a 30-day grace period. If Argentina does not pay by the end of July it will, again, be formally in default.

This is a way to put it. Another way to put it would be that unless Argentina pays 100% to the people that held out at the same time it pays 15% or w/e it is to the people that accepted the bond exchange, whatever money it pays anyone will be stolen by the United States. Period.^iv

On the other hand, if it does pay any of the holdouts 100%, it is by the terms of the bond exchange required to pay everyone 100%. This is the fucking ruling, nothing else : either give us all your money or give them all your money. That's what Griesa ruled.^v

Argentina, either as this government or as any other, has no practical way out of this dilemma. The point of making deals restructuring bonds is so that bonds are restructured. Moreover, paying terrorists (which is, unmitigatedly, what the US government has become, and for a while now) is unwholesome - there's nothing to keep them from asking for more in the future. So no, Argentina will not pay, and the fact that it won't pay improves my trust in the country. And yes, I am helping them get dollars. Of course I am. So is any person with a shred of human dignity or decency left, and if that doesn't include anyone in two hundred or so million north Americans, so be it. Neither will the future.

The rest of the mises.org article is an example of what people call "useful idiots". To illustrate that problem, consider The War Lord^vi, a 60s thing with Charlton Heston. In it, the following dialogue takes place :

CHRYSAGON: She marries tomorrow.
DRACO: Why not tonight?

CHRYSAGON: She's not a she-goat, Draco. I won't take a woman the night before her wedding.^vii
DRACO: You're right. It's wrong tonight. I could bite my tongue. What about tomorrow? Get... what's his name, the priest. Sir pri-iest! You have the right. The wedding's tomorrow... The right of the first night. Ask the priest. Of the seven golden virtues, I swear, the most peculiar is chastity. Look, you're the lord of this place. She belongs to this place. Therefore, she's yours. Ask him. Dear learned priest, we need your counsel.

PRIEST: Such as I have to give.
DRACO: Are you well-versed in church law, father?

PRIEST: Middling well, though my order runs not to law. It seeks rather to make amends...for the evils wrought by men through the absence of love.
DRACO: Splendid. It is of love that I would ask you. Now... this noble knight has need of innocent pleasure.

PRIEST: There is no such thing as innocent pleasure.
DRACO: Priest, scholar, certainly you have heard... of the right of the seigneur... to take a virgin bride on her wedding night.

PRIEST: The church does not admit it. It is pagan law.
DRACO: These are pagan lands.

PRIEST: Not of a Sunday morning, I assure you.
DRACO: These are evening matters. We found the warden with a bride in his arms. Was she not freely given by her people?

PRIEST: The warden...
DRACO: What do they say in Rome?

PRIEST: Jus primae noctis. That being the Roman for it.
DRACO: You hear that? It's known in Rome.

PRIEST: And damned as heresy. And yet...
DRACO: And yet... Speak on, good father.

PRIEST: Well, now, fertility.Some say it's pagan. But who's not pagan in some matters?
DRACO: True, true! I love the speech of scholars.

PRIEST: Young folks think only of frolicking. Desist, I tell them. But they will go a-wantoning. So, lest the devil take them, I preach them a text from Holy Writ. "Increase and multiply," I say, "replenish the Earth." And oh, how they obey me. But how this touches on your problem...
DRACO: Oh, clearly, clearly! The pagan part may honor pagan law. We ask no more. What hour's the wedding?

PRIEST: The wedding in church or t'other?
DRACO: What other? We'll be at the church.

PRIEST: To claim that right? War lords, forebear! In this weak hand lie lightnings, and I use them.
DRACO: Ah, no, no sacrilege. Not in God's church.

PRIEST: I dare say, there's another wedding... their tribal way. That wedding's theirs. Feasting, drinking, clowning, dancing... Oh, Lords, how they do caper. Aar!

Now you see here, clearly, clearly, the good sir priest whats-his-name (could it be Mises ?) with his middling understanding of law being a most useful idiot. This is what an useful idiot is : someone with half a learning, droning on happily about the parts he knows, and happier to drone on about a part he knows than be confronted with the abyss. So no, I have no further need of Cachanosky elucubrations about respecting contracts and whatever other parts of Mises' brand of socialism he well digested.

Instead, I will replace all of that with a quote, from the US Supreme Court practice. It says, in that endless story of Korea :

In the glorious United States, a Mr. John M. Perry lent to the US Government 10`000 dollars in gold, on the understanding that he will be repaid later on 10`000 dollars in gold of the same standard, and meanwhile 4.5% interest each year. All this according to the law and obeying all the proper forms mandated by whatever regulation in force at the time.

A few years later, the USG changed the value of the dollar, to about 60% what it used to be. Mr. Perry shrugged his shoulders, and as per the signed agreement expected to be repaid about 1.69 of the new dollars for each of the old dollars. Because that is the point of making agreements that specify what’s to be done in what circumstances : so that when those circumstances occur, what was said is done.

The Government refused to do so, of course, as any government in any time and place is to be expected to do - government being the original gypsy. Agreements signed with a government are good and well when it means the government in question gets to steal something - such as the land of the Indians - but should the shoe find itself on the other foot you may rest assured the same agreements are not worth the paper they’re printed on.

Mr Perry sued. The Attorney General proposed a theory whereby previous Congresses may not limit the powers of the currently sitting Congress, and so if they today decide not to repay any debt, or to repay a cent to the dollar, or to require the creditors pay them to discharge debts rather than the other way around as it is customarily done… all the better.

The court ruled, of course, against the plaintiff.

This is the importance of sovereignty, and if the Argentine government had any sense, it'd hear a complaint from the people defrauded by the USG in 1930, and order the US repay it all. Then start confiscating US shipping going past the Cape, bring the matter to the UN, and all that good stuff.

Fortunately for the US, Cristina is not smart enough to know how to handle these things, nor brave enough to be the man her husband is claimed to have inherited.

1. Don't take it the wrong way, I think it's great that government fails to function. So do most sane Argentines - minus of course a thin sliver of hipsters who are too "educated" by half, and consequently too fucking stupid to put into words. [↩]
2. If you seek to be entertained, go read up on the antics of the administration that oversaw the previous default, because it has been well argued to date that anyone foolish enough to have lent to those people should really not expect themselves to end up in a better financial position than the backers of say Gaddafi. After all, lending to a government clearly set upon tearing the country down is criminal, isn't it ? [↩]
3. Yeah I know it seems a good idea at the time. It always does. Yeah I know the perceived cheaper issue that can be thus had is tempting.

   Nevertheless, sovereignty, for states as for individuals, relies on an unbroken chain, and the costs for mending it are - as Argentina is discovering now - always disproportionate. So learn from this mistake and never accept another's laws no matter what, as a point of principle that you're ready to defend with your life. Unless, of course, you're ready and willing to actually go all the way, one of those fortunate slaves that has in fact found his master. [↩]

4. Yes, that's what it means, because as a recipient of a bond coupon, if you have any sort of presence in the US or one of its dominions, you will be sued by the holdouts, who are well organised and legally over-represented. So you can't actually receive money from Argentina unless Argentina does what the USG tells it to do, because neither you nor Argentina are sovereigns, in the view of the USG.

   Obviously this situation must be broken, and obviously any sort of involvement with the USG is both criminal and something that you will be later tried and hopefully shot for like any good terrorist. These are uncontroversial facts. [↩]

5. Unsurprisingly, considering who pays his salary. [↩]
6. It's a reasonably historically accurate re-enaction of siege and conflict in the times of the Norman keep, with some ridiculous elements of 60s mainstream weaved in. [↩]
7. And why is that ? [↩]