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Home Publications Blogs Beat the Press Argentina Didn't Come Up With the Term "Vulture"

Argentina Didn't Come Up With the Term "Vulture"

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Monday, 28 July 2014 04:20

Morning Edition had a piece on the possibility that Argentina will again default on its debt. The risk follows the decision by the Supreme Court to refuse to review a New York district court judge's ruling that Argentina had to pay a group of holdout bondholders 100 cents on the dollar and requiring U.S. banks to help enforce this ruling. As the piece explains, this is likely to lead to a second default since a provision in the agreement with the bondholders who had settled from the 2001 default required the government to treat all bondholders the same. This means that if the holdouts get 100 cents on the dollar then all bondholders would have to be paid 100 cents on the dollar.

There are a few points in this story that deserve clarification. The piece notes that Argentina refers to the holdout investors as "vultures." This is not a term the country invented. The term "vulture fund" goes back decades. It refers to a fund that buys assets at a seriously depressed price in the hope of being able to use the legal system to increase their value. The funds that have brought the legal case in U.S. courts are pretty much the textbook definition of vulture funds.

It is also would have been worth noting that Thomas P. Griesa, the judge whose ruling has created the current impasse, seems not to understand the implications of his actions. Given the large range of judges across the country, it is not surprising that complex cases will occasionally be assigned to a judge who does not fully appreciate the issues involved. However the appeals process usually allows for mistaken rulings to be corrected by higher courts. That did not happen in this case.

Comments (4)Add Comment
...
written by Last Mover, July 28, 2014 6:04

Not to worry. This will be resolved by the usual self correcting properties of free markets as always. As with Herbalife, a hedge fund will short Argentina as it steers global regulators and judges to exorcise the demon vulture of fraud and put it out of business.
Incredible
written by John, July 28, 2014 7:25
It's stunning how there are no alternatives (TINA) to the Argentine situation. Economic warfare on a country should be looked at as if were a full scale war with hardware. Folks should come to its defense with overwhelming force to put down the threat.
Indepence
written by JayR, July 28, 2014 7:40
If Argentina is cut off from US markets it may allow them greater independence. They will have nothing more to lose. For instance, for internal consumption, they could void US medical patents which could save them lots of money. I think they are somewhat scared now but I think if they try being independent I think it would work out. A key difference here, with say a country under sanctions, is I think their neighbors will continue to trade with them so they should be able to acquire critical parts and resource for the stuff they cannot produce internally.
Better Coverage
written by DRN3030, July 28, 2014 12:59
Felix Salmon appears the most informed person covering this case. Here is his latest:
https://medium.com/@felixsalmon/the-griefault-trade-ebdc2c62aead

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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