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from Felix Salmon:
Why Argentina will default in 2013
Some countries default on their performing debt because they no longer have the ability to pay it. Other countries default on their performing debt because they no longer have the willingness to pay it. Argentina has been in both situations: something of a serial defaulter, it defaulted on or restructured its obligations in 1828, 1890, 1982, 1989, 2001, and 2005.
And it's going to default once again in 2013.
This time, however, is a little bit different. Argentina has both the willingness and the ability to pay its performing debt. It's adamant, however, that it's not going to pay $1.4 billion to Elliott Associates, a hedge fund which has been prosecuting a highly-aggressive litigation strategy against the country, based on the fact that it holds defaulted debt and refused to exchange that debt for performing bonds. Depending on where you sit, Argentina's refusal to pay off Elliott is either noble or foolish. But after two and a half hours of highly contentious oral testimony in federal appeals court today, it's pretty clear that the US courts aren't going to allow Argentina to stay current on its performing debt -- not unless the country also writes a ten-figure check to Elliott. Which means that we're headed straight for default, with almost no realistic chance of avoiding it.
You didn't really need me to tell you that: one look at Argentina's 12-month credit default swap (current spread: 5,266bp) will tell you everything you need to know. But this is a pretty big deal all the same -- not least because the Second Circuit seems certain to hand down a judgment which is pretty bad law.
That's nothing new: in its first decision, the Second Circuit happily ignored lots of settled law about sovereign immunity, among other things, and was downright wrong about pari passu. This time around, the law preventing the Second Circuit from upholding the lower court's orders is much weaker, and mainly comprises something called Rule 65(d)(2)(C), which is even more obscure than pari passu. Essentially, the Second Circuit has proved itself more than capable of taking a steamroller to formidable legal obstacles; this one should present no real problems at all, by comparison.
from Felix Salmon:
Art world lawsuit of the day: Mirvish vs Knoedler
There's a very simple and cost-free thing that all news organizations can do to make their news better: every time you write about a court filing or judgment, link to it. (And, ideally, make sure it's been uploaded to Recap, too.) For instance, consider Patricia Cohen's NYT article about David Mirvish's lawsuit against the Knoedler gallery. (See what I did there? You're welcome.)
Cohen's article is a very interesting view of the lawsuit and its context, but it doesn't come close to capturing the barminess of the complaint. And because Cohen understands the bigger picture, she actually ends up misrepresenting the suit itself, in which Mirvish is seeking to take possession of two paintings on the grounds that Knoedler, which has now closed, isn't selling them. Here's Cohen:
from Felix Salmon:
The SEC’s prospects against Stevie Cohen weaken further
Andrew Ross Sorkin and Peter Lattman have uncovered an interesting wrinkle in the SEC's case against Mathew Martoma, the most promising part of its huge investigation into Stevie Cohen. The SEC made quite a big deal of the fact that Martoma didn't just sell his position in two pharmaceutical companies ahead of a big negative announcement; he even kept on selling after that, building up a substantial short position.
But as Sorkin and Lattman have worked out, that's not really the case: SAC was flat going into the announcement, rather than being short.
from Felix Salmon:
Don’t worry about an Elliott vs Argentina precedent
If you want to stay on top of what's going on in the case of Elliott vs Argentina, here's your one-stop shop: Shearman & Sterling's invaluable page on the subject, with links to all the briefs and filings you could possibly ever want to read on the subject, plus Shearman's own detailed and useful summaries of what they say and mean.
The latest news in the case is quite important. A group of Argentine bondholders -- real bondholders, not the vultures holding defaulted debt -- were understandably unhappy at the Second Circuit's interpretation of the pari passu clause in New York law bond documentation. That interpretation is, for the time being, the last word on what the pari passu clause means -- but the problem is that a majority of observers, including myself, don't actually believe that the pari passu clause means what the Second Circuit says it means.
from The Human Impact:
Public fury over gang-rape in India: Let’s keep up the pressure
So perhaps at last India has woken up to the daily abuse that its girls and women face.
Sunday night’s horrific rape where a 23-year-old woman was beaten and gang-raped on a bus as it drove through the streets of New Delhi has rightly outraged the entire nation.
from Felix Salmon:
Why the US didn’t prosecute HSBC
Mark Gongloff is not a fan of the idea that corporations are people. Except, that is, when the corporation in question is HSBC: he's extremely angry at the fact that the UK bank won't face criminal prosecution as a result of its money-laundering shenanigans.
Gongloff's take is pretty mainstream: the NYT editorial page said that the decision is "a dark day for the rule of law", adding that "clearly, the government has bought into the notion that too big to fail is too big to jail".
from Felix Salmon:
Mining the Australian CPDO decision
Now that the election is over, there's a bit of time to revisit that very important CPDO decision I wrote about on Monday. There's a lot of material to be mined here, and the Internet is slowly delving its way into it: I particularly love, for instance, the way that Daniel Davies started tweeting out noteworthy paragraphs.
But first there's Paul Davies, who does a great job of explaining the revolving-door aspect to the case. You know how banks will hire regulators, at multiples of their former salary, and turn the former gamekeepers into poachers? Well, exactly the same thing happens to S&P: it pays better than the US government, but not nearly as well as the structured-credit department at ABN Amro. And thus a whole slew of S&P alumni ended up at the Dutch bank, putting together deals precisely designed to be the absolutely worst possible product in the world which could still, somehow, get a triple-A rating. In order to do that, you need people who know how the ratings sausage is made -- and the easiest way to do that is to simply hire them.
from Tales from the Trail:
Could Sandy blow away the election? Don’t hold your breath
Deadly Superstorm Sandy left millions of Americans snowed in, flooded out or stranded without power – and the federal government itself in Washington closed - just a week before voters across the country head to the polls. But if anyone is wondering whether Election Day will be put off, the answer is almost certainly no.
Local U.S. elections have been postponed before – in one relatively recent example, New York put off voting that had been set for Sept. 11, 2001, because of the attacks on the country that day. But presidential balloting has always gone on, even during the Civil War in 1864 (President Abraham Lincoln was re-elected).
from Breakingviews:
Open courts healthy for Delaware and dealmakers
By Reynolds Holding
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)(Fixes link.
Courts that are open to the public are healthy for Delaware and dealmakers. A U.S. district judge ruled that the state’s jurists can’t arbitrate disputes behind closed doors. That may disappoint shy companies, but it ensures that the Fortune 500’s preferred legal forum remains accountable. The mergers world can also depend on continued access to helpful -and sometimes witty - decisions.
from MacroScope:
‘What’s it got to do with me?’ Turning a blind eye to Libor lies
Barclays was fined a record $450 million last month by U.S. and UK authorities for manipulating the London Interbank Offered Rate, or Libor, the interest rate that underpins transactions worth trillions of dollars worldwide, between 2005 and 2009. More than a dozen banks are expected to be drawn into the scandal, which is being probed by authorities in North America, Europe and Japan.
Below is the fascinating account of a former bank staff who worked alongside money market traders on just how it all went down:
