Felix Salmon

Why Argentina’s talking again

Felix Salmon
Sep 21, 2009 21:00 UTC

When Argentina did its very creditor-unfriendly debt swap in 2005, a large number of bondholders held on to their defaulted paper rather than let the country buy it back for a pittance. The holdout strategy had after all paid enormous dividends in countries such as Peru, Brazil, Ecuador, and Uruguay. The stakes were much bigger in Argentina, of course, but a large number of aggressive creditors had no intention of letting Argentina off cheaply.

Their strategy didn’t work, and since the Argentine default “holdout” creditors, as they’re known, have received very short shrift in other countries too, like Ecuador and Liberia. And now it seems that they’re more than willing to capitulate in Argentina, tendering their bonds in a deal that’s worse than the original offer, plus offering to lend $1 billion in new money.

The new deal has been put together by Barclays (f/k/a Lehman), which reportedly has found bondholders with $8 billion (face) of debt who are more than willing to pay all of Barclays’ fees and take pretty much exactly the same offer which they rejected in 2005. If the deal goes through, there will still be many billions of dollars’ worth of holdouts, but most of them will probably be judgment creditors rather than bondholders, which means that they’re basically ruling themselves out of any bond-swap exit.

The defaulted debt is trading in the high 20s right now; if and when this deal happens, it could go even higher. That’s because according to market rumor, the deal as it’s currently structured will have quite a tasty GDP warrant sweetener.

Of course, anybody who tendered into the original exchange, in 2005, got GDP warrants too, it’s true. But no one valued them at much more than zero at the time. It was only over the subsequent years of explosive growth in Argentina that the warrants started becoming extremely valuable to bondholders. This deal is existing bondholders’ chance to get in on that lucrative GDP-warrant action. And better yet, the Argentines even seem willing to give the holdouts all the old payouts on the GDP warrants, in the form of some kind of security — depending on the secondary-market value of those securities, that could be worth a lot of money. Argentina even is considering, or so I’m told, paying past-due interest on its repudiated Discount bonds all the way back to 2003, again in the form of new bonds.

What’s in it for Argentina? Well, for one thing, it gets $1 billion of new money from the bondholders represented by Barclays. But much more importantly, this deal, if it really does get up to somewhere in the $8-10 billion range, might well be enough to reopen conversations with the IMF, which is currently refusing to have anything to do with this deadbeat creditor.

Argentina’s running out of money, and although I’m sure a lot of investment banks might be willing to try and underwrite a new bond deal if this exchange goes well, I doubt there’s that much appetite out there for new Argentine global bonds, especially now they’re yielding less than they have done in years. The IMF I think would love to find an excuse to start working closely again with Argentina — which is, after all, a fully-fledged member of the G20. And in turn Argentina would love to have access to IMF liquidity. If it needs to do some kind of bond swap in order to make that happen, then so be it.



It just looks like to me the Argentines are a bunch of neighbourhood thugs who are looking for trouble.

Kick them out of the G20. Kick them out of the credit markets. In fact, kick the entire Latin American lot out of the credit markets.

Let them learn their lesson first.

Posted by Myles SG | Report as abusive

Over half a million strategic defaulters in 2008

Felix Salmon
Sep 21, 2009 16:33 UTC

Kenneth Harney has got his hands on a fascinating new study from Experian and Oliver Wyman, which looks at the prevalence of strategic mortgage defaults, a/k/a “jingle mail” or “walking away”. Unsurprisingly, it’s financially sophisticated borrowers in non-recourse states like California who are doing this in droves: apparently there were 588,000 nationwide strategic defaults in 2008, more than double the total in 2007.

This is a perfectly rational and ethically defensible thing to do, but subprime borrowers, almost by definition, tend not to have the sophistication to default in the most financially-advantageous way.

Interestingly, the Experian-Wyman study (if anybody has a copy of it, do send it on over) recommends “that lenders and loan servicers take steps to screen and identify strategic defaulters in advance”. I’d love to know how lenders are meant to do that. Credit score obviously isn’t a good indicator, so what is? Financial literacy?


This seems to me to be a sign of just on ongoing sociological problem with this country. It seems that we’ve almost gotten too modern. Everything is a business decision and no one has any sense of pride or keeping their word on something.

Selective defaulting is a project that I feel should come with some negative consequences. Its going to have to be done on the banks end though. They need to start trying to pursue these people’s money more rather than just taking back the property. Pursuing it though is costly as well. Its just business decision after business decision. We might as well have computers running this whole affair. I think that if we injected a little more human into all ends of this and all other aspects of the financial spectrum, we’d all be a whole lot better off for it.

Check out my blog on selective defaulting and personal financial irresponsibility at….. http://www.thedebtgazette.com/2009/09/st rategic-defaulters/

The unhelpful “vulture” meme

Felix Salmon
Sep 21, 2009 16:06 UTC

In advance of the G20 meeting, the Independent’s Johann Hari resuscitated the “evil vulture fund” meme, concentrating especially (and extremely selectively) on the deal between Zambia and Michael Sheehan.

Hari is late to this story: I gave a very full version of it on my blog back in February 2007, and everything I wrote back then is still germane today. But Sheehan has replied to Hari, and his letter’s worth reading, so I’ve put it after the jump.

Interestingly, the G20 meeting this year might well coincide with some kind of announcement from the Argentines that they are reopening their old debt-exchange deal from 2005. One of the sticking points with any deal is that Argentina’s finance minister, Amado Boudou, has said that he doesn’t want to do any deals with “vultures” who are litigating against Argentina in New York. He probably needn’t worry: they’re probably not the kind of investors likely to tender into any deal in any event. But the heated rhetoric surrounding this issue is clearly helping no one. Which is why it’s sad to see contentious columns like Hari’s.

In any case, here’s Sheehan’s letter:



The desperate argie minister says there will be a distinction: the stupids accepting the new swap and the buitres ( jackass ).

The desperate minister is not saying what will happen to this so called buitres! I suppose they will be repay in full after this joke so called swap!

Please if you want to pump argentina learn how to do this job first!

Posted by k | Report as abusive

Auto lease datapoint of the day

Felix Salmon
Sep 21, 2009 14:38 UTC

From the WSJ:

Last month, Bill Wamsley, a commercial real estate broker in Mill Valley, Calif., hoped to replace his wife’s Lexus sedan with a 2009 Cadillac CTS.

From information Mr. Wamsley collected online he determined a CTS lease would run around $580 a month when all costs were factored in. After some shopping, he found he could lease a Mercedes C300, with roughly the same retail price, for about $450 a month.

General Motors spent so many years as a leasing company with an automaker attached that it must feel weird to see the tables turned like this.

$580 a month is $6,960 a year, or 19% of the $36,560 base price for the Mercedes. $450 a month, by contrast, is $5,400 a year, or 15.5% of the $34,650 base price for the C300 Luxury. The difference, of over $1,500 a year, is significant enough that GM is now faced with an invidious dilemma: either risk blowing up their loan book, or else reduce their prices so much that they’ll never make any money making cars.


I think GM was worried about losing their business customers, who leased there luxury vehicles for tax right off purposes.

The Dodd plan paradox

Felix Salmon
Sep 21, 2009 04:10 UTC

Here’s what I don’t understand about Chris Dodd’s financial reform proposal. On the one hand, he wants to fold the FDIC, the OCC, and the OTS (but not the NCUA, for some reason) into the Federal Reserve — something which makes sense to me.

But on the other hand, he says he wants the Fed to be less powerful, and “would reduce the stature of the Federal Reserve in several ways”.

Is this possible? Or was something lost in translation when the trial balloon was floated over the NYT?


“The main reason I think we should get rid of Chris Dodd is, he represents everything that is wrong with Congress. He is potentially the poster boy for the economic crisis, [and for] the much bigger crisis we’re gonna go through over the next few years if someone doesn’t go to Washington and put a stop to these destructive policies,”

Peter Schiff – 4 Connecticut Senate!

Posted by dvictr | Report as abusive

Hanging pirates

Felix Salmon
Sep 18, 2009 12:19 UTC

I’m going to be offline for most of today, spending it instead downtown installing pirate flags at the South Street Seaport. The opening is at 4pm tomorrow (yes, I know it’s Rosh Hashanah, but it’s also International Talk Like A Pirate Day) in Cannon’s Walk, which even the lifelong New Yorkers among you probably never knew existed. It would be wonderful to see you all there, but if you can’t make the opening then just pop down to the Seaport at any point over the next month. It’s not just for tourists! And I can assure you that the whole pirate project is going to look spectacular. Yaargh!



Posted by Tony | Report as abusive


Felix Salmon
Sep 18, 2009 03:00 UTC

Schapiro wants to ban flash trading. We knew that already, but now it’s formal — NYT

Julia Ioffe gets Martin Wolf right, I think — TNR

Love this article on race relations between liberal urban 30-somethings. Hits close to home for me — GQ

I like the new Tube map sans Thames! Can someone get me one? I think it’s going to become a collector’s item — BBC

Money market funds lose $55 billion in 2 days as US insurance ends — Reuters

Interactive map of Manhattan lets you see how it looked before settlement vs how it looks now — NatGeo

You think US mutual fund fees are bad? Check out the UK ones! — Time

The Lafite bubble — Decanter

“The bear case is always more compelling and more articulate.” — Nusbaum

Who is getting blessed, and who is gonna bless it? America. And God! — Atlantic

The complete Taleb interview — Globe & Mail

Ben Stein’s sleazy paymasters

Felix Salmon
Sep 18, 2009 01:22 UTC

Ben Stein’s paymasters Adaptive Marketing, the owners of freescore.com, aren’t just predatory bait-and-switch merchants. They’re also litigious bullies.

An anonymous blogger, going by the name “flâneur de fraude”, added a lot of corporate information to my Ben Stein post, mostly about Adaptive Marketing’s owner, Vertrue Inc. It was interesting stuff, and I linked to it, and that seemed to be the end of that. Certainly no one at Adaptive or Vertrue ever tried to get in touch with me or with Flâneur.

Then, out of the blue, Adaptive filed a lawsuit in Connecticut, of all places, saying that the allegation that they were running a predatory bait-and-switch campaign was actionable on the the grounds of “defamation, trade libel, and tortious interference with contractual relations and business expectancies”. I’ve uploaded a copy of the suit here. There’s lots of stuff around it, but the complaint itself is only three pages long, and doesn’t even allege that anything Flâneur wrote was false.

The really weird thing about the lawsuit, however, was the defendant: not Reuters, not Flâneur, but Yahoo. The suit wasn’t a libel suit at all, you see: it was just a way of trying to get Flâneur’s real name out of Yahoo. (She uses an email address at yahoo.com.)

When Yahoo didn’t turn up to the court hearing 2,576 miles away from its headquarters, the Connecticut Superior Court found in favor of Adaptive, and said that Yahoo would have to turn up in court on September 21, presumptively to reveal Flâneur’s identity.

At that point, Flâneur sprung into action, and got the Public Citizen Litigation Group involved. They have now filed a monster 43-page brief with the Connecticut court, and after reading it one has difficulty imagining that any judge will compel Yahoo to unmask Flâneur. Public Citizen’s press release is here, and the headline sums it up: the blogger who criticized freescore.com, it says, has the right to remain anonymous.

Adaptive has never complained to Flâneur, to me, or to anybody else, as far as I can tell, about any of our characterizations of their business. They never asked for any of our blog entries to be updated or edited, and they were conspicuous by their absence during the brouhaha over Ben Stein. If they had any problem with the blog entries, that was the time to say so — not now, when the whole episode is already half-forgotten.

Instead, knowing that Flâneur values her anonymity, they decided to try to unmask her in Connecticut court. I hope and trust that now, with the intervention of Public Citizen, they will fail miserably.


I just got taken by those guys too. They promise a free credit report, but charge $60 to the credit card anyway after seven days. Since Bank of America doesn’t consider them fraudulent, it refused to protect me against further charges. As a result, I was forced to cancel by Bank of America credit card to prevent future unwanted charges.

Posted by Brian | Report as abusive

Hirst: Still weak

Felix Salmon
Sep 17, 2009 21:01 UTC

Scott Reyburn has a very misleading lede to his Hirst story:

Sept. 17 (Bloomberg) — A year after the record Damien Hirst sale, works by the artist are again being valued at levels seen at the peak of the art market boom.

His sole datapoint supporting this assertion? That a Hirst butterfly painting is coming up for auction with an estimate of £450,000 to £650,000. A substantially identical painting sold at the top of the market — the “Beautiful Inside My Head Forever” sale — for £1.6 million. Which means, I think, that Hirst values are actually down about 66% from the peak.

The ArtTactic Average Price Index for Hirst butterfly paintings (yes, there really is such a thing) is down a mere 41% since September 2008, which means that the estimate on the painting coming up for sale is if anything lower — not higher — than you might expect. So where on earth does Reyburn get his idea that Hirsts are back to their peak valuations? Just this: that the £1.6 million Hirst “had a low valuation of £500,000″ when it was auctioned.

No. Auction estimates aren’t valuations, they’re just tools the auction house uses to try to maximize its revenues. The valuations are whatever the paintings sell for. And it’s pretty obvious that this year’s butterfly is going to sell for substantially less than £1.6 million. Which is the only comparison that matters.


In the world of art I think “same order of magnitude” counts as “the same price”.

Posted by Satan Mayo | Report as abusive