Opinion

Felix Salmon

Elliott vs Argentina, the Lego version

By Felix Salmon
December 2, 2012

Finally, the mainstream press is getting around to trying to explain what on earth is going on in the case of Elliott vs Argentina. I like Steven Davidoff’s summation, even though it was written before the appeals court came down with its emergency stay (which Davidoff also covered, very well). But the coverage from the likes of Reuters and Bloomberg  has been seriously lacking when it comes to video explanations featuring Transformers, toy trains, and a toilet-shaped coffee mug. So, here you are. Enjoy!

(One minor correction: at about 2:40, I say that Argentina has been effectively ignoring the US district court for about ten years, and then I add that the exchange bondholders have been collecting their coupons for that long as well. Which isn’t true, the bond exchange only happened in 2005.)

Comments
6 comments so far | RSS Comments RSS

Marvelous, FS. Thanks.

Posted by MrRFox | Report as abusive
 

Felix,

I’d love your take on the issue of a sovereign issuing foreign law bonds. When a country elects to issue and sell bonds in NYNY are they not ceding part of their sovereignty in exchange for access to another market for their debts?

It stands to reason when you issue bonds in a foreign jurisdiction or a foreign currency that you are knowingly forfeiting some rights.

Posted by y2kurtus | Report as abusive
 

Don’t quit your day job.

Posted by MarkInCA | Report as abusive
 

@y2kurtus

Using a foreign jurisdiction for the issuance is a purely administrative matter. There is no renunciation of sovereignty implied. There cannot be.

Sovereignty is an absolute, supra legal notion. The rule of law proceeds from the sovereignty, not the other way around. Sovereignty is foundational. Hence it cannot be renounced as a matter of law, even willingly.

The only way a sovereign can renounce its status is by transferring it to another sovereign entity, new or preexisting : renunciation of a personal sovereign to its nation, absorption of a state by another through a political process or the right of conquest, unification of multiple states in a single one, dissolution of a state into multiple new states, etc.

Now, the law courts of a sovereign can try to assert their jurisdiction on another sovereign. That’s what’s going on with Griesa and Elliott, whose specialty is to hold to ransom weak sovereigns, like Peru or the Republic of Congo. But it generally ends poorly in the long run. Can you imagine Singer going into a similar dispute with, say, Putin’s Russia? No? You can’t? You’re correct. Singer would indeed never do that, for he (and his investors) know full well that Russia would quickly lose patience and go extremely sovereign on them.

That’s why, wisely, most sovereigns explicitly prohibit their courts from dealing into disputes with other sovereigns, to avoid that their own subjects get themselves into unpleasant situations and to avoid too that their own (the sovereign’s) diplomatic and military resources end up being commandeered into private disputes (for this is always how it ends).

But Griesa seems to think he knows better.

Posted by Frwip | Report as abusive
 

Thanks Frwip… I guess I need to brush up on sovereign rights. I’m baffled that Greece can issue post default bonds and buy them back within 12 months for 30-40 cents on the dollar. That’s an amazing display of sovereign rights in my book! I wonder if they could they pull that off a third time… something like “no no no SERIOUSLY for real, for real you give me just like 10 billion more Euros now and I’ll give you some new bonds that I’ll totally totally pay off with the new money you gave me.

To go back to the original issue take the following two scenarios which I think will explain the different levels of sovereignty:

1 the USA issues dollar denominated Treasury bonds in NYNY at an interest rate set on an open market where the federal reserve is actively publicizing the ongoing monitization of debt.

2 a banana republic issues debt denominated in a currency other than their own in a foreign jurisdiction.

Clearly in the first case the issuing nation has virtually limitless rights to screw creditors. They can decide not to pay. They can pay in full but tax the proceeds, (which they do.) They can pay in full but inflate away the debt by devaluing the currency they control.

To this admittedly non-expert it seems like the first example in truly sovereign and the 2nd is almost not.

Posted by y2kurtus | Report as abusive
 

@y2kurtus

There are many unpleasant qualifiers that may or should be tacked upon Argentina. But “banana republic” is not one of them. A banana republic is a state whose sovereignty has been subjugated by and subordinated to narrow private interests, especially foreign private interests. AFAIK, the Kirchners, husband and wife, were elected fair and square and are fairly representative of what Argentinians, not foreign bond holders, actually want. And if anything, Argentina in this story is being very, very sovereign, that is, accepting no laws but its own.

Now, if you want to see a true banana republic in action where laws are put in the service of narrow private interests, you may want to start here:

http://www.usatoday.com/story/news/polit ics/2012/11/29/connie-mack-paul-singer-a rgentina/1736135/

:-)

Posted by Frwip | Report as abusive
 

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