[antr]

This ain't no vulture fund; and we all know about Argentinian "diplomacy".

This fund invested in Argentina, because it believed in its economy - it went long. Like many other funds who invest in US treasuries, German bunds, JGBs, etc.

We all know the Argentinian government is no example for a well-run government, and this fund is taking a stance (i) against the mal-practice/mis-management of the Argentinian finances, and (ii) not accepting a smash-and-grab of 30 cents on the dollar settlement.

All this fund is doing is collecting its debt. It just happens that one of the assets it is after is pretty unique.

Clarifications:

If a country/company defaults != investors do not automatically agree to settle at e.g. 30c/$ (investors need to agree to a settlement price, and in a large syndicate a minority group of investors will never settle or will settle at a higher price). If an investor doesn't settle, it has every right to claim 100c/$ + interest. Some comments imply otherwise.

Going long is no different when buying at 101 cents on the dollar or 1 cent on the dollar - e.g. Greek 10Y bonds are currently being sold/bought at 20c/$, that is no "vulture activity" but providing liquidity to the market. If there are no buyers the Greek bond (or any other bond for that matter) would technically collapse to zero. Some comments imply otherwise.

[arbuge]

No.

Elliott capital does not work this way. Google them.

They don't go long on anything. They buy debt from funds that did for pennies on the dollar when it doesn't look like that debt will be repaid. They then try to collect on it aggressively and turn a handsome profit in most cases.

It's been a very successful strategy for them - that's how their founder is now a billionaire.

[gadders]

The message being: Governments, pay your debts.

[wslh]

Argentina reestructured its debts and it was a successful early 2000s campaign. These funds make money buying debt for pennies. They are similar in some way to patent trolls.

Not read this message as a support to the Argentinian government. What Argentina did with its debt is a case study.

[icebraining]

Argentina reestructured its debts

Apparently, not all of it.

[cantankerous]

Maybe. I'm sure it's a calculated risk, but you might want to be careful who you cross when you deal with sovereign nations and seizing their assets. Private lenders don't have standing armies, after all.

[jonnii]

Unless you work for Elliott Management you know nothing about their investment strategy, other than it makes profit.

[arbuge]

Eh?

[sethg]

For private borrowers who can’t make their payments and probably never will, there is bankruptcy law, which lays out a orderly procedure where the borrower asks for relief, the lenders make their claims, and a judge decides who ends up with how much. It’s not a perfect system by any means, but anyone who loans money understands the risk that the borrower will declare bankruptcy, and the credit markets still function.

For sovereign countries, unfortunately, there is no such procedure. If a government borrows money on the international credit market, its taxpayers can be on the hook for perpetuity. I would like to see those taxpayers have at least as much protection as private-sector borrowers—especially when the taxpayers of a democratic government are on the hook for the debts of its authoritarian or corrupt predecessors.

[spindritf]

> For sovereign countries, unfortunately, there is no such procedure.

Poor sovereign countries... Instead of having their assets wiped out and possibly facing years of payments (even if reduced), they have to deal with unbearable consequences, like a lot of finger waving and maybe a boat detained on request of someone not willing to finance political careers half way around the world. Dreadful. It may even come to the point that creditors will find some of those countries not trustworthy in the future and won't lend their governments more money.

[kylebrown]

When the loan originates from another government (or IMF), it goes into the accounts of preferred companies for building the infrastructure (eg Halliburton), often explicitly specified in the terms. The sovereign countries are just the channel through which the public-private lenders (eg JP Morgan at the Fed window) pay themselves.

edit: see Confessions of an Economic Hitman by John Perkins for a first-person account.

[sethg]

All countries—especially small and/or underdeveloped countries—need foreign trade in order to develop their economies, and it’s really really hard to engage in foreign trade without credit. And “if you stiff your current borrowers it may be harder to borrow in the future” is a risk that civilians have right now; creating a sovereign bankruptcy code won’t change that.

I forgot to mention that such a code would actually help borrowers, in the following way: For countries in a debt crisis, the lenders holding 90% of the debt may realize that they aren’t going to get paid back in full, and therefore would agree to a settlement where at least they get something back. But the ones holding the remaining 10% can pound the table and say “no, we want payment in full, and we’re legally entitled to it”... which leads the 90% bloc to say “well, if they’re still entitled to payment in full, we’re not going to be suckers and settle for less”... which leads the indebted country to say “we can’t possibly pay you all in full, so screw you all, we’re defaulting”.

[molmalo]

No, they bought defaulted bonds for cents, and then try to get paid full price. But of course its highly doubtful it will ever happen, and this only makes them bad press, cuz its also doubtful that they can get away with this.

Ps: sorry for the typos, writing from my phone

[christensen_emc]

What they are doing is legal, yeah, but it is pretty much textbook "vulture fund" behavior.

[dguaraglia]

Yeah, I'm really sorry the Argentinian government didn't let the country go to the vultures in detriment of a few rich people... we should just let the FMI take over and run the country so a few funds don't lose money.

Seriously? You are telling me that a government protecting it's citizens interests is wrong? I'd like to see you repeat that argument when the Chinese start kidnapping American citizens to get their money back.