MONDAY, MONDAY...

...so bad to me.  There is zippo of interest happening anywhere.  Given the lack of current events I though I just might touch on one of the more bizzar things playing out in that singularly dreadful political spot called Argentina.

It all goes back to the famous Griesa ruling which banned the payment of interest to the restructured bonds through the enforcement of the parri passu payments provision of those bonds subject to U.S. law  (the Law of the State of New York actually).  But what happens when a banking institution, subject to that ruling, operates in Argentina and gets precisely the opposite instructions from the Argentine government?  Wait, it gets worse.  What happens when the same institution is the trustee and paying agent for Argentine bonds governed by Argentine law?  In the banking business it's known as buggered.

Anyway, that is precisely the case in which Citibank found itself.  It petitioned the court in New York to allow them to obey the request of the Argentine government and was told nothing doing.  So what did the Argies do.  They fired the head of Citibank!   I mean, have you ever hear of nonsense such as this!  I haven't, but in the mean time, some very interesting issues are raised.

The bonds under Argentine law are not subject to the ruling of the court in New York.  But the currency of the bonds is the U.S. Dollar.  Now ever since I was a pup it was assumed that the place of payment of a U.S. dollar obligation was the United States irrespective of governing law or the nationality--or domicile--of the institution making the payment.  Indeed, that was the original definition of a Eurodollar: an obligation to pay dollars from an account in the United States to a person not resident in the United States  or to reverse the thought, a claim upon a deposit in the United States.  So come on, what's a girl to do?  If that is correct, Citibank is clearly at the mercy of Judge Griesa and the poor manager, who is damned if he does and damned if he doesn't is on food stamps (not quite).  Well, I thought that this was simply and amusement as Graham Greene might have called it until I got a call from my Really Smart Friend, Larry who asked, "What's a place of payment clause?"  Stumped.

It turns out that The Great Buchheit of whom I have oft spoken has come up with a little gem to avoid the effects of a parri passu clause on agreements written under the laws of the State of New York or other such dastardly jurisdictions.  He is arguing that if the docs make not statement as to where any payment should be made it can be made anywhere designated by the borrower which of course has the effect of...well, you get the picture.  This came about not as a result of Argentina but in regard to Cyprus.  Fancy that.

Now I am going to stop right here before I get into real trouble, but I am going to find out more about this.  Keeps me out of trouble but then again I still have this feeling that we all would be better off if people payed what they owe...especially to banks who as we all know do God's work.

THE TALE THAT NEVER ENDS

To the surprise of no one, talks between the Argies and the Hedgies broke off last week,  although they are still hanging around in B.A.  Of course the President, Mrs. Kretchner, a dumb a woman who has ever held public office anywhere is benefiting from this mightily in the eyes of public opinion and will therefore continue to do anything to alleviate the situation.  Not only that, she once again borrowed reserves from the Central Bank to pay the country's debts owed to official institutions such as the IADB. What remains is some $25 billion which may seem like a lot but for a country the size of Argentina really isn't.  One must also remember that the country benefited enourmously in the past few years in the commodity boom which for soy beans still continues but which can't go on forever.  Inflation continues to rise…not at past levels to be sure…but on a worrisome trend.. Argentines are as adept at getting out of Pesos and into anything else as they are a playing soccer so one can expect the reserve drain to continue.  Not a good prognosis.

As a corollary to this dismal picture, it appears that, as predicted, the mediator appointed by Judge Griesa, Daniel Pollack, has worked out less than well--as also expected.  The Argentines asked that he be removed weeks ago and the good judge refused, also as expected.  Now you might remember, I suggested at the start of the appointment I didn't think the guy was qualified to deal with this mob no matter what is reputation might lead one to believe, and this apparently was so.  Even parties on the plaintiff's' side in this case have remarked that Mr. Pollack was not a clever choice for the job.  And so, the battle rages in the dueling newspaper adds in public proclamations and in a dozen courtrooms all at enormous expense to the benefit of no one.  There is a complete absence of comity and trust.  So, just in case anyone is listening, Judge Griesa, do everybody a favor and replace your present arbiter with Terry Checki, formally of the New York Fed.  All parties know him as the last totally honest man left standing and no party will refuse to deal with him as to do so would automatically label them as the spanner in the works.  Pay him whatever, and get on with this thing.  Even I am beginning to lose interest.


…And then there is Debit Suisse.  Remember when we said there were internal dealings within the Espirito Sancto organization that probably contributed to the collapse because there always are in such cases?  Well, it turns out that our Suisse buddies were right in the middle of this mess having created securities of special purpose companies of Group members in order to finance the same and then selling the paper on to Bank clients as being akin to deposits of all things, only carrying a higher yield!  I had an Uncle from New England at one point and he said to me, "George (for some reason he called me George), at some point a man is going to walk up to you and ask you to buy a two pound mess of crap (he used a different word) in that there one pound bag he was carrying.  Do not do that because a sure as s---'s manure, you will have two pounds of crap on your shoes the minute you pay him…"  The depositors of Espirito Sancto obviously never met my Uncle Buck.  But he sure had met Debit Suisse.

DOES REASON PREVAIL?

There was a story out today that the Argies have decided that rather than raging at the failing of the light, they were going to ask the District Court that issued the now-upheld opinion to assist in negotiations with EMC Capital et. al. in settlement talks to see if in fact this thing can be settled.  Having called Judge Griesa of the Southern District just about every name imaginable, this takes some set of stones, but it appears, that true to his trade the good judge has put all of that in the past and actually appointed an attorney to help in the upcoming negotiations.  Of course one might well ask the question what does the other side have to gain from this having won a resounding victory in the SC topped off by Justice Scalia's almost joyful rendering of the Court's decision.  Well, aside from finally getting rid of this thing and moving on with life--with an  anticipated very healthy profit with out which there will NOT be a deal, there is perhaps a even more practical reason to go forward.

Let's look at it from this standpoint: if I were the Argies and their counsel, despite suffering this very severe and comprehensive defeat, they might have well gained a powerful argument in return.  Keep in mind that the part of the ruling that did not receive as much attention was green light for a very broad discovery as to the size, nature and location of Argentine assets world-wide on the part of the creditors.  If I were them I would start my search not too far removed from 33 Liberty Street in New York…yep, the home of the New York Fed.

Throughout the years, certainly for the last 40 when I was involved, there has always been a discussion of in what way would or could the Fed be involved in a situation such as faced by Argentina.  I have always argued that national assets held by the Fed were not immune from attachment in aid of execution of a judgement against a sovereign as long as those assets qualified as being available under the Sovereign Immunities Act of 1976.  That has not been the prevailing view as for some reason the Fed was felt to hold a special status among depositories.  I have always believed that view was incorrect in fact as well as in law and this decision may well prove my assertion to be correct.  One thing I do know for certain: whilst perhaps not a nightmare scenario, the Fed has always deemed getting drawn into this mess not a good thing as the possibility of a knock-on effect being the disruption of the international payments system by Argentine assets suddenly being held subject to discovery as to their nature under a Federal District Court order could result in chaos.  Soooo, if I were the Argies, I would trot down to Liberty Street and tell the boys that I know it's not what you wanted but now is the time to become involved to a greater extent than just a friend of the court brief.  It's one thing to hold firm to a position affirmed as being correct by the highest court in the land but it's quite another to face the Fed as Queen Victoria making it known that "We are not amused…" or at least that's the way it was in the good old days.  Lads, you are in the business of finance and in this thing there's plenty of money to satisfy everybody.  My advice would be: don't blow it.


In the greatest act since Lazerus, El Tri got through.  Left for dead a few months ago, Mexico qualified only because the United States played 90 minutes against Panama and won although they were already the winners of the section.  Panama needed to but tie to have put Mexico out.  Mexico has justified their inclusion whereas, in the greatest irony of the tournment, the USA must tie or beat powerhouse Germany in order to advance.  A strange, magnificent and yet cruel sport.