November 20, 2014
Of vultures and scorpions
Plenty has been said this month about the Cristina Fernández de Kirchner administration’s scant interest in the debt negotiations in Manhattan judge Thomas Griesa’s offices and there have also been repeated requests to that aged magistrate to take the edge off the situation by restoring the stay on his ruling favouring the “vulture funds” but perhaps there should be more pressure on the latter to start making a more constructive contribution to the negotiations. When CFK’s Flag Day disavowal of default first promised a breakthrough, these funds made a good start by implying that they would not be fundamentalists about Griesa’s ruling entitling them to full repayment cash down but would be open to bonds (which have indeed been far more their game over the years). But since then the “vultures” have done absolutely nothing towards a settlement when various readymade solutions lie within easy reach — thus if the CFK administration is insisting that there can be no payment to holdout creditors until next year (when the “rights upon future offers” clause favouring all other bond-holders will have expired), it would take no more than the equivalent of a postdated cheque for next year to mean right now. This apparent indifference towards a settlement raises questions as to what the real agenda of the “vulture funds” might be, without taking into consideration the well-founded presumption both here and in Wall Street that the holdouts have strong interests in credit swap defaults, which leads to a win-win situation.
These funds should not push their luck or take even New York courtrooms for granted. The strength of their case stems from that Griesa ruling upheld by the United States Supreme Court but it should not be forgotten that this ruling rests on the pari passu principle stipulating a level playing-ground for all creditors — Griesa interpreted this principle as being violated if the majority of bondholders (those accepting the 2005 and 2010 bond swaps) were collecting something but the holdout minority nothing at all. Yet paying hedge funds in full ahead of everybody else would destroy the pari passu principle of an equal standing in a new way and open up a Pandora’s box — both in the apparently rigid mind of Griesa in particular and among the creditor universe in general.
Even within the limits set by the CFK administration’s grandstanding, there is ample room for finding the conditions to enable the settlement permitting the repayment which is supposedly the bottom line for these funds. Should they not take the easy steps towards that repayment (and if they do not back the request for a stay which would be in their own self-interest), it should be asked whether they are really rational money-making machines or more like the scorpion of the fable stinging the frog carrying it across the river.