Mike Shedlock

Background: Argentina defaulted on bonds following a debt crisis in 2001-2002. 92% of the investors agreed to haircuts, but a vulture fund picked up an 8% share at rock bottom prices and refused to negotiate.

In June, the US Supreme Court ruled that Argentina Cannot Selectively Default on the small group of hold-outs.

The problem with the ruling is that if Argentina pays the vulture fund full value, it will have to pay all the bondholders full value, and that would wreck the country again.

In the future, bond agreements will force everyone to go along with a majority decision.

Second Default

For now, and as a direct consequence of the court ruling, Argentina "Appears Determined to Default", for the second time, on everyone.

A lead holdout investor in the Argentine debt dispute said on Friday that Argentina still refused to meet with it and negotiate a settlement before a July 30 deadline, after which the country faces a new default.

"The Argentine government appears determined to default. We hope it chooses to avoid this dead-end path," a spokesman for NML Ltd, a division of Elliott Management Corp, said in a statement.

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.
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