[Continued from yesterday’s Part 1.]
By: David A. Smith
As we glimpsed in yesterday’s Part 1, using the unwitting diptych of two Economist stories from the same April 16, 2016 issue, the first a sidelight on the Panama Papers, the second Economist (April 16, 2016; buff blue font), the best systems of governance and human organization set up systems where the single-minded pursuit of self-interest produces additionality as an ecosystemic byproduct.
Don’t use such yuge words, okay?
That’s the political-theorist’s way of saying that Elliott Management’s obsessive pursuit of hidden Argentinian sovereign assets led it to crack open the wall of secrecy surrounding one of the world’s most underappreciated criminality-facilitating law firms, Mossack Fonseca, whose client list includes both those who earn their money in high-tax countries and those who earn it in no-rules countries.
We’re everywhere a crook may want to be!
And puncturing the Mossack shell allows Elliott, and anyone who chooses to follow it, a global-secrecy endoscopy:
We know you swallowed the documents – now, where are they?
But [March 2015 Las Vegas court ruling]’s full significance is only now becoming apparent: it means that, under an American law about assisting with foreign legal proceedings, any investigator anywhere in the world can subpoena Mossack, through the Nevada subsidiary, for information that could be relevant to cases in any country.
Meanwhile, the same Elliott that crowbarred open Mossack Fonseca was also instrumental in Cristina Fernandez de Kirchner’s downfall; Mr. Macri would never have been elected without the holdouts’ diligence in nailing shut any aperture to the capital markets.
The appeals court upheld a decision taken on February 19th by Thomas Griesa, a lower-court judge, to lift an injunction blocking Argentina’s access to international credit markets. Mr Griesa agreed to remove the bar on two conditions:
 That Argentina repeal laws barring payments to the holdouts, whom the previous government had dismissed as “vultures”.
 That it promptly pay those of them who agreed to a deal.
The move infuriated the holdouts [Not all of them, just the 10% remaining holdouts from among the holdouts – Ed.], who had used the injunction as leverage in their negotiations. While they took their case to the appeals court, Argentina fulfilled its end of the bargain: last month its Congress voted to repeal the relevant laws.
That was as I predicted (not that this was a hard prediction to make).
I saw it with both eyes
Argentina now plans to raise up to $15 billion through a bond issue, which is set to begin on April 18th.
In fact, Argentina’s bond issue was an immense success; it was fully subscribed that day, raising $16.5 billion in an issue that was 4x oversubscribed.
It will use $10.5 billion-12.5 billion of that to pay the 90% of holdouts with whom it has reached an agreement. The remainder of the cash will be used to finance the budget deficit, which amounted to 5.8% of GDP last year.
The bonds will be issued under New York law –
Here’s the third beneficiary of Elliott’s principled stance. America’s capital markets are now seen globally as the best shield for creditors’ rights.
– in tenors of 5, 10 and 30 years; the government expects to pay interest of 7.5-8.5%.
In fact, the rates were even lower that the indicative guidance:
It sold $2.75 billion worth of 3-year notes at 6.25%, $4.5 billion of 5-year bills at 6.87%, $6.5 billion of 10-year bonds at 7.5% and $2.75 billion of 30-year bonds at 7.62%.
While the challenges confronting Argentina remain huge, at least the country is once again back in good standing with the global capital markets. This should strengthen Mr. Macri’s hand with his legislature.
Don’t make me point that finger at you
Argentina’s stock market responded positively to the news of the appeals-court decision, jumping by 4% to a five-week high. The same cannot be said of those bondholders who have yet to reach an agreement with Argentina. Some are retail investors, who bought bonds with their savings. They now have little alternative but to accept Argentina’s formal offer, made on February 5th, of 72 cents on the dollar.
Without the hedge funds, those retail investors wouldn’t be in line for even that much. But the story’s not over yet:
(Mossack plans to appeal the Las Vegas ruling.)
Redacted redacted with redacted for redacted purposes
I’ll bet it does. I also bet that the firm starts hemorrhaging talent at an accelerating pace, as the non-corrupt lawyers and employees first tiptoe, then scuttle, then stampede for a job, any other job, than this one.
Faced with the power of American subpoenas, Mossack’s head office will find it much harder to stonewall foreign requests for information.
Mossack will also start losing clients hand over fist:
Ignoring them could mean being found in contempt of court.
That would leave it open to penalties designed to compel it to comply, including asset seizures, in other countries where it operates.
The firm could, of course, slam the door shut by closing its American business.
It will do so as quickly as it can.
But it is contractually obliged to provide services for thousands of companies there, and cannot disentangle itself from them overnight.
A lot of secrets published into the political arena
Vultures have their uses; they spot rotten beasts, and they pursue them.
I spy with my little eye money moving on the sly
In this case, Elliott’s self-interested pursuit of recovery on Argentina’s sovereign obligations generated additionality benefits for all these beneficiaries:
1. All other bondholders who didn’t settle.
2. The US court system and New York’s capital markets.
3. The cause of global transparency and those seeking to reduce global financial corruption.
4. Mauricio Macri, the new reformist president of Argentina, and through him the Argentinian economy
It would be too much to expect any of them to write thank-you notes (or even thank-you tweets), but perhaps those critical of Elliott could now at least dial back their moral superiority.
Still, those looking to take advantage of the trail Elliott has blazed shouldn’t hang around.
When the pantry lights come on, the roaches scatter.
Venality not to scale