In the complicated and convoluted world of finance and banking, many think of hedge funds, private equity firms, major corporations, and big banks, along with their white shoe law firm legal advisors. However, sometimes forgotten or overlooked is the fact that actual countries, or their governments specifically, are themselves recognized as legal entities, even for the purposes of doing business. For anyone that has heard of a U.S. Treasury, a “treasury note” is essentially analogous to a share of the U.S. government’s finances, which of course accrues interest (albeit a small percentage) over time. Aside from this, many are aware of the fact that governments run both deficits and debt. The U.S. has been in the headlines for over a decade for these reasons, as the federal government has run a significant deficit (meaning it spends more than for which it can pay), and has taken on increasing debt in order to meet expenses, including paying off the deficit. Without getting the economy and other factors under control, it becomes a vicious cycle.
Governments and Debt Markets
In the area of government finances, countries often engage in debt markets, in which they take on significant debt in order to help pay off certain expenses. Argentina, for example, is another such country. In 2001, Argentina defaulted on a significant chunk of debt amounting to almost $100 billion, meaning it simply could no longer meet the obligation of making payments on this debt. Much of the $100 billion was owed to bondholders, who hand over cash to the Argentine government in exchange for a bond that would come due years down the line. A bond is of course a form of debt much like a loan, although its terms and other characteristics may differ. Sometimes governments (not just countries, but states and municipalities as well), can strike a deal with current bondholders to exchange old bonds, for which the government has defaulted payment, for new bonds. These new bonds will typically be worth less as the government will clearly not be able to pay off the original debt in full, but bondholders essentially agree to accept a lesser payout in exchange for a renewed obligation to pay something in the future. This is what Argentina did with many of its bondholders. However, not all bondholders were keen on this idea, and insisted on being paid in full on the original bond debt.
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Argentina Again in the News
Just recently, Argentina deposited $539 million with a New York bank to be used to pay off its main class of bondholders, which had previously exchanged the old bonds for renegotiated ones. A federal district court judge had already ruled that Argentina would not be allowed to pay main bondholders without also paying hedge funds located in New York, which were the holdouts from the prior exchange of bonds, and which essentially refused to take on new bonds at lower value. The hedge funds had already sued the Argentinean government in federal court in New York. Thus Argentina’s apparent attempt to pay off main bondholders, excluding the hedge fund groups, is in violation of the judge’s order. The bank that took the deposit is supposed to act as an intermediary to distribute the money to the bondholders, but effectively cannot do so without also violating the judge’s order.
Thus this presents a fascinating case where a foreign country defied the order of an American federal judge. Of course, Argentina could always settle with the hedge funds over their debt in order to clear the way for payment to all outstanding creditors. Nevertheless, this is an intriguing case that shows just how a country can fall into legal limbo with private entities over finance and debt.
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Miami Criminal Defense Lawyer Paul J. Donnelly defends his clients in serious federal and state accusations. He started Law Offices of Paul J. Donnelly in 2004 to handle state and Federal practices. He is a premiere state and federal defense attorney having experience in high profile cases. His firm represents clients in Sex crimes, Drug Crimes, Money Laundering, Homicide, Tax Fraud, Identity Theft crimes and in others. Paul J. Donnelly, P.A is the experienced and expert criminal defense lawyer Florida. Call for free consultation on our phone number: 305-757-3331 and also visit our website: http://criminalattorneymiami.net
