The International Swaps and Derivatives Association (ISDA), the body that governs credit derivatives, recently declared a “failure to pay” credit event that triggers payment of credit default swaps (CDS) on Argentina’s debt. Bloomberg and others have raised the question of whether Paul Singer’s Elliott Associates or other hedge funds involved in the case against Argentina hold any of these CDS—and may be forcing a default and profiting from their CDS positions.

Elliott’s lawyers have denied that the firm owns CDS on Argentina’s debt, and a December, 2012 Reuters report cites an anonymous source saying the firm did have some, but no longer does. When asked by Judge Rosemary Pooler in a February 27^th hearing in the Second Circuit Court of Appeals if Elliott’s NML owned any of the CDS, Elliott’s lawyer, Ted Olson, gave an evasive answer:

“I don’t know that that’s true,” Olson said. “I’m informed it isn’t true. But if it was true, it would be utterly irrelevant.”

Bloomberg pointed out that it was unclear if the denial applied to just NML Capital the Elliott subsidiary represented in the case, or to all of Paul Singer’s firms.

ISDA Decision

On June 20^th, the law firm Schulte Roth & Zaber (SRZ) sent a memo on behalf of an anonymous holder of Argentine CDS to the ISDA Credit Derivatives Determination Committee (DC) asking them to decide whether Argentina had defaulted on its debt, and also arguing that Argentina’s public statements were tantamount to a repudiation of its restructured bond payments, urging them to rule that Argentina had triggered a “repudiation/moratorium” credit event.

SRZ wrote that their client’s CDS were set to expire on the 20^th of June, and that if the ISDA DC ruled that “repudiation/moratorium” had occurred, this would extend the life of the CDS.

The ISDA DC did rule that Argentina had defaulted through a “failure to pay” credit event, which is different than a “repudiation/moratorium” credit event in that it apparently doesn’t extend the life of expired CDS, though it does trigger payment of non-expired CDS. ISDA DC later confirmed that Argentina’s public statements did not constitute a “repudiation” credit event. The ‘no’ vote was unanimous among the DC’s 15 members, including Elliott Management, which is a non-dealer voting member.

After penning an op-ed which blames the U.S. backed cold war and drug war for leading to the recent surge in migration from Central America, the Guatemalan President has hired a cold warrior to lobby the U.S. for increasing drug war cooperation. Confused yet? Okay, let’s start over.

Last week, Guatemalan President Otto Perez Molina wrote an op-ed in the Guardian arguing that the U.S. shared responsibility for a legacy that has spurred the current migration crisis involving the surge of unaccompanied Central American children arriving at U.S. borders:

…the so-called cold war had one of its hot spots in Guatemala…Communist and anti-communist ideologies created in Guatemala one of the bloodiest conflicts in Latin America, with weapons and money mostly from countries outside the region. More damaging was that for decades governments diverted resources from social and economic programs to security and defense.

…

Nonetheless, after the curse of the cold war, we faced another war: the war on drugs. Again based on ideological motivations, this new war diverted scarce funding from policies to foster education, health and employment to programs to block the flow of drugs from producer countries in South America to the consumer countries in the north. The failure of the war on drugs is widely recognized today, both for its limited capacity to stop drug flow, and its terrible consequences, expanding violence, corrupting institutions and weakening the rule of law.

While Perez Molina makes some fine points in his op-ed, he also completely leaves out his own role in the exact policies he’s criticizing. During the Cold War, Molina was a Guatemalan military officer involved in a “scorched earth” campaign that resulted in hundreds of thousands of deaths and he has even been personally linked to serious human rights violations from this time period. Pot, meet kettle.

The situation took a turn for the ironic this week when O’Dwyers reported that Guatemala had hired notorious and far-right cold-warrior Otto Reich to lobby on the government’s behalf in Washington. Reich, who’s also been pretty much at the center of every lousy U.S. policy in the region since the Cold War, will be paid over $100,000 to, among other things:

Design a strategy to move forward on the change of narrative from Guatemala to Washington, D.C., allowing representatives in the North American political parties that are willing to abandon the reference to Guatemala of the 1970’s and 1980’s, as well as the last century, and are eager to talk about the present and future of Guatemala of the 21st century.

Mark WeisbrotÚltimas Noticias, el 3 de agosto, 2014The Hill, el 29 de julio, 2014 En inglés

Dean Baker
Truthout, August 11, 2014

Alexander MainDissent, 30 de julio, 2014

Regular readers of the Washington Post have grown fond of Robert Samuelson's repeated calls for cuts to Social Security (e.g. here, here, here, here, here, here, here, here, here , and here). At the core of Samuelson's complaints are long-term projections from the Congressional Budget Office (CBO), and other sources, that the country will have large deficits 15 years, 25 years, or further in the future.

He likes to say that these deficits are due to Social Security and Medicare, although the main driver is the fact that U.S. health care costs are vastly out of line with costs in the rest of the world. If our doctors, drug companies, and other health care providers got paid the same as their counterparts in other wealthy countries, the projections would show huge surpluses, not deficits. But Samuelson prefers to go after poor and middle class seniors rather than highly paid people in the health care sector.

But this is secondary to the big issue with today's column. Samuelson's repeated hyperventilations about Social Security and Medicare are based on budget projections made for the distant and very distant future. For this purpose Samuelson apparently is willing to accept that economics can be a very precise science even though the past track record of budget forecasters has been atrocious. (For cheap thrills check out these projections for large deficits in the year 2000, big surpluses in 2003, or modest deficits in 2010. In each case the overwhelming source of error was in the economic projection, not policy changes.)

But for today's column arguing that the Fed should be looking to raise interest rates sooner rather than later Samuelson has serious reservations about the quality of economic predictions:

"Although economists are arguing furiously over this [whether the Fed should be raising interest rates], there’s no scientific way to measure slack. Economic policymaking is often an exercise in educated guesswork, built on imperfect statistics, shaky assumptions, incomplete theories and political preferences. This is an instructive case in point."

He concludes the piece:

"The Fed is expected to begin raising rates in 2015, but the time and pace are unknown. The danger of waiting too long or going too slow is that inflation, now controlled in the market and in Americans’ thinking, will escape these convenient bounds. Once that happens — as the double-digit inflation of the 1970s and early 1980s showed — inflation takes on a life of its own and becomes self-fulfilling. It can be suppressed only through tight credit, recession and high unemployment. We don’t want to go there."

Nicole Woo
The Hill, August 8, 2014

Dean Baker and Jared Bernstein
The Washington Post, August 7, 2014