The Court and the lower Federal Court were not persuaded by the international ramifications of the case or the fact that the defendant, the Republic of Argentina, is a sovereign state. I agree with the both court’s view that this dispute fell completely in the realm of contract and debtor’s and creditor’s law.

I was surprised to discover the U.S. Department of Justice representing America’s interests had filed an amicus brief with the Court in support (emphasis supplied) of Argentina’s position. Other federal agencies joined in the Dept. of Justice’s brief. The legal papers submitted argued for reversal of Judge Griesa’s orders. The government prefaced its entire brief by acknowledging that Argentina had not paid the Plaintiffs any money on the defaulted bonds. Importantly the brief stated the following:

“In supporting reversal of the orders, the United States does not condone or excuse a foreign state’s failure to comply with the judgment of a U.S. court imposing liability on the state. The United States consistently has maintained, and continues to strongly maintain, that Argentina immediately should normalize relations with all of its creditors, both public and private.”

The U.S. expressed its grave concerns that Argentina was unwilling to resolve its outstanding debt obligations with U.S. companies and the international community. At least the Department of Justice believes that foreign states must obey court orders issued by the U.S. judiciary and pay its creditors (U.S. citizens.) That having been stated in the first few pages of the brief, I could not imagine why and on what basis the U.S. supported a reversal. After reading the entire brief it become to me that the U.S. government mostly argued a political position versus a legal one.

Alison Frankel, editor and blogger at Thomson Reuter, takes the U.S. Government to task over the brief that it filed with the Court. In a post written on April 9, 2011 entitled “U.S. Walks Dangerous Line to Support Argentina in Bond Cases” she questions the U.S.’s argument (suggestion) that Executive foreign policy objectives trumps Argentina’s obligation to comply with orders issued by the Federal Courts.  The U.S. Government and Argentina argued that Judge Griesa’s injunctions were based upon misreading or misinterpreting the pari passu clause to give holdout bold holders too much power when a sovereign state attempts to renegotiate its debt. Ms. Frankel is correct in stating that the clause in question should not be interpreted in light of the wider and irrelevant political considerations.

Alison Frankel, editor and blogger at Thomson Reuters, takes the U.S. Government to task over the brief that it filed with the Court. In a post written on April 9, 2011 entitled “U.S. Walks Dangerous Line to Support Argentina in Bond Cases” she questions the U.S.’s argument (suggestion) that Executive foreign policy objectives trumps Argentina’s obligation to comply with orders issued by the Federal Courts.  The U.S. Government and Argentina argued that Judge Griesa’s injunctions were based upon misreading or misinterpreting the pari passu clause to give holdout bold holders too much power when a sovereign state attempts to renegotiate its debt. Ms. Frankel is correct in stating that the clause in question should not be interpreted in light of the wider and irrelevant political considerations.

Let’s not kid ourselves; investors normally do not invest in sovereign bonds with the expectation that the issuing country will either default on the obligations or seek to restructure the debt. Yet, this is not always the case.

I agree with Ms. Frankel that distress debt investors do not get much sympathy as victims. These hedge funds snap up bonds in or near default, typically at a steep discount, “in the hope they’ll be able to boost the value of the debt through the bankruptcy process or litigation in U.S. courts. As Mr. Frankel correctly puts it; “distressed debt funds quite literally feed off the flesh of morbid companies and foreign economies, which is why they’re frequently called “vulture funds.”

The Court rightfully rejected the Justice Department’s and Argentina’s arguments that bondholders’ rights should be completely secondary to a nation that is in debt crisis attempts to restructure its debt. In my opinion the Court correctly focused on the issues and the applicable law in the case. Spurious political considerations did not factor into the court’s deliberations. Argentina entered into a contract whose terms cannot unilaterally be changed to suit the political convenience of the sovereign state.

On November 21, 2012 Judge Griesa issued orders  resolving the issues that the Court had remanded for consideration. Argentina’s options for evading payment are dwindling. The country now confronts the fact that only payment will satisfy the Federal Court. President Fernandez risks triggering another huge debt default if the “vulture funds” are not paid. Argentina is scheduled to pay about 3.4bn in December to various restructured bondholders. The Court will let a small payment proceed on December 2, 2012. If Argentina has not made any payments to the plaintiffs the District Court’s order using the intermediary banks as enforcers will go into effect on December 15, 2012, the day a larger payment is due.

Herman Lorenzino, Argentina’s Economy Minister, immediately denounced Judge Griesa’s ruling and order. The Argentine minister announced at a press conference that his country would appeal the court’s order. He declared to the press that this country does not believe that it is right or legitimate that (Argentina) pay vulture funds. Minister Lorenzino declared that his government would appeal the order all the way to the U.S. Supreme Court.