Monday, July 22, 2013

This time wasn't different

Writing in the Wall Street Journal, James Glassman (currently executive director of the George W. Bush Institute, an affiliation that is not included in the article) is outraged that Argentina is fighting tooth and nail not to pay holdout creditors with whom it has been in protracted litigation in New York court --

The really important principle in the Argentine case that needs defending is not about minority creditors and a deadbeat government. At stake is New York's status as the top destination for sovereigns to issue bonds. Some $420 billion in sovereign debt subject to New York law is outstanding, and this market cannot operate smoothly unless creditors are able to enforce contracts. If Argentina gets away with stiffing creditors, one consequence will be that lenders in the future will demand higher rates for their higher risk; another is that they won't make loans.

Two questions.

1. Why should the interest of one particular place, New York, in being a bond issuing center, drive the important global public policy question of when and how countries can default?

2. The table above is from the Rogoff and Reinhart book, This Time Is Different (note: book has very different intellectual history than the similarly-authored article). What exactly did the investors in Argentina bonds think they were getting into?