When Judge Thomas Griesa called Argentina and its lawyers into a special hearing today, the word was that he would likely find the country in contempt of Court.
But he didn't, and it's not hard to understand why.
If Griesa ruled that Argentina was in contempt and fined the country, Argentina would likely just ignore the whole thing or say the ruling was unfair.
And then what? Then Griesa has shown that his Court toothless.
He can't make Argentina pay the group of hedge funds to which it has owed over $1.3 billion in sovereign bonds for the last decade plus; he can't get the country back to negotiating table as things stand; and he can't stop Argentina from passing a domestic law to change the jurisdiction of the bonds in question from New York City to Buenos Aires, where he's really got no power whatsoever.
That last point is the reason why Argentina was called in for a special hearing in the first place.
On Tuesday night, Argentina's President, Cristina Fernandez de Kirchner, announced that the country would effectively nullify Griesa's ruling that Argentina pay a group of hedge fund creditors who have been suing the country for about a decade. It would do this by simply passing a law domestically that "changes" the jurisdiction of those bonds from New York City to Buenos Aires, and changes the custodial bank from Bank of New York Mellon to Argentina's Banco Nacion Trust.
The creditors purchased Argentine debt during its last default for pennies on the dollar, then refused to take a haircut on that debt like over 90% of investors. For that, Argentina labeled the holdouts "vultures" and refused to pay them.
So the holdouts sued Argentina based on a clause in their contract — the pari passu clause — which states that all creditors must pe paid together. The holdouts won, but Argentina didn't care, and on July 30 didn't pay anyone — not the holdouts, not the creditors that did restructure (the exchange bondholders), nobody.
As result, the country was declared in default — but who wants that, right?
Passing the law to nullify Griesa's ruling is an attempt to avoid default and pay the exchange bondholders from Argentina.
In his hearing, Griesa said that the nullification law is illegal, and ordered Argentina not to pay anyone in Buenos Aires.
But like — who cares? Now that the government has thrown Griesa's initial ruling out everything is up in the air.
“I would fully expect him to find Argentina in contempt,” Anna Gelpern, a professor at Georgetown University Law Center in Washington and an expert on government debt, told Bloomberg.
But why would he even bother? If he rules the country is in contempt and then they laugh it off, that just makes him look weak.
And things are bad enough already.
SEE ALSO: Argentina Is Going Rogue
Read more: http://www.businessinsider.com/griesa-does-not-rule-argentina-in-contempt-2014-8#ixzz3BJvvQgDe
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