What happens when a billionaire Wall Street investor takes on an entire nation?
In this story of finance, morality, and global debt disputes, we'll explore the battle between Argentina and Paul Singer's Elliott Management.
[00:00:05] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:11] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:20] I'm Alastair Budge, and today we are going to be talking about the time Wall Street took on the nation of Argentina.
[00:00:28] It is a fascinating story that gets one thinking about morality, finance, the rule of law, and the rights and wrongs of how some people get spectacularly wealthy.
[00:00:39] So, let’s get right into it, and talk about the battle between Wall Street and Argentina.
[00:00:47] Paul Singer does not look like someone that most people would be afraid of.
[00:00:53] He is softly-spoken, small, slight, with short hair, a well-trimmed beard and glasses.
[00:01:01] He looks like someone you might encounter in a university or library, perhaps a man you might bump into accidentally and help pick up a pile of textbooks off the floor while you both apologise profusely.
[00:01:14] But this man, Paul Singer, has been called the “world’s most feared investor”, a “vulture lord” and a “blood sucker”.
[00:01:25] He is the founder of a company called Elliott Management, a normally publicity-shy hedge fund that shot into the public eye for its 15-year-battle with the government of Argentina.
[00:01:38] A hedge fund, if you are unfamiliar with the term, is a kind of investment company that takes money from investors and then invests in anything, really. It might buy shares in a company that it thinks are undervalued, it might “short” shares in a company that it thinks is overvalued, meaning it makes money if the share price goes down. It might buy or sell gold, oil, coffee beans, all sorts of financial instruments that will mean it finishes the year with more money than it started.
[00:02:13] And many hedge funds end up finishing each year with a lot more money than they started, they make a lot of money.
[00:02:22] You have probably heard stories about hedge fund managers who have made billions of dollars betting on things as varied as the housing market crashing through to the price of a stock going up.
[00:02:34] What you might not have heard about, however, is a hedge fund going to war against a country, and that’s what we’ll talk about today, the battle between Elliott Management and Argentina.
[00:02:47] To understand how this can even happen, why a New York financier would even have anything to do with a sovereign South American nation, we need to talk a bit about how countries pay for stuff.
[00:03:00] Countries need to provide services to their citizens: schools, hospitals, new roads, bridges, pensions, all of the sorts of things that you need to have a functioning state.
[00:03:13] Countries need money to pay for all of this. The principal way that most countries make money is by taxing their citizens. We all pay tax, some people pay more tax than others, but the idea is that the government collects taxes from its citizens and this money is spent on services that these citizens need.
[00:03:33] However, it is rarely that simple.
[00:03:37] Most governments spend more than they collect, so they need to borrow money to fill the gap. One way in which a country can do this is to issue things called bonds, which are a type of debt, sovereign debt to be precise.
[00:03:54] Investors buy these bonds, which means they become the owners of the debt. And they collect interest payments as a fee for providing this service.
[00:04:06] Investors like sovereign debt because it is typically considered “safe”. It’s not like lending money to a risky small business, you’re lending money to a country, and a country can’t exactly run and hide, it can’t escape its debts.
[00:04:22] Well, that’s in theory at least.
[00:04:25] What often happens, has happened throughout history and happened particularly frequently with developing countries in the 1980s and 1990s, was that a country would take on too much debt, it would borrow too much, and then not be able to make its interest payments.
[00:04:44] Under a growing mountain of debt, countries would negotiate with their bondholders to reduce it, for example, offering to repay 30 cents of every $1 owed.
[00:04:57] Often, the bondholders would accept this offer, especially if the alternative was getting 0 cents, losing all of their money.
[00:05:07] In other cases, if it looked like a country was going to default on its debt, if it simply wasn’t going to pay it back, the owners of the bonds would often sell them at a loss to other investors, selling them for 10 or 20 cents on the dollar, because, after all, 10 cents is better than 0 cents.
[00:05:29] Now, we don’t want to get too bogged down in financial details here, but the reason to give this background is that this entire story is about financial details, the whole story revolves around this concept.
[00:05:45] Paul Singer was an investor in this kind of sovereign debt, but in particular, he looked for countries that looked like they were going to default on their debts, so that he could snap up their debt at rock bottom prices from other investors.
[00:06:03] He first did this with the South American nation of Peru.
[00:06:08] In 1996, Singer paid $11 million for $58 million of Peruvian debt. Peru had defaulted on this debt, saying that it was unable to pay it, which is why the holder of the debt was happy to cash out of its position.
[00:06:27] But Singer thought he would be able to get the money from the Peruvian government. He thought he could pay $11 million, and force the government of Peru to pay him back the entire $58 million.
[00:06:44] Long story short, it took a while, but he did. He strongarmed the country into agreeing to pay him the entire value, netting him a 500% return on his initial investment.
[00:06:59] It was a strategy that he would later repeat in Congo as well as other countries, countries which pleaded that they did not have the financial resources to repay, they were poor and underdeveloped, and it was morally reprehensible for them to divert money that would otherwise have gone to schools and hospitals to an already ultra wealthy American.
[00:07:23] Paul Singer didn’t care.
[00:07:25] He had trained as a lawyer, he wasn’t running a charity, he had legally bought the debt, and he was there to collect what was rightfully his.
[00:07:35] Legally, he was right, and this became a cornerstone of his investment strategy: buy up the debt of distressed companies or countries on the cheap and then pressure and sue them into paying him back the full amount.
[00:07:52] It turned out that this strategy of zooming in on distressed developing countries was immensely profitable.
[00:08:00] But for his most profitable trade, or at least his most profitable public trade of this kind, we need to talk about Argentina.
[00:08:10] As you may know, almost since it gained its independence from Spain in 1816, the Argentine economy has been characterised by periods of boom and bust, of great prosperity and of great economic hardship.
[00:08:27] Jumping forward to the period we’re talking about in this story, the 1990s were a period of high inflation in Argentina, as well as a huge increase in public and private debt.
[00:08:39] Because Argentina was not a particularly reliable debtor, the interest rates that it had to pay were high, to compensate investors for the risk that they were taking.
[00:08:52] This was followed by a recession in the late 1990s, with widespread unemployment and seven out of ten Argentine children living in poverty.
[00:09:04] With no clear way to grow out of this recession, and drowning under the ever increasing interest payments on its debt, in 2001 Argentina defaulted on almost $100 billion of sovereign debt, saying, “sorry, we can’t pay”.
[00:09:22] The Argentine economy had been severely mismanaged, and instead of paying off external creditors, Argentina decided to pay for essential services for its citizens, you know, hospitals, schools, all that kind of stuff.
[00:09:37] This began a period of negotiation with its creditors, with Argentine officials and economists trying to get their creditors to accept a haircut on their debt, to accept a reduction in the amount that was owed.
[00:09:52] And these creditors weren’t just large banks or other countries, it included millions of retail investors, private citizens, who had been encouraged to buy Argentine debt as a safe investment because, after all, it was a safe investment, right?
[00:10:11] It wasn’t.
[00:10:12] As the Argentine economy started to slowly recover, the country was able to issue new debt, and original creditors could swap their defaulted debt for this new debt at a much lower price, so if they held $100 of Argentine debt before, they might be able to swap this for $20 or $30.
[00:10:36] A big loss, yes, but better than getting nothing. And almost all, around 93% of its creditors had accepted Argentina’s terms.
[00:10:49] Paul Singer had been watching all of this happen, and sensed his opportunity, like a shark he had smelled blood.
[00:10:58] He had swooped in and bought up a load of Argentine debt at a significantly reduced price, and as the crisis deepened, he continued to buy up more and more debt.
[00:11:12] All in all, he ended up spending somewhere between $100 and $200 million on Argentine debt, debt which had a face value of over $2 billion.
[00:11:25] Almost all the other creditors were accepting the deal Argentina was proposing - we’ll exchange your debt for new debt. You’ll have to take a reduction in its value, but we will pay you.
[00:11:38] Singer did not accept, and began a 15-year economic war against the country.
[00:11:46] It started, as these things do, with strongly-worded letters from Singer’s lawyers.
[00:11:53] When this didn’t work, Singer took to fighting Argentina in the law courts.
[00:12:00] Now, your first question might be “what law courts?”
[00:12:04] Singer was an American citizen. And technically it wasn’t him, it was his fund, Elliott Management, that owned the debt, or to get even more technical, it was a Cayman Islands vehicle called NML Capital Limited, but it’s all pretty much the same thing, and for the sake of this episode I’ll use the terms interchangeably.
[00:12:28] And Singer, or Elliott Management, was up against the nation of Argentina. There is no such global court that settles these kinds of disputes, but Argentina had issued the bonds, the debt, in New York.
[00:12:46] This was a good idea when they did it, because New York is a global financial centre and would mean that Argentina had better access to investors and that the country could borrow more money at a better rate than if they had offered the bonds in Buenos Aires. But it meant that bonds fell under US law.
[00:13:08] So, Elliot Management took Argentina to court, and the case lasted 10 years, a mammoth amount of time.
[00:13:18] During this period, Singer and his lawyers went to extraordinary lengths to try to seize possession of Argentine assets around the globe, from pension funds to aeroplanes, precious books to a Space-X satellite slot.
[00:13:36] There were even rumours of Argentine works of art not being loaned to foreign collections out of fear that Singer would get wind of it and try to seize them.
[00:13:47] Singer wouldn’t be there himself with a baseball bat, of course, his muscle was legal, not physical.
[00:13:55] His tactic was typically to find out when there was any Argentine asset that was outside Argentina, and sue to seize that asset in a local law court.
[00:14:08] Probably the most famous of these is one that you may have heard of, and one that was of great embarrassment to Argentina and its then president, Cristina Fernández de Kirchner.
[00:14:21] In October of 2012, an Argentine ship was docked in a port in Ghana, in Africa, and the Ghanese judge ruled that it should be impounded and handed over to Elliot Management, to Paul Singer’s New York hedge fund.
[00:14:40] When Argentina got wind of this, Argentine diplomats reportedly rushed to hire the top lawyer in Ghana, but when they managed to track him down, they were disappointed to find out that he had already been hired by Singer.
[00:14:56] After a tense few days, with 220 Argentinians on board refusing to disembark the ship, but the ship not being allowed to leave Ghana, eventually the case was dismissed and the ship was free to go.
[00:15:12] The case was, of course, symbolic.
[00:15:15] Elliott Management didn’t want the boat, and it was only worth a fraction of the value of the debt, but the purpose was to send a message: we are not going anywhere, and we will continue to haunt you and embarrass you around the globe until you pay us what we want.
[00:15:35] The boat was released, but just a month later, in November of 2012 a New York judge ruled in the hedge fund’s favour, ordering Argentina to pay the full value of its debt. The judge said, and I’m quoting directly, “Argentina owes this and owes it now."
[00:15:56] The Argentine government appealed the decision, saying it was not fair.
[00:16:02] The appeal was dismissed, it was turned down.
[00:16:06] But the South American nation continued to hold out, saying it would not be taken hostage by these vulture financiers who had bought this debt for no reason other than to bring Argentina to its knees and force it to pay, and make hundreds of millions of dollars in the process.
[00:16:26] So, legally, what could Argentina do?
[00:16:30] Of course, it could simply not pay, which is what it continued doing for several years. After all, there was no global financial legal system that was going to force it to pay, it couldn’t be fined or sent to prison, it was a nation state after all.
[00:16:48] But continuing to not pay would mean that the country couldn’t raise any more debt in New York, so by continuing to hold out against Singer, it was choking off its ability to raise new debt.
[00:17:02] Unfortunately, there was not much of a choice, but the Argentine president, Cristina Fernandez de Kirchner, was proud and not willing to give in.
[00:17:13] It would take a change in Argentine leadership for things to change. In 2015, when Fernandez de Kirchner left office, she was replaced by a more business-minded President who was keen to put this financial mess behind him.
[00:17:30] In the end, Argentina agreed to pay up, a total of $2.4 billion to Elliott Management, meaning that Paul Singer’s fund made over $2 billion from Argentina.
[00:17:45] Now, you might well be listening to this story and thinking “that’s completely immoral, a billionaire squeezing every last drop of money out of a country that is already in trouble”.
[00:17:57] Or you might be thinking, “well, it is the law”.
[00:18:01] To take Paul Singer’s side of view for a minute, he has stated that his company, and other similar so-called “vulture funds”, are providing an important service, and making countries accountable. After all, a debt is a debt, and if a country thinks that they can borrow money and then not repay it, then not only is this not right but it will cause disruption and distrust in the financial system.
[00:18:32] Or to quote one spokesman for Elliott Management, "Debt relief advocates should recognize that the beneficiaries of debt relief are often corrupt or incompetent regimes that squander their nations' assets and then cry poverty to avoid legitimate debts. This cycle must be broken for countries to achieve economic development."
[00:18:53] End quote.
[00:18:55] Or to translate that into plain English, “strange as it might seem, we are actually helping the people of these supposedly indebted countries”
[00:19:05] But for those who think that this is grossly immoral, sure, there are certainly ways to make money that would probably make you sleep better at night. After all, $2.4 billion is money that could otherwise have gone to the people of Argentina, it’s just over $50 for every man, woman and child in Argentina that has instead gone into the pockets of some of the wealthiest people in the world.
[00:19:31] Paul Singer has an estimated fortune of over $6 billion.
[00:19:37] If he lived in Argentina, he would be the richest person in the country, so surely he doesn’t need to go about buying up debt from distressed countries and extorting them until they meet his demands?
[00:19:50] If there’s one thing that’s clear from all of this, it’s that in the case of Paul Singer, the kind of professorial, friendly-looking man with the grey hair, trimmed beard and round glasses, it’s that you should never judge a book by its cover.
[00:20:07] OK then, that is it for today's episode on Wall Street vs. Argentina, Paul Singer and Elliott Management’s battle to wrestle billions from the Latin American nation.
[00:20:18] We've got lots of South American listeners, so I wonder…did you know something of this story?
[00:20:24] What do you think of the rights and wrongs of what Singer did?
[00:20:27] I would love to know, so let’s get this discussion started.
[00:20:31] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:20:39] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:20:44] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:05] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:11] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:20] I'm Alastair Budge, and today we are going to be talking about the time Wall Street took on the nation of Argentina.
[00:00:28] It is a fascinating story that gets one thinking about morality, finance, the rule of law, and the rights and wrongs of how some people get spectacularly wealthy.
[00:00:39] So, let’s get right into it, and talk about the battle between Wall Street and Argentina.
[00:00:47] Paul Singer does not look like someone that most people would be afraid of.
[00:00:53] He is softly-spoken, small, slight, with short hair, a well-trimmed beard and glasses.
[00:01:01] He looks like someone you might encounter in a university or library, perhaps a man you might bump into accidentally and help pick up a pile of textbooks off the floor while you both apologise profusely.
[00:01:14] But this man, Paul Singer, has been called the “world’s most feared investor”, a “vulture lord” and a “blood sucker”.
[00:01:25] He is the founder of a company called Elliott Management, a normally publicity-shy hedge fund that shot into the public eye for its 15-year-battle with the government of Argentina.
[00:01:38] A hedge fund, if you are unfamiliar with the term, is a kind of investment company that takes money from investors and then invests in anything, really. It might buy shares in a company that it thinks are undervalued, it might “short” shares in a company that it thinks is overvalued, meaning it makes money if the share price goes down. It might buy or sell gold, oil, coffee beans, all sorts of financial instruments that will mean it finishes the year with more money than it started.
[00:02:13] And many hedge funds end up finishing each year with a lot more money than they started, they make a lot of money.
[00:02:22] You have probably heard stories about hedge fund managers who have made billions of dollars betting on things as varied as the housing market crashing through to the price of a stock going up.
[00:02:34] What you might not have heard about, however, is a hedge fund going to war against a country, and that’s what we’ll talk about today, the battle between Elliott Management and Argentina.
[00:02:47] To understand how this can even happen, why a New York financier would even have anything to do with a sovereign South American nation, we need to talk a bit about how countries pay for stuff.
[00:03:00] Countries need to provide services to their citizens: schools, hospitals, new roads, bridges, pensions, all of the sorts of things that you need to have a functioning state.
[00:03:13] Countries need money to pay for all of this. The principal way that most countries make money is by taxing their citizens. We all pay tax, some people pay more tax than others, but the idea is that the government collects taxes from its citizens and this money is spent on services that these citizens need.
[00:03:33] However, it is rarely that simple.
[00:03:37] Most governments spend more than they collect, so they need to borrow money to fill the gap. One way in which a country can do this is to issue things called bonds, which are a type of debt, sovereign debt to be precise.
[00:03:54] Investors buy these bonds, which means they become the owners of the debt. And they collect interest payments as a fee for providing this service.
[00:04:06] Investors like sovereign debt because it is typically considered “safe”. It’s not like lending money to a risky small business, you’re lending money to a country, and a country can’t exactly run and hide, it can’t escape its debts.
[00:04:22] Well, that’s in theory at least.
[00:04:25] What often happens, has happened throughout history and happened particularly frequently with developing countries in the 1980s and 1990s, was that a country would take on too much debt, it would borrow too much, and then not be able to make its interest payments.
[00:04:44] Under a growing mountain of debt, countries would negotiate with their bondholders to reduce it, for example, offering to repay 30 cents of every $1 owed.
[00:04:57] Often, the bondholders would accept this offer, especially if the alternative was getting 0 cents, losing all of their money.
[00:05:07] In other cases, if it looked like a country was going to default on its debt, if it simply wasn’t going to pay it back, the owners of the bonds would often sell them at a loss to other investors, selling them for 10 or 20 cents on the dollar, because, after all, 10 cents is better than 0 cents.
[00:05:29] Now, we don’t want to get too bogged down in financial details here, but the reason to give this background is that this entire story is about financial details, the whole story revolves around this concept.
[00:05:45] Paul Singer was an investor in this kind of sovereign debt, but in particular, he looked for countries that looked like they were going to default on their debts, so that he could snap up their debt at rock bottom prices from other investors.
[00:06:03] He first did this with the South American nation of Peru.
[00:06:08] In 1996, Singer paid $11 million for $58 million of Peruvian debt. Peru had defaulted on this debt, saying that it was unable to pay it, which is why the holder of the debt was happy to cash out of its position.
[00:06:27] But Singer thought he would be able to get the money from the Peruvian government. He thought he could pay $11 million, and force the government of Peru to pay him back the entire $58 million.
[00:06:44] Long story short, it took a while, but he did. He strongarmed the country into agreeing to pay him the entire value, netting him a 500% return on his initial investment.
[00:06:59] It was a strategy that he would later repeat in Congo as well as other countries, countries which pleaded that they did not have the financial resources to repay, they were poor and underdeveloped, and it was morally reprehensible for them to divert money that would otherwise have gone to schools and hospitals to an already ultra wealthy American.
[00:07:23] Paul Singer didn’t care.
[00:07:25] He had trained as a lawyer, he wasn’t running a charity, he had legally bought the debt, and he was there to collect what was rightfully his.
[00:07:35] Legally, he was right, and this became a cornerstone of his investment strategy: buy up the debt of distressed companies or countries on the cheap and then pressure and sue them into paying him back the full amount.
[00:07:52] It turned out that this strategy of zooming in on distressed developing countries was immensely profitable.
[00:08:00] But for his most profitable trade, or at least his most profitable public trade of this kind, we need to talk about Argentina.
[00:08:10] As you may know, almost since it gained its independence from Spain in 1816, the Argentine economy has been characterised by periods of boom and bust, of great prosperity and of great economic hardship.
[00:08:27] Jumping forward to the period we’re talking about in this story, the 1990s were a period of high inflation in Argentina, as well as a huge increase in public and private debt.
[00:08:39] Because Argentina was not a particularly reliable debtor, the interest rates that it had to pay were high, to compensate investors for the risk that they were taking.
[00:08:52] This was followed by a recession in the late 1990s, with widespread unemployment and seven out of ten Argentine children living in poverty.
[00:09:04] With no clear way to grow out of this recession, and drowning under the ever increasing interest payments on its debt, in 2001 Argentina defaulted on almost $100 billion of sovereign debt, saying, “sorry, we can’t pay”.
[00:09:22] The Argentine economy had been severely mismanaged, and instead of paying off external creditors, Argentina decided to pay for essential services for its citizens, you know, hospitals, schools, all that kind of stuff.
[00:09:37] This began a period of negotiation with its creditors, with Argentine officials and economists trying to get their creditors to accept a haircut on their debt, to accept a reduction in the amount that was owed.
[00:09:52] And these creditors weren’t just large banks or other countries, it included millions of retail investors, private citizens, who had been encouraged to buy Argentine debt as a safe investment because, after all, it was a safe investment, right?
[00:10:11] It wasn’t.
[00:10:12] As the Argentine economy started to slowly recover, the country was able to issue new debt, and original creditors could swap their defaulted debt for this new debt at a much lower price, so if they held $100 of Argentine debt before, they might be able to swap this for $20 or $30.
[00:10:36] A big loss, yes, but better than getting nothing. And almost all, around 93% of its creditors had accepted Argentina’s terms.
[00:10:49] Paul Singer had been watching all of this happen, and sensed his opportunity, like a shark he had smelled blood.
[00:10:58] He had swooped in and bought up a load of Argentine debt at a significantly reduced price, and as the crisis deepened, he continued to buy up more and more debt.
[00:11:12] All in all, he ended up spending somewhere between $100 and $200 million on Argentine debt, debt which had a face value of over $2 billion.
[00:11:25] Almost all the other creditors were accepting the deal Argentina was proposing - we’ll exchange your debt for new debt. You’ll have to take a reduction in its value, but we will pay you.
[00:11:38] Singer did not accept, and began a 15-year economic war against the country.
[00:11:46] It started, as these things do, with strongly-worded letters from Singer’s lawyers.
[00:11:53] When this didn’t work, Singer took to fighting Argentina in the law courts.
[00:12:00] Now, your first question might be “what law courts?”
[00:12:04] Singer was an American citizen. And technically it wasn’t him, it was his fund, Elliott Management, that owned the debt, or to get even more technical, it was a Cayman Islands vehicle called NML Capital Limited, but it’s all pretty much the same thing, and for the sake of this episode I’ll use the terms interchangeably.
[00:12:28] And Singer, or Elliott Management, was up against the nation of Argentina. There is no such global court that settles these kinds of disputes, but Argentina had issued the bonds, the debt, in New York.
[00:12:46] This was a good idea when they did it, because New York is a global financial centre and would mean that Argentina had better access to investors and that the country could borrow more money at a better rate than if they had offered the bonds in Buenos Aires. But it meant that bonds fell under US law.
[00:13:08] So, Elliot Management took Argentina to court, and the case lasted 10 years, a mammoth amount of time.
[00:13:18] During this period, Singer and his lawyers went to extraordinary lengths to try to seize possession of Argentine assets around the globe, from pension funds to aeroplanes, precious books to a Space-X satellite slot.
[00:13:36] There were even rumours of Argentine works of art not being loaned to foreign collections out of fear that Singer would get wind of it and try to seize them.
[00:13:47] Singer wouldn’t be there himself with a baseball bat, of course, his muscle was legal, not physical.
[00:13:55] His tactic was typically to find out when there was any Argentine asset that was outside Argentina, and sue to seize that asset in a local law court.
[00:14:08] Probably the most famous of these is one that you may have heard of, and one that was of great embarrassment to Argentina and its then president, Cristina Fernández de Kirchner.
[00:14:21] In October of 2012, an Argentine ship was docked in a port in Ghana, in Africa, and the Ghanese judge ruled that it should be impounded and handed over to Elliot Management, to Paul Singer’s New York hedge fund.
[00:14:40] When Argentina got wind of this, Argentine diplomats reportedly rushed to hire the top lawyer in Ghana, but when they managed to track him down, they were disappointed to find out that he had already been hired by Singer.
[00:14:56] After a tense few days, with 220 Argentinians on board refusing to disembark the ship, but the ship not being allowed to leave Ghana, eventually the case was dismissed and the ship was free to go.
[00:15:12] The case was, of course, symbolic.
[00:15:15] Elliott Management didn’t want the boat, and it was only worth a fraction of the value of the debt, but the purpose was to send a message: we are not going anywhere, and we will continue to haunt you and embarrass you around the globe until you pay us what we want.
[00:15:35] The boat was released, but just a month later, in November of 2012 a New York judge ruled in the hedge fund’s favour, ordering Argentina to pay the full value of its debt. The judge said, and I’m quoting directly, “Argentina owes this and owes it now."
[00:15:56] The Argentine government appealed the decision, saying it was not fair.
[00:16:02] The appeal was dismissed, it was turned down.
[00:16:06] But the South American nation continued to hold out, saying it would not be taken hostage by these vulture financiers who had bought this debt for no reason other than to bring Argentina to its knees and force it to pay, and make hundreds of millions of dollars in the process.
[00:16:26] So, legally, what could Argentina do?
[00:16:30] Of course, it could simply not pay, which is what it continued doing for several years. After all, there was no global financial legal system that was going to force it to pay, it couldn’t be fined or sent to prison, it was a nation state after all.
[00:16:48] But continuing to not pay would mean that the country couldn’t raise any more debt in New York, so by continuing to hold out against Singer, it was choking off its ability to raise new debt.
[00:17:02] Unfortunately, there was not much of a choice, but the Argentine president, Cristina Fernandez de Kirchner, was proud and not willing to give in.
[00:17:13] It would take a change in Argentine leadership for things to change. In 2015, when Fernandez de Kirchner left office, she was replaced by a more business-minded President who was keen to put this financial mess behind him.
[00:17:30] In the end, Argentina agreed to pay up, a total of $2.4 billion to Elliott Management, meaning that Paul Singer’s fund made over $2 billion from Argentina.
[00:17:45] Now, you might well be listening to this story and thinking “that’s completely immoral, a billionaire squeezing every last drop of money out of a country that is already in trouble”.
[00:17:57] Or you might be thinking, “well, it is the law”.
[00:18:01] To take Paul Singer’s side of view for a minute, he has stated that his company, and other similar so-called “vulture funds”, are providing an important service, and making countries accountable. After all, a debt is a debt, and if a country thinks that they can borrow money and then not repay it, then not only is this not right but it will cause disruption and distrust in the financial system.
[00:18:32] Or to quote one spokesman for Elliott Management, "Debt relief advocates should recognize that the beneficiaries of debt relief are often corrupt or incompetent regimes that squander their nations' assets and then cry poverty to avoid legitimate debts. This cycle must be broken for countries to achieve economic development."
[00:18:53] End quote.
[00:18:55] Or to translate that into plain English, “strange as it might seem, we are actually helping the people of these supposedly indebted countries”
[00:19:05] But for those who think that this is grossly immoral, sure, there are certainly ways to make money that would probably make you sleep better at night. After all, $2.4 billion is money that could otherwise have gone to the people of Argentina, it’s just over $50 for every man, woman and child in Argentina that has instead gone into the pockets of some of the wealthiest people in the world.
[00:19:31] Paul Singer has an estimated fortune of over $6 billion.
[00:19:37] If he lived in Argentina, he would be the richest person in the country, so surely he doesn’t need to go about buying up debt from distressed countries and extorting them until they meet his demands?
[00:19:50] If there’s one thing that’s clear from all of this, it’s that in the case of Paul Singer, the kind of professorial, friendly-looking man with the grey hair, trimmed beard and round glasses, it’s that you should never judge a book by its cover.
[00:20:07] OK then, that is it for today's episode on Wall Street vs. Argentina, Paul Singer and Elliott Management’s battle to wrestle billions from the Latin American nation.
[00:20:18] We've got lots of South American listeners, so I wonder…did you know something of this story?
[00:20:24] What do you think of the rights and wrongs of what Singer did?
[00:20:27] I would love to know, so let’s get this discussion started.
[00:20:31] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:20:39] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:20:44] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:05] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:11] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:20] I'm Alastair Budge, and today we are going to be talking about the time Wall Street took on the nation of Argentina.
[00:00:28] It is a fascinating story that gets one thinking about morality, finance, the rule of law, and the rights and wrongs of how some people get spectacularly wealthy.
[00:00:39] So, let’s get right into it, and talk about the battle between Wall Street and Argentina.
[00:00:47] Paul Singer does not look like someone that most people would be afraid of.
[00:00:53] He is softly-spoken, small, slight, with short hair, a well-trimmed beard and glasses.
[00:01:01] He looks like someone you might encounter in a university or library, perhaps a man you might bump into accidentally and help pick up a pile of textbooks off the floor while you both apologise profusely.
[00:01:14] But this man, Paul Singer, has been called the “world’s most feared investor”, a “vulture lord” and a “blood sucker”.
[00:01:25] He is the founder of a company called Elliott Management, a normally publicity-shy hedge fund that shot into the public eye for its 15-year-battle with the government of Argentina.
[00:01:38] A hedge fund, if you are unfamiliar with the term, is a kind of investment company that takes money from investors and then invests in anything, really. It might buy shares in a company that it thinks are undervalued, it might “short” shares in a company that it thinks is overvalued, meaning it makes money if the share price goes down. It might buy or sell gold, oil, coffee beans, all sorts of financial instruments that will mean it finishes the year with more money than it started.
[00:02:13] And many hedge funds end up finishing each year with a lot more money than they started, they make a lot of money.
[00:02:22] You have probably heard stories about hedge fund managers who have made billions of dollars betting on things as varied as the housing market crashing through to the price of a stock going up.
[00:02:34] What you might not have heard about, however, is a hedge fund going to war against a country, and that’s what we’ll talk about today, the battle between Elliott Management and Argentina.
[00:02:47] To understand how this can even happen, why a New York financier would even have anything to do with a sovereign South American nation, we need to talk a bit about how countries pay for stuff.
[00:03:00] Countries need to provide services to their citizens: schools, hospitals, new roads, bridges, pensions, all of the sorts of things that you need to have a functioning state.
[00:03:13] Countries need money to pay for all of this. The principal way that most countries make money is by taxing their citizens. We all pay tax, some people pay more tax than others, but the idea is that the government collects taxes from its citizens and this money is spent on services that these citizens need.
[00:03:33] However, it is rarely that simple.
[00:03:37] Most governments spend more than they collect, so they need to borrow money to fill the gap. One way in which a country can do this is to issue things called bonds, which are a type of debt, sovereign debt to be precise.
[00:03:54] Investors buy these bonds, which means they become the owners of the debt. And they collect interest payments as a fee for providing this service.
[00:04:06] Investors like sovereign debt because it is typically considered “safe”. It’s not like lending money to a risky small business, you’re lending money to a country, and a country can’t exactly run and hide, it can’t escape its debts.
[00:04:22] Well, that’s in theory at least.
[00:04:25] What often happens, has happened throughout history and happened particularly frequently with developing countries in the 1980s and 1990s, was that a country would take on too much debt, it would borrow too much, and then not be able to make its interest payments.
[00:04:44] Under a growing mountain of debt, countries would negotiate with their bondholders to reduce it, for example, offering to repay 30 cents of every $1 owed.
[00:04:57] Often, the bondholders would accept this offer, especially if the alternative was getting 0 cents, losing all of their money.
[00:05:07] In other cases, if it looked like a country was going to default on its debt, if it simply wasn’t going to pay it back, the owners of the bonds would often sell them at a loss to other investors, selling them for 10 or 20 cents on the dollar, because, after all, 10 cents is better than 0 cents.
[00:05:29] Now, we don’t want to get too bogged down in financial details here, but the reason to give this background is that this entire story is about financial details, the whole story revolves around this concept.
[00:05:45] Paul Singer was an investor in this kind of sovereign debt, but in particular, he looked for countries that looked like they were going to default on their debts, so that he could snap up their debt at rock bottom prices from other investors.
[00:06:03] He first did this with the South American nation of Peru.
[00:06:08] In 1996, Singer paid $11 million for $58 million of Peruvian debt. Peru had defaulted on this debt, saying that it was unable to pay it, which is why the holder of the debt was happy to cash out of its position.
[00:06:27] But Singer thought he would be able to get the money from the Peruvian government. He thought he could pay $11 million, and force the government of Peru to pay him back the entire $58 million.
[00:06:44] Long story short, it took a while, but he did. He strongarmed the country into agreeing to pay him the entire value, netting him a 500% return on his initial investment.
[00:06:59] It was a strategy that he would later repeat in Congo as well as other countries, countries which pleaded that they did not have the financial resources to repay, they were poor and underdeveloped, and it was morally reprehensible for them to divert money that would otherwise have gone to schools and hospitals to an already ultra wealthy American.
[00:07:23] Paul Singer didn’t care.
[00:07:25] He had trained as a lawyer, he wasn’t running a charity, he had legally bought the debt, and he was there to collect what was rightfully his.
[00:07:35] Legally, he was right, and this became a cornerstone of his investment strategy: buy up the debt of distressed companies or countries on the cheap and then pressure and sue them into paying him back the full amount.
[00:07:52] It turned out that this strategy of zooming in on distressed developing countries was immensely profitable.
[00:08:00] But for his most profitable trade, or at least his most profitable public trade of this kind, we need to talk about Argentina.
[00:08:10] As you may know, almost since it gained its independence from Spain in 1816, the Argentine economy has been characterised by periods of boom and bust, of great prosperity and of great economic hardship.
[00:08:27] Jumping forward to the period we’re talking about in this story, the 1990s were a period of high inflation in Argentina, as well as a huge increase in public and private debt.
[00:08:39] Because Argentina was not a particularly reliable debtor, the interest rates that it had to pay were high, to compensate investors for the risk that they were taking.
[00:08:52] This was followed by a recession in the late 1990s, with widespread unemployment and seven out of ten Argentine children living in poverty.
[00:09:04] With no clear way to grow out of this recession, and drowning under the ever increasing interest payments on its debt, in 2001 Argentina defaulted on almost $100 billion of sovereign debt, saying, “sorry, we can’t pay”.
[00:09:22] The Argentine economy had been severely mismanaged, and instead of paying off external creditors, Argentina decided to pay for essential services for its citizens, you know, hospitals, schools, all that kind of stuff.
[00:09:37] This began a period of negotiation with its creditors, with Argentine officials and economists trying to get their creditors to accept a haircut on their debt, to accept a reduction in the amount that was owed.
[00:09:52] And these creditors weren’t just large banks or other countries, it included millions of retail investors, private citizens, who had been encouraged to buy Argentine debt as a safe investment because, after all, it was a safe investment, right?
[00:10:11] It wasn’t.
[00:10:12] As the Argentine economy started to slowly recover, the country was able to issue new debt, and original creditors could swap their defaulted debt for this new debt at a much lower price, so if they held $100 of Argentine debt before, they might be able to swap this for $20 or $30.
[00:10:36] A big loss, yes, but better than getting nothing. And almost all, around 93% of its creditors had accepted Argentina’s terms.
[00:10:49] Paul Singer had been watching all of this happen, and sensed his opportunity, like a shark he had smelled blood.
[00:10:58] He had swooped in and bought up a load of Argentine debt at a significantly reduced price, and as the crisis deepened, he continued to buy up more and more debt.
[00:11:12] All in all, he ended up spending somewhere between $100 and $200 million on Argentine debt, debt which had a face value of over $2 billion.
[00:11:25] Almost all the other creditors were accepting the deal Argentina was proposing - we’ll exchange your debt for new debt. You’ll have to take a reduction in its value, but we will pay you.
[00:11:38] Singer did not accept, and began a 15-year economic war against the country.
[00:11:46] It started, as these things do, with strongly-worded letters from Singer’s lawyers.
[00:11:53] When this didn’t work, Singer took to fighting Argentina in the law courts.
[00:12:00] Now, your first question might be “what law courts?”
[00:12:04] Singer was an American citizen. And technically it wasn’t him, it was his fund, Elliott Management, that owned the debt, or to get even more technical, it was a Cayman Islands vehicle called NML Capital Limited, but it’s all pretty much the same thing, and for the sake of this episode I’ll use the terms interchangeably.
[00:12:28] And Singer, or Elliott Management, was up against the nation of Argentina. There is no such global court that settles these kinds of disputes, but Argentina had issued the bonds, the debt, in New York.
[00:12:46] This was a good idea when they did it, because New York is a global financial centre and would mean that Argentina had better access to investors and that the country could borrow more money at a better rate than if they had offered the bonds in Buenos Aires. But it meant that bonds fell under US law.
[00:13:08] So, Elliot Management took Argentina to court, and the case lasted 10 years, a mammoth amount of time.
[00:13:18] During this period, Singer and his lawyers went to extraordinary lengths to try to seize possession of Argentine assets around the globe, from pension funds to aeroplanes, precious books to a Space-X satellite slot.
[00:13:36] There were even rumours of Argentine works of art not being loaned to foreign collections out of fear that Singer would get wind of it and try to seize them.
[00:13:47] Singer wouldn’t be there himself with a baseball bat, of course, his muscle was legal, not physical.
[00:13:55] His tactic was typically to find out when there was any Argentine asset that was outside Argentina, and sue to seize that asset in a local law court.
[00:14:08] Probably the most famous of these is one that you may have heard of, and one that was of great embarrassment to Argentina and its then president, Cristina Fernández de Kirchner.
[00:14:21] In October of 2012, an Argentine ship was docked in a port in Ghana, in Africa, and the Ghanese judge ruled that it should be impounded and handed over to Elliot Management, to Paul Singer’s New York hedge fund.
[00:14:40] When Argentina got wind of this, Argentine diplomats reportedly rushed to hire the top lawyer in Ghana, but when they managed to track him down, they were disappointed to find out that he had already been hired by Singer.
[00:14:56] After a tense few days, with 220 Argentinians on board refusing to disembark the ship, but the ship not being allowed to leave Ghana, eventually the case was dismissed and the ship was free to go.
[00:15:12] The case was, of course, symbolic.
[00:15:15] Elliott Management didn’t want the boat, and it was only worth a fraction of the value of the debt, but the purpose was to send a message: we are not going anywhere, and we will continue to haunt you and embarrass you around the globe until you pay us what we want.
[00:15:35] The boat was released, but just a month later, in November of 2012 a New York judge ruled in the hedge fund’s favour, ordering Argentina to pay the full value of its debt. The judge said, and I’m quoting directly, “Argentina owes this and owes it now."
[00:15:56] The Argentine government appealed the decision, saying it was not fair.
[00:16:02] The appeal was dismissed, it was turned down.
[00:16:06] But the South American nation continued to hold out, saying it would not be taken hostage by these vulture financiers who had bought this debt for no reason other than to bring Argentina to its knees and force it to pay, and make hundreds of millions of dollars in the process.
[00:16:26] So, legally, what could Argentina do?
[00:16:30] Of course, it could simply not pay, which is what it continued doing for several years. After all, there was no global financial legal system that was going to force it to pay, it couldn’t be fined or sent to prison, it was a nation state after all.
[00:16:48] But continuing to not pay would mean that the country couldn’t raise any more debt in New York, so by continuing to hold out against Singer, it was choking off its ability to raise new debt.
[00:17:02] Unfortunately, there was not much of a choice, but the Argentine president, Cristina Fernandez de Kirchner, was proud and not willing to give in.
[00:17:13] It would take a change in Argentine leadership for things to change. In 2015, when Fernandez de Kirchner left office, she was replaced by a more business-minded President who was keen to put this financial mess behind him.
[00:17:30] In the end, Argentina agreed to pay up, a total of $2.4 billion to Elliott Management, meaning that Paul Singer’s fund made over $2 billion from Argentina.
[00:17:45] Now, you might well be listening to this story and thinking “that’s completely immoral, a billionaire squeezing every last drop of money out of a country that is already in trouble”.
[00:17:57] Or you might be thinking, “well, it is the law”.
[00:18:01] To take Paul Singer’s side of view for a minute, he has stated that his company, and other similar so-called “vulture funds”, are providing an important service, and making countries accountable. After all, a debt is a debt, and if a country thinks that they can borrow money and then not repay it, then not only is this not right but it will cause disruption and distrust in the financial system.
[00:18:32] Or to quote one spokesman for Elliott Management, "Debt relief advocates should recognize that the beneficiaries of debt relief are often corrupt or incompetent regimes that squander their nations' assets and then cry poverty to avoid legitimate debts. This cycle must be broken for countries to achieve economic development."
[00:18:53] End quote.
[00:18:55] Or to translate that into plain English, “strange as it might seem, we are actually helping the people of these supposedly indebted countries”
[00:19:05] But for those who think that this is grossly immoral, sure, there are certainly ways to make money that would probably make you sleep better at night. After all, $2.4 billion is money that could otherwise have gone to the people of Argentina, it’s just over $50 for every man, woman and child in Argentina that has instead gone into the pockets of some of the wealthiest people in the world.
[00:19:31] Paul Singer has an estimated fortune of over $6 billion.
[00:19:37] If he lived in Argentina, he would be the richest person in the country, so surely he doesn’t need to go about buying up debt from distressed countries and extorting them until they meet his demands?
[00:19:50] If there’s one thing that’s clear from all of this, it’s that in the case of Paul Singer, the kind of professorial, friendly-looking man with the grey hair, trimmed beard and round glasses, it’s that you should never judge a book by its cover.
[00:20:07] OK then, that is it for today's episode on Wall Street vs. Argentina, Paul Singer and Elliott Management’s battle to wrestle billions from the Latin American nation.
[00:20:18] We've got lots of South American listeners, so I wonder…did you know something of this story?
[00:20:24] What do you think of the rights and wrongs of what Singer did?
[00:20:27] I would love to know, so let’s get this discussion started.
[00:20:31] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:20:39] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:20:44] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
