US hedge fund seized an Argentine naval ship

[Edward Campbell]

One wonders how much of Ontario's debt is owned by Elliott...

That's (part of) the reason I keep saying ...

Actually I think that, despite her own and her party's instincts, Premier Wynne will have little choice because:
...
Please remember that the bond market isn't interested in democracy or Premier Wynne's platform or why you and I voted as we did ... it just wants to must be paid it return on investment. (I say "must" because we are not Argentina or Brazil.)
...

 

[Good2Golf]

Indeed, although Elliott Assoc. has broken the code on strong-arming inequitable debt repayment to make huge profits on otherwise risky investments.

While some might argue that Elliott Associates is working within the law, it is a particularly ugly side of capitalist America. 

 

[Remius]

One wonders how much of Ontario's debt is owned by Elliott...

Or anyone else that might start taking their cue from Elliott.

This article in the Financial Post highlights the pitfall and consequences this decision might have on Ontario.

http://business.financialpost.com/2014/07/05/ontarios-debt-puts-focus-back-on-investors-appetite-for-political-risk/

And while it does indicate that we are in fact no where near Argentina or Greece it does highlight that Ontario does have a solid sugar daddy in the form of the federal governement that won't let Ontario fail.  But that relief would come in the form of austerity measures and conditions that will make Ontarians cringe and cry.  And will likely p*ss off the rest of the country.

You can bet that Premier Wynn is really, really hoping for a liberal win federally.

 

[Edward Campbell]

Or anyone else that might start taking their cue from Elliott.

This article in the Financial Post highlights the pitfall and consequences this decision might have on Ontario.

http://business.financialpost.com/2014/07/05/ontarios-debt-puts-focus-back-on-investors-appetite-for-political-risk/

And while it does indicate that we are in fact no where near Argentina or Greece it does highlight that Ontario does have a solid sugar daddy in the form of the federal governement that won't let Ontario fail.  But that relief would come in the form of austerity measures and conditions that will make Ontarians cringe and cry.  And will likely p*ss off the rest of the country.

You can bet that Premier Wynn is really, really hoping for a liberal win federally.

Or maybe not ...

You're right, Canada will not let Ontario default on its debt, but the price for helping Ontario move into a fiscally sound position might be very stiff ... and it may well suit Premier Wynne to have an "enemy" in Ottawa at whose feet she can lay the blame for things she really knows she really, really has to do for herself. A federal Liberal government would be harder to blame ... not impossible, just harder.

 

[Good2Golf]

Concur, Mr. Campbell.  A potentially elected young Dauphin would have much of his fiscal 'room to manoeuvre' eaten up by keeping Ontario from spiraling into greater insolvency...maybe 2015 is the right time to have a bit or karmic, "Alright kid, let's see how you do?"

 

[PuckChaser]

Concur, Mr. Campbell.  A potentially elected young Dauphin would have much of his fiscal 'room to manoeuvre' eaten up by keeping Ontario from spiraling into greater insolvency...maybe 2015 is the right time to have a bit or karmic, "Alright kid, let's see how you do?"

I'm not a big fan of playing russian roulette with Canada's economy.

 

[Brad Sallows]

>Canada will not let Ontario default on its debt

In what way?  Loans, or by making it an absolute requirement for ON to pay its obligations ahead of all its other public spending?

 

[Edward Campbell]

I'm not a big fan of playing russian roulette with Canada's economy.

Yes ... to both. In the (really highly unlikely) event that ON got anywhere near to a Latin American situation then Canada (assuming that it, unlike ON, remains fiscally responsible) would make a big loan by buying ON's bonds on the market and then imposing strict repayment conditions. It would be the political/constitutional equivalent of Canada becoming a bankruptcy trustee.

 

[Remius]

Think of it like the relationship Germany has with Greece.

 

[Edward Campbell]

Think of it like the relationship Germany has with Greece.

Thanks; that's better than my bankruptcy trustee example.

 

[Edward Campbell]

Nouriel Roubini, a pretty smart fellow, weighs in on the sovereign debt crisis in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from Project Syndicate:

http://www.project-syndicate.org/commentary/nouriel-roubini-criticizes-recent-us-court-rulings-that-impede-orderly-restructuring-of-sovereign-debt

Gouging the Gauchos

Nouriel Roubini

July 1, 2014

NEW YORK – Like individuals, corporations, and other private firms that rely on bankruptcy procedures to reduce an excessive debt burden, countries sometimes need orderly debt restructuring or reduction. But the ongoing legal saga of Argentina’s fight with holdout creditors shows that the international system for orderly sovereign-debt restructuring may be broken.

Individuals, firms, or governments may end up with too much debt because of bad luck, bad decisions, or a combination of the two. If you get a mortgage but then lose your job, you have bad luck. If your debt becomes unsustainable because you borrowed too much to take long vacations or buy expensive appliances, your bad behavior is to blame. The same applies to corporate firms: some have bad luck and their business plans fail, while others borrow too much to pay their mediocre managers excessively.

Bad luck and bad behavior (policies) can also lead to unsustainable debt burdens for governments. If a country’s terms of trade (the price of its exports) deteriorate and a large recession persists for a long time, its government’s revenue base may shrink and its debt burden may become excessive. But an unsustainable debt burden may also result from borrowing to spend too much, failure to collect sufficient taxes, and other policies that undermine the economy’s growth potential.

When the debt burden of an individual, firm, or government is too high, legal systems need to provide orderly ways to reduce it to a more sustainable level (closer to the debtor’s potential income). If it is too easy to default and reduce one’s debt burden, the result is moral hazard, because debtors gain an incentive to indulge in bad behavior. But if it is too difficult to restructure and reduce debts when bad luck leads to unsustainable debts, the result is bad for both the debtor and its creditors, who are better off when a reduced debt ratio is serviced than when a debtor defaults.

Finding the right balance is not easy. Formal legal bankruptcy regimes for individuals and firms have evolved over time to accomplish this.

Because a formal bankruptcy regime for governments does not exist (though Anne Krueger, the International Monetary Fund’s then-deputy managing director, proposed one more than a decade ago), countries have had to rely on a market-based approach to resolve excessive debt problems. Following this approach, the country offers to exchange old bonds for new bonds with a lower face value and/or lower interest payments and longer maturities. If most investors accept this offer, the restructuring occurs successfully.

But this implies a key problem: Whereas a bankruptcy court can force holdout creditors to accept the exchange offer as long as a significant majority of creditors have already done so (a so-called “cram down”), the market-based approach allows some creditors to continue to hold out and sue to be paid in full.

That is why, over the last decade, governments have augmented the market-based approach with a contractual approach that resolves the holdout problem by introducing collective-action clauses (CACs) that can also cram down on holdouts the terms accepted by a majority of creditors. These clauses became standard in sovereign bonds but were missing in those issued by Argentina before 2001, when the crisis hit. Though 93% of Argentina’s creditors accepted new terms for their bonds in 2005 and 2010 in two exchange offers, a small group of holdouts sued Argentina in the United States, and, with the US Supreme Court recently ruling on the issue, have now won the right to be paid in full.

The US court decision is dangerous for two reasons. First, the court ruled for the first time that a country cannot continue to pay those creditors who accepted a big reduction (or “haircut”) on their claims until the holdouts are paid in full. So, why would any future creditor who benefits from an orderly restructuring vote for it if its new claims can be blocked by even a single holdout creditor?

Second, if the holdouts are paid in full, the majority of creditors who accepted a haircut can request to be paid in full, too. If that happens, the country’s debt burden will surge again, become unsustainable, and force the government – in this case Argentina, which is servicing most of its debt – to default again on all creditors.

The inclusion of CACs in new bond contracts may help other countries avoid the holdout problem in the future. But even CACs may not fully help, because they are designed in a way that still allows a small minority of creditors to hold out and thus prevent an orderly restructuring.

Either super-CACs need to be designed and introduced (though it will take years to include them in all new bond contracts) or the international community may want to reconsider whether the 2002 IMF proposal for a formal bankruptcy court for sovereign borrowers should be resurrected. Holdouts must not be permitted to block orderly restructurings that benefit debtors and creditors.

This is just one way in which US law stretches around the globe trying to and sometimes succeeding, in regulating the global financial markets. Sometimes the US views on extraterritoriality (as in e.g. the punishments meted out to BNP, HSBC, ING and Standard Chartered bank (all for transactions made in third countries but in US dollars which, therefore, allowed some US laws to be applied) are broadly and generally accepted as being in the "common good," (but not by the French) but other times, as in intruding into the details of debt management, they are, most likely, unhelpful ... to anyone, including the USA.

One thing which should trouble everyone, Americans included, is the degree to which the US administrations has conscripted[ the courts and made them a tool of foreign policy. Judges should be wary of serving the interests of the Executive Branch of government.

One immediate impact of the Elliott v Argentina affair is that The City (London) and Hong Kong and Singapore for those who want to avoid anyplace with direct legal ties to the EU in Brussels, will all 'sell' themselves as being better, more trustworthy global market centres, each with their own stable, globally convertible currencies, than is Wall Street.

 

[Good2Golf]

...One thing which should trouble everyone, Americans included, is the degree to which the US administrations has conscripted[ the courts and made them a tool of foreign policy. Judges should be wary of serving the interests of the Executive Branch of government.

One immediate impact of the Elliott v Argentina affair is that The City (London) and Hong Kong and Singapore for those who want to avoid anyplace with direct legal ties to the EU in Brussels, will all 'sell' themselves as being better, more trustworthy global market centres, each with their own stable, globally convertible currencies, than is Wall Street.

If Cameron were foresightful, he would develop this element into his EU-wary approach to keeping the UK in a position of influence, both in Europe and globally.

I'm not sure many American's see the effect of the interwoven aspects between the executive and judiciary elements of government, and the manner in which it could result in long-term degradation of America's desire to maintain global influence financially.

 

[Brad Sallows]

>Canada (assuming that it, unlike ON, remains fiscally responsible) would make a big loan by buying ON's bonds on the market and then imposing strict repayment conditions.

Sure, I can see the government of the day rushing to do that, eager to be portrayed by the government of ON and the federal opposition parties as coming down hard on poor old ON.

It might be easier to simply pass legislation requiring all political subdivisions of Canada to pay creditors first and then deal as they please with any of their own residual internal management challenges.

 

[Fishbone Jones]

Concur, Mr. Campbell.  A potentially elected young Dauphin would have much of his fiscal 'room to manoeuvre' eaten up by keeping Ontario from spiraling into greater insolvency...maybe 2015 is the right time to have a bit or karmic, "Alright kid, let's see how you do?"

I am going to have to suffer through four years of the human windmill posturing and sinking us into more debt financially and socially, while trying to appease her bonehead backers.

I don't need the same thing going on in Ottawa.

Our stupid electorate bears the full brunt of re-electing McWynne.

Let's not force our moronic attitude and government on the rest of Canada.

It would be like a person taking a huge loan to consolidate their debt and then taking the money to raise Walmart stock dividends and going on a Caribbean cruise instead off paying down their debt.

The only good thing, that I keep coming back to, is that she'll have to use Hudak's platform to make even the slightest headway. At least he was upfront about it and people expected it. Now it will be skulking in the darkened hallways, cloak and dagger, smoke and mirror stuff.

 

[Good2Golf]

...The only good thing, that I keep coming back to, is that she'll have to use Hudak's platform to make even the slightest headway. At least he was upfront about it and people expected it. Now it will be skulking in the darkened hallways, cloak and dagger, smoke and mirror stuff.

This.

Don't  get me wrong, recceguy.  I too am wincing at the prospect of another four years are double-speak and jingoistic continuation towards insolvency.  The fact that it was a reasonably solid majority is even more reason to despair.  Pretty much any other province will be looking pretty good in no time.  *sigh*

Regards
G2G

 

[Edward Campbell]

I think, recceguy that Premier Wynne knows what she has to do ... indeed, she has promised to do it, all the while hoping that Ontario voters would focus on the candy offered in 2014/15, not on the castor oil which will follow it, beginning later next year. (Ontario voters did, indeed, vote for instant gratification ~ all of us who are parents understand, from experience, that the transition from wanting instant gratification to accepting the value of delayed gratification is one of the key signs of maturity; it says something about 37.65% of Ontario voters, doesn't it?)

 

[YZT580]

I wonder how many public service contracts are up for renewal later this year?  There is no provision in the proposed budget for salary increases anywhere that I can see and she has to start now to lay the foundations for belt tightening next year.  When the unions start to pull their labour force either the blankets will fall off or she will cave.  On another note, Ontario cannot continue subsidizing the electric companies without a significant jump in rates that will hit a lot sooner than next year.  I expect significant numbers of plant closures and unemployment will soon follow.  Expect a large emigration of NFLDers to start moving home real soon. 

 

[Fishbone Jones]

I wonder how many public service contracts are up for renewal later this year?  There is no provision in the proposed budget for salary increases anywhere that I can see and she has to start now to lay the foundations for belt tightening next year.  When the unions start to pull their labour force either the blankets will fall off or she will cave.  On another note, Ontario cannot continue subsidizing the electric companies without a significant jump in rates that will hit a lot sooner than next year.  I expect significant numbers of plant closures and unemployment will soon follow.  Expect a large emigration of NFLDers to start moving home real soon.

At least Hudak was going to cut Sunshine list management types and overblown useless committees and pseudo Ministries.

However, considering it was the McGuinty\ Wynne governments that created the positions in the first place, don't expect the cuts to be there.

She may not hand pink slips to the front line workers, but I'll bet they don't get replaced once they retire or move on. (That accounts for approx. 50,000\year)

The McSquinty government took the union workers to the bare bones in the last round of contracts. There's not much left to take away from them. It will amount to almost 8 years without a raise after the next round.

 

[Fishbone Jones]

I think, recceguy that Premier Wynne knows what she has to do ... indeed, she has promised to do it, all the while hoping that Ontario voters would focus on the candy offered in 2014/15, not on the castor oil which will follow it, beginning later next year. (Ontario voters did, indeed, vote for instant gratification ~ all of us who are parents understand, from experience, that the transition from wanting instant gratification to accepting the value of delayed gratification is one of the key signs of maturity; it says something about 37.65% of Ontario voters, doesn't it?)

Knowing what has to be done is a no brainer. She promised? Really? The road to the McWynne majority is strewn with the stinking road kill of broken promises, outright lies and deceit.

I don't expect anything different for the next four years.

 

[Remius]

Notice the change of language and tone coming from her.  We are now talking about challenges and having to work hard to balance the budget.  Right.

It does not matter what she promised.  She has to act.  Because she really has no choice.  All she has done is make her job that much harder with all her goodies this budget offered and now the eventual downgrade that will result.

As per the original story in this thread, there's a new wind coming from the creditors and it is cold and unforgiving.