If you’re waiting for the nation of Argentina to pay you back some money you loaned them, don’t hold your breath. They’re currently enmeshed in a legal battle that even experts are calling simply “a mess.” Ohio State law professor Steven M. Davidoff wrote about the drama on New York Time’s Dealbook website.
A U.S. Court is in the process of trying to force the country to repay a $1.3 billion debt to U.S. hedge funds. Argentina is calling the funds “vultures,” U.S. Courts are calling Argentina’s refusal to pay “immoral.” But name calling aside, what do you do when a sovereign country won’t pay its bills?
Reuters finance blogger Felix Salmon made a video explaining the conflict using legos and a toy train set. Salmon told us that the reason we need to care about this wonky story about bonds is that if courts are successful in telling a sovereign nations who to pay and when, that could create a big shake-up in the bond market. Salmon thinks that could spell disaster.
“Stocks actually don’t matter that much,” says Salmon, “we can have a big stock market crash, and the world goes on. But we saw during the financial crisis that bonds really matter…that debt really matters. And when that goes wrong, the whole economy can fall apart.”
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