The "chicken game" in the version of the vultures’ lawsuit

Ambito Financiero

The "chicken game" in the version of the vultures’ lawsuit

 

Tuesday, June 11, 2013

 

By Guillermo Nielsen

 

There is a constant in the national government’s action directed at imposing its policies that well could be compared with a game of chicken, that daredevil game dreamt up by New York suburban kids in the 1960s that, to express their non-conformity and kill their boredom, entertained themselves in the middle of the night by going at each other in two speeding cars from opposite directions until one diverts … or they crash.  The driver that steers away would leave the way free for his adversary, who would go past and shout, “chicken!”, in an allusion to his alleged cowardice.  Of course, when no one steered away, it would produce an accied that could cost the life of one or both of the opponents.

 

“Rebel Without a Cause,” the celebrated film that made James Dean a star, shows the game at its worst when Buzz (Corey Allen) dies as his car crashes, in a premonition of the way that the life of the star of the movie would end prematurely.  

 

The concept of a face-off until the suppose cowardice of the other was incorporated into Game Theory and was applied to analyze limits in some incidents of the Cold War, or in situations in which one of the parties, even facing setbacks, opted to double the bet.  Perhaps it application could be extended, for  better comprehension, to the political methodology of the current government, which is characterized by always doubling its bets with its “let’s go all the way” motto, independent of what is at stake.

 

In these times it is worth giving a new review of the attitude adopted in the Court of Appeals for the Second Circuit of Manhattan, where the issuing of a new ruling is approaching.  At the podiums, it was possible to see that before the position of the holdouts, the government was ready not to move its positions.  This is, not only not to offer anything more than what was already granted in the two previous swaps, but to offer even a little less in financial terms.

 

The novelty of the lower court ruling (which affects the actions of third parties involved in the payment mechanisms) and Argentina’s intransigence attracted the attention of the main financial analysts of the world, who observe how for the first time there is a kind of a game of chicken in the imperfect regulatory networks of the main financial market of the world applied to the restructuring of a sovereign debt.

 

In the historical perspective, Argentina missed the chance to lead the holdouts into a trap by withdrawing from the management of the debt starting at the end of 2005.  It didn’t seek to drag the holdouts into a class action like it hadn’t implemented other aspects of management, like clauses of debt repurchasing committed to in the issuance prospectus.  

 

It was all assumed that the reopening of the swap in the year 2010, which required something so institutionally extreme as the suspension of a law that impeded it (known commonly as the lock law), would be used in this sense.  But no: that second swap had some very commercial singularities, with a media treatment that at times tried to rewrite recent history. 

 

The different hearings and filings in New York court in recent months allowed for a more clear profiling of a kind of game of chicken that seemed to yield fruit in the short term, at least around the postponement of a decision while some coupons are paid.  But it’s clear that the cars are at maximum speed, being driven right at each other.

 

As the sentence approaches, which could come out well but also could come out badly, and with the conviction that a possible appeal to the U.S. Supreme Court present itself as very distant; the time is coming in which the government and the leading sectors of the country will be seriously thinking about the consequences of the crash, which – according to the attitude taken by Argentina – could mean exclusion, who knows for how long, from access to the New York financial market.

 

It’s that what is in question in Manhattan is not a question of one government, but it is a question of state, which compromises the well-being of future generations.  The consequences of a scenario of exclusion from the New York financial market should be avoided at any cost.

 

This goes both for countries as well as big corporations.  Precisely among the latter there are situations that allow clear comparison that could help us in thinking: why have companies like Siemens, Embraer or Ralph Lauren incriminated themselves in SEC filings to giving bribes?  Simply because they have opted to swerve in terms of the “chicken game” to be able to continue participating in the most competitive financial market in the world, something that any nation is interested in, much more than Argentina, which has an insufficient savings system.  But until now, the national government, like it has done time and again in other cases (conflict with the farmers, judicial reform), has opted only for putting the pedal to the floor.