Second Circuit Again Orders Argentina To Pay

Forgive my fascination with the saga of the defaulted Argentina bonds, but the Second Circuit has again weighed in with a new opinion out yesterday. 

The opinion is of limited significance in itself, dealing only with affirming the specific remedy ordered by the District Court and enabling this aspect of the case to advance, should Argentina so choose, to a cert petition to the Supreme Court.  Given that this decision is based just about entirely on state law of contracts, I wouldn't view Supreme Court review as very likely at all.   (Although don't forget that there is a cert petition already out there, arising out of last fall's Second Circuit decision, and purporting to raise at least some issue, however thin, out of the Foreign Sovereign Immunities Act.)

But what I find interesting is the fundamental difference in view of the world between the Second Circuit in this decision and the U.S. amicus brief submitted in the context of last fall's briefing.  The U.S. amicus brief is signed by U.S. Attorney for the Southern District of New York Preet Bharara, Principal Deputy Assistant Attorney General Stuart Delery, Legal Advisor to the State Department (and former Yale Law School Dean) Harold Koh, and others -- Official High Muckety-Mucks of Obama Administration Justice and of Elite Progressive Legal Wisdom.  In expressing the interest of the United States in weighing in on the matter, they state one view of how the world works:  

[T]he decision could harm U.S. interests in promoting issuers’ use of New York law and preserving New York as a global financial jurisdiction. See Allied Bank v. Banco Credito Agricola, 757 F.2d 516, 521 (2d Cir. 1985) (“The United States has an interest in maintaining New York’s status as one of the foremost commercial centers in the world.”). The decision could encourage issuers to issue debt in non-U.S. currencies in order to avoid the U.S. payments system, causing a detrimental effect on the systemic role of the U.S. dollar.

The Second Circuit's opinion comes from Barrington Parker, Rosemary Pooler, and Reena Raggi.  They say: 

We believe that the interest—one widely shared in the financial community—in maintaining New York’s status as one of the foremost commercial centers is advanced by requiring debtors, including foreign debtors, to pay their debts. 

Well, both can't be right.  I'll go with the Second Circuit, thank you.  Congratulations to Judges Parker, Pooler and Raggi on bucking progressive groupthink at least on this one not-so-small point.

The Mayoral Candidates Will Never Get Down To Substance

Further proving my point that the Democratic candidates for Mayor have no interest in dealing with the substance of the job, there was a debate on Wednesday evening, sponsored in part by the Campaign Finance Board, and broadcast on the local cable news station NY1.   It was covered yesterday by multiple news outlets, including NY1 here, the Post here, and the Times here.

The Times piece, by Michael Barbaro and Michael Grynbaum, is a classic case of political coverage at its most vapid, treating the event purely as a matter of the scoring of debating points without ever mentioning what issues came up or what any candidate had to say on any issue.  Do yourself a favor and don't read it. 

The brief NY1 piece is little better, but does mention that the main topics of discussion were "stop and frisk and health care issues."  "Stop and frisk" is at least a bona fide issue in the race, although all the Democratic candidates seem to agree about it, namely they are against it.   On the health care front, the debate was not about Medicaid overspending or the implementation of Obamacare.  Rather, it was about the thoroughly quixotic subject of hospital closures.  See more here.  Well, if you think that the next mayor can actually do something about hospital closures by the expenditure of public moneys and you are going to vote on that basis, you deserve what you get.  The next mayor may spend some money on this, but all the gold in Fort Knox is not going to change the disastrous economics of the hospitals.

And how about unsustainable spending on pensions and healthcare for city workers?  Only Nicole Gelinas in the Post is on to the fact that these things are even issues. 

[P]ublic-sector health- and pension-benefits costs will rise to $20 billion a year by the middle of the next mayor’s term, $3 billion more a year than today.  Yet the candidates were mum on these issues.

So can't the moderators at least put a question or two to get the candidates to address the main parts of the job? 

True, no moderator asked about [worker healthcare and pension issues] directly.

To even be part of the discussion here in New York, you must accept the proposition that we are operating here with infinite tooth fairy money.  Detroit?  Chicago?  Never heard of them! 

Is Bringing Back Our Hospital Really The Most Important Priority For Greenwich Village?

Here in Greenwich Village we are moving into the high political season.  For some reason, all of our local elections (Mayor, Comptroller, Public Advocate, Borough President, City Council) come up in this odd off-year.  Although the final elections are in November, the Republican candidates are almost never competitive except in the race for Mayor, so the real elections for all the other offices, and maybe for Mayor as well, are the primaries on September 10.  That's just a few weeks away.  So the streets and subway entrances frequently have campaign workers, and sometimes candidates themselves, handing out literature and pitching for votes.  

As readers here know, the view of the Manhattan Contrarian is that far and away the most important issue facing New York City voters and politicians is unsustainable overspending in a few key areas, most notably education, Medicaid, and pensions and healthcare for city workers.  In the pensions area, most city workers (e.g., teachers, transit) can retire by age 55, and some (e.g., police, fire) by age 45, meaning that as the workers age and retire we are heading for a situation of paying more retired workers than active.  And as of now, the city both pays generous guaranteed pensions for retirements of up to 50 years, and also picks up the full healthcare for the workers from retirement to Medicare, and the non-Medicare portion thereafter.  The costs are spiraling out of control, and rapidly crowding out any and all other spending priorities, while also putting upward pressure on taxes.  Outgoing Mayor Bloomberg rather loudly warned about the problem in a significant speech just a couple of weeks ago.

Despite that, and despite the warning bells loudly ringing in places like Detroit and Chicago, you can scour everything you can find in the websites and campaign literature of the candidates for all offices in the Democratic primaries and find not a mention of these problems.  Instead, if as a conscientious downtown citizen you follow the races as presented by the candidates, you will quickly come to the conclusion that far and away the most important issue for Greenwich Village is the closure of our local hospital. 

First, some background.  Until recently there was a large and well-equipped (but not very well-managed) hospital, St. Vincent's, in the heart of the West Village at Seventh Avenue and West 11th Street.  This is just a couple of blocks from where I live.  St. Vincent's ran into financial problems after 2000 and proceeded to have two bankruptcies in quick succession.  In the Chapter 22 (bankruptcy lawyer jargon for second bankruptcy right after the first) St. Vincent's presented a plan to rescue itself by demolishing the buildings on the main part of its site and building a new state-of-the-art facility on the smaller part of the site across the street.  But that plan was stymied by community opposition, led by the actress Susan Sarandon and her then boyfriend Tim Robbins.  With its rescue plan stuck, the hospital abruptly closed in 2010 and the main part of the site was sold at auction to a condo developer.  Most of the buildings were demolished in 2012, and today there is a big hole in the ground where foundations are in the works for a couple of hundred new high end condos.

For literally all of our local candidates, this is way the most important issue of the moment.  In our City Council race to replace Christine Quinn (term limited and running for Mayor), we have Yetta Kurland and Corey Johnson.  Kurland seemingly can mention nothing but the hospital, and how she has fought to save it.   In Johnson's list of issues, it is well toward the top.  In the Manhattan Borough President race, downtown favorite candidate Julie Menin also seems to be all about the hospital.  A piece of campaign literature received from her two days ago mentions the hospital as the only issue:  "Julie Menin is the only candidate for Borough President who said NO to converting St. Vincent's Hospital into Luxury Condos. . . .  When others caved in to big developers, Julie Menin stood up to fight for St. Vincent's Hospital."

On my way to work on Tuesday, passing by the St. Vincent's site, I ran into a rally for mayoral candidate Bill de Blasio.  The rally was all about saving this and several other hospitals (two in Brooklyn are also in the throes of closure).  Daughter Emily was along to take some pictures: 

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There seemed to be about 100 or so people there.  Kurland was one.  Here is mayoral candidate de Blasio speaking:

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A plurality of participants had signs or tee-shirts with the logos of the SEIU or Nurses Union.  Signs read “Save Our Hospitals” or “Hands Off Our Hospitals.”

In that middle picture, check out that back of the head with dyed red hair just in front and to the right of de Blasio.  Could it be . . . Susan Sarandon?  Yes!  She was there, and the New York Post had some fun with the fact that she somehow has gone from lead opponent of all prior realistic plans to save St. Vincent’s to now believing that the most important thing in the universe is using taxpayer money to resurrect St. Vincent’s from the dead.

The actress plans to join mayoral candidate Bill de Blasio and a star-studded cast for a rally today blasting the shuttering of St. Vincent’s Hospital in the West Village.  But it seems the liberal leading lady has forgotten how she and then-partner Tim Robbins rallied years ago against the hospital’s expansion several blocks from their home on West 12th Street.  Just a few years ago, in 2008, Sarandon blasted the medical center “as a last resort” during a city landmarks hearing on the hospital’s proposed expansion.  “I would not want to bring my children there,” she added during the testimony, in which she asked the city “to slow down here and look at what the alternatives are.”

St. Vincent’s, which served a large homeless population and was the city’s third-oldest hospital, closed in 2010 after going broke. A planned expansion that St. Vincent’s administrators hoped would save the hospital failed — in part thanks to vocal opposition from Sarandon and others.

This is just one more illustration of why I cannot understand Manhattan orthodoxy of the Greenwich Village strain.  Now don’t get me wrong – it’s pretty good to have a big hospital a couple of blocks from your home.  It could be very useful if, for example, you suddenly find yourself having a stroke.  But can we be a little realistic here?  With St. Vincent’s closed, the next closest hospital is Beth Israel, just about a mile away at Second Avenue and 16th Street.  And then there’s Bellevue, a mile and a half away at First Avenue and 27th Street; and NYU, a mile and three-quarters away at First Avenue and 32nd Street; and St. Luke’s/Roosevelt, two and a quarter miles away at Tenth Avenue and 59th Street.  And I could continue.  An article here on Wikipedia lists 20 currently-operating hospitals on our 23 square mile island.  In sparsely populated upstate, there are places that are easily 50 miles from the nearest hospital.  A new state-of-the-art hospital in Manhattan could run $1 billion or so.  There is no possible way that any responsible state legislature could divert that kind of money from other needs so that people in the very wealthiest neighborhood in the whole state can be spared having to go all of one mile to the nearest hospital.  This hospital is not coming back in our lifetime.  Can’t any one of our politicians level with us on this?

It’s like a big exercise in sleight-of-hand, where our attention is diverted to things with emotional impact about which nothing can be done, while we completely miss the huge issues that must be addressed and can actually be fixed.  I guess a second possibility is that these politicians are themselves completely unaware of the budget issues.  Actually, that second possibility is more likely, and more scary.

NOTE:  Apologies for having this article up in incomplete form for the past couple of days.  For some reason, the Squarespace site has completely refused to accept the pictures, and several hours of effort have failed to fix the problem.  I'll keep trying, but meanwhile you'll have to use your imagination. 

The Horrors Of "Austerity," Singapore Edition

I have covered here many times the often hysterical efforts of the forces of statism to prevent any and all reductions in government spending by attacking the bugaboo of "austerity."   For example, there was the IMF World Economic Outlook report of October 2012, covered here, that criticized countries adopting policies of "austerity" for causing decreases in employment and output.  And the Washington Post article covering same, headlined "IMF: Austerity is much worse for the economy than we thought."  And the new book by junior academics Stuckler and Basu titled "The Body Economic: Why Austerity Kills," together with the big New York Times op-ed by the same authors titled "How Austerity Kills," both covered here.  Not to mention the endless anti-austerity tirades from the official Worst Economics Writer, Paul Krugman.

So it is only fitting then that the Manhattan Contrarian should examine the horrors that are occurring to the practitioner of the world's most extreme austerity, Singapore. 

Recall that the term "austerity" is a befuddled Keynesian mixture of low government spending and taxes sufficient to cover all spending.  I don't agree that this is a very relevant metric for evaluating government economic policy, but for today, assume that it is.  By this metric, Singapore is clearly the leader among all countries.  First, its government spending as a percent of GDP is a ridiculously low 17%.   Among other significant countries, only Hong Kong at 19% even comes close.  In the United States, it varies by state, but combined state and federal spending as a percent of GDP in most states is between 40 and 45%.  Italy and Greece both have government spending of around 50% of GDP.  For an Italy or a Greece to cut government spending to get it down to the same proportion of GDP as Singapore, they would have to cut about two-thirds of all spending.  For the United States to achieve the same thing, it would have to cut well over half of all government spending.  Talk about austerity!  (The actual "austerity" programs implemented by some European countries seek cuts of government spending of 1 or 2% of GDP at best.)

And then those crazy Singaporeans have the nerve to not even run any budget deficits!  While the U.S. has run up cash-basis deficits of a trillion or so dollars per year through the age of Obama, about 7+% of GDP, and all the respectable European countries have been running deficits of at least 5% and often 10% of GDP, Singapore has been running surpluses.   For example, it had a surplus of 2.99 billion Singapore dollars in 2011, and 2.80 billion Singapore dollars in 2012, (a Singapore dollar is worth about 0.8 of a U.S. dollar) and is projecting further surpluses averaging 0.7% of GDP in 2013 and 2014.

Now clearly, if the IMF, Krugman, the Washington Post, Stuckler and Basu, et al. are anything near right, Singapore should be in the throes of economic horror.  So let us look to the statistics to see how they are doing. 

Bloomberg here has a long article by Sharon Chen from Thursday August 16 reporting on economic conditions in Singapore.  Well, to start with, they have had the "rich world's biggest jobs growth" for the past decade.   Using a ratio of jobs to total population, Singapore has gone from 49.5% in 2004 to 58.4% estimated for 2014.  During the same period, U.S. jobs to total population has gone down from 47.5% to 46.0%.   Using the more traditional metric of unemployment rate, Singapore's most recent rate for July 2013 was 2.1%.  That is not a typo.

But wait!  The Bloomberg article reports that Singapore's jobs growth is "near[ing] an end"!  Well, the reason is that the government has decided to reduce the ability of employers to import foreign workers to fill new jobs.   That will leave essentially nobody left to fill new jobs, but the government is still projecting about 100,000 new jobs per year in the coming years.  That's down from a recent high of 234,900 jobs added in 2007 -- on a base of only around 3 million jobs, that's over 7% job growth in one year.  Wow!  It would be the equivalent of the U.S. adding around 10 million jobs in a year.  (Actual U.S. jobs growth has been running around 2 million +/- for the past few years.)   

And does any of this trickle down to the little guy?  The Bloomberg article reports that a fellow named Tony Cousens is trying to find waiters and housekeepers for Ramada and Days Hotels in Singapore, and has had to pay over S$100,000, equivalent to $79,000.  And he still has 100 unfilled positions.

Meanwhile, the New York Times runs one supposed "news" article after another describing how the minuscule spending cuts of the "sequester" are supposedly reducing jobs growth in the U.S.  (E.g., "Yes, the Sequester Is Affecting the Job Market" by Catherine Rampell, July 5)  Do you believe them? 

News From The Great State Of Connecticut

Having just spent time with some excellent friends from Connecticut, I thought I would check for any interesting news from that location.  How about this: 

Several weeks ago the Tribune Co. of Chicago announced a plan to sell off its newspaper assets.  Persistent rumors have it that one potential buyer might be Koch Industries, owned by Charles and David Koch, famous for making money in the oil business and spending it on libertarian-oriented causes.  Tribune Co. owns a number of newspapers around the country, and most of the attention has focused on the Chicago Tribune and Los Angeles Times, but another of the newspapers is the Hartford (Connecticut) Courant. 

So on Monday August 12, the Hartford City Council passed a resolution opposing the takeover of the Courant by the Kochs.  The resolution is below.   I particularly like the part about the "outside, extreme, partisan and sensational national corporate agenda" attributed to the Kochs. 

Another theory here is that the Hartford Courant has long been a sleepy mouthpiece of uncritical statist groupthink that has somehow failed to notice what a mess Hartford's politicians have made of their city.   Hartford is the capital of one of the wealthiest states in the country (fourth according to this list from Wikipedia from the 2010 census, after D.C., Maryland and New Jersey, with 2010 per capita income of $34,849).  Yet Hartford itself has astoundingly low per capita income of only $16,798 according to the same 2010 census data.  Measured by per capita income as reported by the census, it is the poorest town in Connecticut, and way poorer than such places as the capitals of our otherwise poorest states such as Jackson County, Mississippi (2010 per capita income $23,547), Montgomery County, Alabama (2010 per capita income $24,622) and Pulaski County (Little Rock), Arkansas (2010 per capita income $27,158).   

How could Hartford be such a poor place in such a rich state?  Perhaps it is decades of failed blue state policies of handouts and crony capitalism.  Go there and you will find a downtown almost totally remade by government-sponsored urban renewal projects.  It's not just that the resulting modernist buildings and concrete plazas are painfully ugly.  More important, the city for all its subsidized corporatism has failed to attract and retain business.  Much of the insurance industry for which Hartford was once known has fled to the suburbs, if not somewhere else in the country.     

And how's Connecticut doing overall?  It soared to relative wealth in the 70s and 80s, but now is falling back.  Back in the 70s and 80s, Connecticut had no state income tax on wage and salary income, and the areas of southwest Connecticut from Greenwich to Stamford to Fairfield boomed.  (In the 70s, New York's combined state and local income tax burden reached a top rate near 19%.)  Then in 1992 Connecticut introduced its income tax.  Now it's up to a 6.7% top rate.   From Dowd Muska at Freedomworks: 

Connecticut job growth has been nonexistent since 1991.  The Federal Deposit Insurance Corporation reports that since the early 1990s "no other state . . . has had such stagnation in employment."  

Is it just a coincidence that they introduced the income tax in 1992?  Oh, in 2011 and 2012, Connecticut's economy actually shrank, reporting the worst economic performance of all the 50 states.  In 2011 the big Swiss bank UBS threatened to move its U.S. headquarters back from Stamford to Manhattan.  Connecticut "saved" those jobs (about 2000 of them) with a big interest-free loan in 2012.  Well, guys, you'll never attract the high-tech and the start-ups with a strategy of high taxes and handouts to Swiss banks.    

And where is Connecticut in the pension game?  Pretty close to the bottom, although Illinois and California are worse.   According to the Connecticut Business & Industry Association in an August 7 article entitled "What Connecticut Has In Common With Detroit":  

Connecticut’s per person pension debt is 5th worst in the U.S., representing 18.6% of personal income  (Source: Standard & Poor).  Funding for the state pension accounts has been declining (for state employees, 51.9% funded in 2008 versus 42.3% in 2012; for teachers, 70% in 2008, versus 55.2% in 2012).  (Source: Fitch Ratings, Center for Retirement Research).  There are fewer active state employees and fewer teachers contributing to the retiree funds (1.4 active pension members per retiree or beneficiary in 2008, and 1.1 in 2012; 1.8 in 2008 and 1.5 in 2012 for teachers) (Source: Fitch Ratings, Center for Retirement Research, Public Fund Survey)

Well, it looks like the pols in Hartford have a lot to fear from having someone wake up the sleepy group-thinking Courant and shine a light on the incompetent policies that have led Hartford and Connecticut from boom into stagnation and decline.   Here's an idea:  call the potential new owners some really nasty names.  Then you can go on keeping the poor poor without anybody really noticing.

Economic Policy Right And Wrong

You may remember from your American history that the event that precipitated the Constitution of 1789 was that the newly independent country could not pay its debts, largely incurred to fight the Revolutionary War.  Under the Articles of Confederation of 1781, Congress had no taxing power, and had to request the states to make voluntary contributions.  Each state engaged in gamesmanship to try to get the others to pay.  The debt was in default, including debt that had been issued to soldiers in lieu of paychecks. 

Somehow our Founding Fathers thought this was a crisis.  Clearly, they had not heard of  "internationally-supported sovereign debt restructurings."  They gave the government taxing power almost entirely to pay off defaulted debt.  While they paid down that debt, they spent not one dime on transfer payments, social security, Medicare and Medicaid, a Department of Health and Human Services, a Department of Agriculture, a Department of Labor, a Department of Commerce, a Department of Homeland Security, a Department of Energy, an EPA, crony capitalism, green energy subsidies, a Department of Education, job training, pension guarantees, disaster relief, and I could continue here for quite a long time.  Worse, much of the debt had been bought up by speculators (today they would probably be hedge funds) at pennies on the dollar, and yet somehow they thought it was the right thing to pay it off at 100 cents on the dollar.  Other than paying off old debt, they spent barely 2 - 3 % of GDP on a few minimal government functions and they reserved the large majority of government functions for the states, who could not issue their own currency, and therefore had very little practical ability to spend much more money than they could promptly raise in taxes.

Result:  the most spectacular economic growth in human history for a good two centuries. 

Today, we have a new model of what to do as a country when you have trouble paying your debts, and that is Argentina.  First, you do an "internationally supported sovereign debt restructuring."  Put up a take-it-or-leave-it 20 or so cents on the dollar for existing debt, and then just stop paying anyone who doesn't take it, even though you are sitting on plenty of money to pay them in full today.  Then get the government into dictating all the minutiae of interactions in the economy.  An editorial from IBD on August 5 lists some of the most destructive recent actions.  For example, in February 2013 the government issued a policy that froze all supermarket prices.  Yup, that'll work!  I guess the supermarkets emptied out, because IBD now reports that Interior Commerce Secretary Guillermo Moreno is "reviving a 1974 law that compels holders of suitable stockpiles of flour to sell into the market at frozen prices."   Sounds an awful lot like the approach that Stalin took with Ukraine in 1932-33.  So when current stockpiles are gone, what then?  Will anyone in their right mind grow the next round of wheat under these circumstances?  Actually, the same IBD article reports that wheat acreage in Argentina has fallen from 15 million in 2000 to 12 million in 2011 to 9 million in 2012.  And then they expropriated the largest oil company, YPF.

Result: Both MercoPress and International Business Times are predicting today recession in Argentina by 2014.   Part of the ongoing slide from riches into poverty.

Meanwhile, Argentina seems to be losing some of its friends in its ongoing court battles to avoid paying the defaulted debt.  After losing in the Second Circuit a few months ago, Argentina has filed a cert petition to the Supreme Court, arguing that, despite having agreed to New York law and waived sovereign immunity, the Foreign Sovereign Immunities Act prevents any remedies from being invoked against it.  Back in the Second Circuit, the U.S. government filed a brief in support of Argentina, but the amicus deadline in the Supreme Court has now passed without their weighing in.   Don't assume from that that our leaders have backed off their views that it is good economic policy for a developing country to default on debt, engage in "internationally supported sovereign debt restructurings," and use the money for massive crony capitalism.  No, it's just that they don't want to be associated with losers.  Don't be surprised to see the U.S. weigh in if and when the Supremes ask.

For the Argentine people, being forced to pay their defaulted debt could be one of the best things that could ever happen to them.  Not so for the government of Argentina, of course. 

UPDATE:  An e-mailer pointed out that an earlier version of this article was in error in stating that the IMF had submitted an amicus brief in support of Argentina's position in the Second Circuit.  There also was an implication that the IMF had been directly involved in Argentina's exchange offer for defaulted bonds, as opposed to offering moral support for Argentina's current position in the litigation.  These errors have been corrected.  For details on the IMF's overt rooting for Argentina, see for example here.