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  June 16, 2014

U.S. Supreme Court Preserves Power of Finance Over Argentina

Bill Black reports on the significance of the refusal of the U.S. Supreme Court to hear cases involving Argentinian debt obligations to international creditors
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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.


ANTON WORONCZUK, TRNN PRODUCER: Welcome to The Real News Network. I'm Anton Woronczuk in Baltimore. And welcome to another edition of The Black Financial and Fraud Report.

Now joining us is Bill Black. He's an associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist, and a former financial regulator. And he's also a regular contributor to The Real News.

Thanks for joining us, Bill.

So, Bill, the Supreme Court refused to hear two cases regarding the debt obligations of Argentina to international creditors. What is the significance of this, and what effects will it have on the Argentinian economy?

BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Alright. So, to back up a second about what all of this is about, Argentina at one time was by far the wealthiest country in all of Latin America. But it got involved in hyperinflation and lots of other problems. And it started listening to the Washington Consensus, which is the very conservative stuff back--promulgated in 1989, and then it was celebrated by conservatives as the other example, in addition to Chile, that proved that the Washington consensus was a brilliant success. And it was--seemed to be working, right up to the point that it destroyed Argentina's economy in 2001.

So what Argentina had done, at the suggestion of United States and places like the International Monetary Fund, was to peg the Argentine peso to the dollar so that one peso was worth one dollar. And what that meant is that they ceded control over their monetary policy to the U.S. Federal Reserve, and it meant that when the dollar appreciated--in other words, became more valuable compared to other currencies--it meant that the cost of Argentine goods and services rose very substantially. And that made it impossible for Argentina to compete against lower-cost producers. And because, again, of the right-wing stuff in the United States, even though it was obvious this was heading towards disaster, they continued it until the whole economy broke in 2001, and Argentina went from a First World nation to somewhere between a Second and a Third World nation in the course of about six months. Just an absolute disaster--a financial crisis, crisis socially, politically, etc. And the government of Argentina eventually repudiated the debts that the prior government had created in all of this, and it reached a deal with something like 98 percent of the creditors to repay the debt at a very substantial discount.

But about 2 percent of the creditors sold their rights to what are called vulture funds. Now, these are hedge funds that are going after, like vultures, really distressed economies and demanding 100 cents on the dollar. And so these hedge funds sued in the United States, demanding an order that said Argentina could not pay the people who had agreed to take a smaller percentage of payment on the dollar unless it also paid these vulture funds 100 cents on the dollar. And they won, the hedge funds won, in the U.S. district court. And then they also won an order from the district court that they could get a list of all Argentine assets, basically where they're located in the world, so they could start seizing these assets. And they have, for example, seized ships of Argentina in African nations, until that was overturned by another court.

So Argentina went to the U.S. Supreme Court and asked the Supreme Court to declare both of these orders invalid, and today the U.S. Supreme Court has refused to hear the Argentine appeal. And that means that the district court orders are effective and that Argentina is potentially facing yet another international financial crisis that could be devastating to its economy.

And, of course, the broader precedent is everybody serious agrees that you want these kind of debt agreements where you repay at a very small percentage once a country gets into enormous distress so that it can recover. Even the United States, the International Monetary Fund, agree with that. Well, those deals are going to be exceptionally difficult to do, pretty close to impossible under this ruling. So this is a device for keeping nations that are in crisis in very long-term crises instead of having them recover. So this is terrible news for all of the developing world.

WORONCZUK: So, Bill, many of your reports for us have been about how the U.S. Justice Department has protected big banks and banksters from any prosecution. Is this an example of the U.S. Supreme Court protecting the power of finance?

BLACK: Yes. So we have the organs of the United States of America being used to enforce an order that the executive branch of the United States of America says is a disastrous policy and grotesquely unfair and likely to cause immense harm to the peoples of the world. And the Supreme Court, as it has done through the great bulk of its history, has sided with big business and big banks and hedge funds against the peoples of the United States, and now the peoples of the world.

WORONCZUK: Okay. Bill Black, thank you so much for that report.

BLACK: Thank you.

WORONCZUK: And thank you for joining us on The Real News Network.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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