Don't cry for me, just help me write about Argentine bond trading

October 3, 2007 7:43 PM

Does this (fictional) international finance scenario I'm writing make sense? If not, how can I tweak it so it's more accurate? (Bond traders, investment bankers, or economy-buffs, feel free to chip in!)

I have a very limited understanding of global business finance but need to have a minor part of a story I'm working on involve an element of this. (see related question)

So I've figured out that the character is a managing director of emerging markets for a JP Morgan-type multinational firm. In this particular scenario, (which takes place a couple months before Argentina's 2001 economic crisis,) she has to convince an Argentine businessman or government official (not sure what his title would be, feel free to chip in) to allow her American JP Morgan-ish firm to broker the sale of Argentinean securities and/or bonds. Yet when their economy falls apart, she loses her deal and/or gets shafted because no one wants to do business with Argentina anymore by that point in their crisis.

Um... yeah. I have no idea whether this is a plausible scenario. Help me make it plausible, please! Details are good! Many thanks.

posted by np312 to work & money (8 comments total)

So she'd be an investment banker, looking to set up an investment bank (to deal in IPOs and the such) or a salesperson/trader looking to set up a broker/dealer, or a combination of the two. I don't know the rules in Argentina, but the idea would be that you'd need various approvals from their securities regulators, investment dealer associations and so on. Her JP Morgan-type bank would put up capital to start the bank/dealer (in order to finance deals, make markets in stocks, etc), and would lose it when the Argentine new issue market dries up and the stock market goes south (no commissions).

That's a reasonably plausible scenario (given that I have no idea what the rules are in Argentina). Take a look at what happened to Scotiabank back then too.
posted by loquax at 8:12 PM on October 3, 2007

Um... yeah. I have no idea whether this is a plausible scenario. Help me make it plausible, please! Details are good! Many thanks.

There is at least one chapter about people like this in Taleb's Fooled By Randomness. You may also want to check into some of the Enron books. Either Power Failure or The Smartest Guys in the Room cover scenarios like this that Enron was involved in.

Most people aren't investment bankers. Most investment bankers lead incredibly dull lives. Keep things plausible to the average reader, but not overly realistic.
posted by b1tr0t at 8:19 PM on October 3, 2007

Most investment bankers lead incredibly dull lives.

But the best ones live like rock stars.
posted by loquax at 8:20 PM on October 3, 2007

You might want to read this award winning article, "How Harvard Lost Russia," by David McClintick. It details the corruption involved in the mid-90s when some Harvard economic advisers when to Russia to help them make the transformation from communism to capitalism. Some of the advisers ended up brokering insider deals for themselves similar to what you are describing. It's a fascinating story of multi-national corruption in the financial world.
posted by JackFlash at 8:29 PM on October 3, 2007

I think it's far-fetched, but plausible.

FWIW, I'm interested in your book from this little clip.
posted by M.C. Lo-Carb! at 8:45 PM on October 3, 2007

It's far more likely that someone in that position in an American financial institution would be exposed to the Argentine currency collapse through a derivative instrument of some kind -- that is, a security based on the Argentine currency, rather than an Argentine security per se. Do a little reading about "currency derivatives" if you want some background for your book.

What actually happened in Argentina in 2002-2003 was very interesting for those of us who litigate the agreement under which those instruments are created (which is a big form contract called the ISDA Master Agreement). Kirchner was elected on the promise that he would repudiate Argentina's foreign debt, but he did not immediately do so. Some weeks after he took office, he offered a "voluntary" restructuring of $75 billion dollars of what would otherwise be defaulted debt at $0.25 on the dollar, but due to currency collapse it was more like $0.10 on the dollar. Anyone who didn't agree was left holding worthless paper, so it was effectively take-it-or-leave-it, but the government called it voluntary.

Under the ISDA Master there are rules about what happens when a foreign power defaults on its debt or stops trading its currency (as Russia did in 1998), or when the currency genuinely collapses (as it had earlier in Argentina) but the question is, what if the government is simply strong-arming bondholders into accepting 10 cents on the dollar? Okay, so it's maybe not so interesting, but we commercial litigators take what we can get.

Drop me a line if you want more. bellman(at)gmail(dot)com.
posted by The Bellman at 9:11 PM on October 3, 2007

By the way, the Argentine Currency Crisis wiki entry is pretty good, actually.
posted by The Bellman at 9:13 PM on October 3, 2007

Yet when their economy falls apart, she loses her deal and/or gets shafted because no one wants to do business with Argentina anymore by that point in their crisis.

I think you have it the wrong way around: Argentina goes bankrupt, the investment banker can now broker the purchase of a few public utilities monopolies in Argentina, $$$, she gets promoted and shafts her sexist boss.

Happy ending and all for your heroine!
posted by NekulturnY at 12:33 AM on October 4, 2007