Someone once noted that half truths have two parts. Just make sure you end up with the correct one.
When Mohammed El-Erain left Pimco under somewhat less than ideal conditions, according to press reports, stories circulated about one outburst that erupted between El-Erain and Pimco Chief Bill Gross quoting El-Erain saying in a heated exchange that he was weary of "cleaning up your shit."
You know who the your was in that statement.
El-Erain had previously returned to Pimco from a stint at running the mighty Harvard's endowment fund. Now fast forward to the recent announced resignation of El Erain's replacement to run the fund, Jane Medillo. Medillo spent five years running things at Harvard, coughing up what many perceived as mediocre returns apparently not acceptable for the mighty Harvard folks.
Medillo is due to step down at the end of the year. When she took over the job rumors had it she inherited from Mr. El-Erain, to paraphrase his term to Gross, a lot of "s..t" to clean up that contributed to one of her worse years early on.
Now a columnist for Bloomberg, Mr. El-Erain in his latest article offers his take about what to do when governments default. His advice is such that we all should take it with a huge grain of salt. We'd use the other four-letter word that begins with the letter S, but we like to keeps things clean.
Just one quick point. Writing about Argentina's recent Supreme Court setback, he says: When a sovereign faces severe payment difficulties, the best option for the collective good is to find an orderly way to reduce debt and put the country on the path to economic recovery.
How many times has Argentina been allowed to reduce it's debt and been put "on a path to economic recovery?" Here's a quote from a national publication in 2013. "...Argentina has been playing games with many holders of the nation’s defaulted bonds ever since 2001, when the country defaulted on a record $95 billion debt. Under Presidents Eduardo Duhalde, the late Néstor Kirchner, and now his widow Cristina, successive Argentine governments have been going back and forth trying to settle with (or string along, depending on your perspective) holders of repudiated bonds."
El-Erain then invokes the mighty IMF, one of the globe's great strongholds of bumbling bureaucrats, suggesting what is needed, among other changes, one of the great abstractions of our time, crisis prevention, and ways "to verify and enforce compliance among all those involved, creditors and debtors?"
One thing we do know verifying and enforcing compliance will sell well in Germany. But if history's any guide, that's most likely the only place. Fiscal responsibility is not part of most government's DNA.
Argentina's bond yields are high for a reason. The only sovereign bonds that yield more are Cyprus. So once again it's crying time again in Argentina. Some call it whining time. Or as one bond wag we know recently put it: "Would you like some cheese with your whining?"
http://www.bloombergview.com/articles/2014-06-20/what-to-do-when-governments-default
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