And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina

I first read this book in October 2007, on occasion of a week-long business trip to Buenos Aires.At that time, Cristina Kirchner - CRISTINA! CRISTINA! CRISTINA! the headlines chanted - was well on her way to coronation.She was so far ahead in the polls, thanks to an easy glamour and the pull of her husband, outgoing President Nestor Kirchner, that "Queen Cristina" hardly needed to campaign.Now, well over a year later, Cristina has proven to be a disaster. Of course, the entire world ran headlong into disaster in 2008... but Argentina as a country has just received the added indignity of an MSCI ratings downgrade, from "emerging" market to "frontier" market.Cristina's heavy-handed restrictions on capital flows are to blame. Buenos Aires, long known as the "Paris of Latin America," is now looking more like the capital of Belarus or Kyrgyzstan... at least as far as investment opportunities go. You can put money in, but can't be sure about getting it out again.Here in early 2009, this book is a timely and compelling read for reasons that stretch well beyond Argentina. If you want to better understand what's happening in the world, Paul Blustein's account of a country's tragic fiscal collapse can provide some clues.While the book is a CSI-style crime scene unraveling of all the mistakes made along the way to Argentina's turn of the century implosion (soon to be repeated?), the post-analysis of the botched rescue plan also shows deep prescience.In the final pages, author Blustein notes that a similar plotline could unfold for America one day. He was right... and indeed, for Europe too.As I write these words, the new Obama administration is wrestling with whether or not to nationalize America's "zombie banks," as the gaping hole grows ever deeper and less radical solutions look ever more impotent by the day.Supposedly more "conservative" Europe, meanwhile, has been revealed to have many trillions worth of toxic asset exposure still left on its books, with "conservative" European banks having levered up to even greater degrees than their American cowboy cohorts.In many ways Europe and the UK's troubles are worse than America's, in fact, due to the presence of banks that are not only "too big to fail" but "too big to bail" - meaning the size of some European banks' risk profiles are larger than the entire host country's GDP!Again, the exigencies of the present day situation tie back to Blustein's excellent chronicle by way of follies revealed and lessons learned (or maybe NOT learned).For instance, one of my favorite nuggets from "And The Money Came Rolling In (And Out)" is a wonderfully descriptive IMF phrase: "Exploding Debt Dynamics."Exploding Debt Dynamics refers to the tipping point beyond which there is no return, in terms of a country loading itself up with debt obligations that can never be repaid. Once you find yourself in the grips of EDD, you actually implode rather than explode. It is the explosive nature of compound interest rate burdens that leads to the collapse of hope. At a certain level, the probability of ongoing financial viability diminishes towards the zero point, causing horrified creditors to flee.Many now wonder at what point Exploding Debt Dynamics will engulf the United States. That point is much farther off than many realize, I now believe, if only because the US still prints the world's reserve currency and because, as bad off as Uncle Sam's balance sheet looks, the balance sheets of Europe and Japan actually look far worse. The scenario is close enough at hand, though, to make for some very scary possibilities (and very lucrative trading opportunities).In an excellent Barrons interview with Ray Dalio, founder of international money management firm Bridgewater Associates, Dalio talks about how the global economy is slogging through a "D-process" - his term for describing the way in which the dynamics of our current situation are very, very different than the dynamics of more "normal" recessions past.Dalio recommends reading up on the Great Depression of the 1930s and the "lost decade" in Japan to get a feel for what a D-process looks and feels like. "And the Money Came Rolling In (And Out)" counts as a still-timely tale and another good primer in that regard.Last but not least, it is truly ironic that ten years ago this month (Feb 2009), the February 1999 cover of Time Magzine featured the heads of three smug-looking men - Robert Rubin, Alan Greenspan and Larry Summers - over a subhead that blared "THE COMMITTEE TO SAVE THE WORLD"... the word "SAVE" in extra-jumbo font.Next to that, in less blaring type, the Feb '99 Time cover added: "The inside story of how the Three Marketeers have prevented a global economic meltdown - so far."Ten years on, what do these "Three Marketeers" have to say for themselves? Little more than "Oops, our bad... except it wasn't our fault actually. Oh well."One can only hope that books like this one on the Argentine collapse, and the stream of sure-to-follow books chronicling the collapse of Wall Street, the demise of venerable institutions on both sides of the Atlantic, and perhaps even the hobbling of Western Finance itself, will provide a little more insight and a little more humility for future "wise men" to go on.

In his previous book The Chastening, Paul Blustein went on a quest to understand what happened to the Asian economies hit by the currency and financial maelstrom that began with the collapse of the Thai baht in July 1997. Although he did not refrain to point out the costly mistakes that were made in responding to the crises, his purpose was not to distribute blame, but to understand what had happened and to share his sense of awe that such crises might unfold again.Four years later, Paul Blustein is back at it, but his "indignation quotient", as he states in the introduction, is substantially higher. According to him, the Argentina debacle of 2001-2002 not only illustrates the risks inherent in modern international finance, but it also provides a damning case of personal hubris, unrestrained greed and institutional myopia in which the international community particularly "blew it". Charting the course that started with the adoption of a new currency tightly tied to the dollar in 1991 and with the subsequent growth episode that followed, he describes the mounting imbalances that resulted from the massive capital inflows led by international investors whose irrational exuberance went mostly unchecked by the IMF. This complicity of government officials, Wall Street investors and Washington money watchmen in creating a bubble was further aggravated by the incapacity of policy makers and their international advisers to provide an exit strategy to the convertibility regime and to secure a soft landing or at least minimize the impact of the financial meltdown for the population. Indeed, Blustein makes the case that the protracted rescue effort orchestrated by the IMF and the US Treasury only prolonged Argentina's agony and made the crash all the more devastating in the end.Blustein bases his case on extensive interviews with all the most important players, including Argentine's Minister of Economy Domingo Cavallo and IMF Managing Director Horst Kohler. He also had access to a trove of documents, including internal memos, confidential reports and notes meetings, and seems to have read them all. At every juncture, he reconstructs the internal debates, spells out the policy choices, and weighs the pros and cons that were advanced by the main institutional actors at the time when the decisions were taken and in retrospect. But Blustein is not just a journalist who writes well, works hard, and knows how to get sources to talk. He also knows the professional literature on financial crises and clearly has a solid understanding of the fundamental debates on the subject. The accusations that he wields to the international financial community are therefore to be taken seriously.Blustein makes amply clear that Argentina's woes were first and foremost the result of the country leaders' own wrongdoings: they spent more than they should have, taxed less than they should have, and borrowed more than they should have, all the while keeping a currency system that required much stricter fiscal discipline. They failed to see the writing on the wall and clung to the one on one dollar parity until the financial hemorrhage wreaked havoc with the banking system, wiped out people's life savings and inflicted massive damage on the economy.But the international financial community, especially global investors and, to a lesser extend, IMF and Treasury officials, also share part of the blame. First, Blustein makes the by now familiar case that conflicts of interests and skewed incentives among investment managers propelled an excessive amount of short term capital toward Argentina without due consideration for the risks involved. Particularly infamous is the megaswap deal that Wall Street peddled to the government in June 2001 and that further aggravated the country's debt burden while generating hefty fees for the banks involved.The IMF, for its part, demonstrated "a failure of intellectual courage," in the words of its former chief economist Michael Mussa. It used Argentina as a poster child when it should have begun to send warning signals to the authorities, based its growth projections on rosy assumptions, clung to a voluntary approach of debt restructuring when it should have facilitated an orderly workout, doubled a losing bet when it extended a second loan package which conditions were clearly not sustainable, failed to provide contingency planning and delayed the day of reckoning when the dollar parity had to be abandoned. At nearly steps of the way, claims Blustein, the crisis could have been mitigated even if it could not have been prevented.To the credit of the IMF, one must nonetheless recognize that each decision was hotly debated at the time, that all the moves were endorsed if not sometimes dictated by the US and the other G7 countries, and that the institution took the blame and repented openly in a series of evaluation reports.Especially troubling is Blustein's contention that the rules of the globalization game are rigged and that countries like Argentina are given false hopes that they can join the league of rich industrialized countries only to be denied access at the last moment and be cast back into poverty in a most cruel and painful way. If such a bias exists, then the system is in urgent need of fixing.

Way back in October of 2009, Instapundit linked Fernando Ferfal Aguirre's book, _ The Modern Survival Manual: Surviving the Economic Collapse : As a preparedness-type, Aguirre's book interested me as a perspective into economic collapse in an emerging 2nd world country. I found the book to be a very good, street-level view of Argentina's economic unwinding and collapse in late 2001. In April 2010, Dana Milbank's 2005 article found Instapundit readership. Milbank's piece compares Argentina's collapse to forecasted U.S. economic health in 2040. That was way back during the Bush years and does not consider the $4 trillion-plus added to the debt in the past three years. Paul Blustein's  And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina  is an EXCELLENT macro-economic companion to Aguirre's book as Blustein chronicles the IMF's engagement and decision making that delayed and deepened the depression and chaos in Argentina. First published in March 2005, this book walks the reader into behind-the-curtain meetings, memos and decision making as Argentina struggled with its debt load. I am ¾ through the book and one thing becomes clear; the IMF and Argentine leadership delayed restructuring Argentina's debt for political reasons coupled with institutional paralysis. Ultimately, the unwillingness to make the hard decisions exacerbated the catastrophe that Argentina became. The only difference between Argentina and the U.S. is Argentina needed the IMF to provide the dollars that kept the music playing. In the U.S we just print more of our own dollars and don't need the IMF.

Well-written, interesting fact-based. A reality shock behind one of the biggest debt restructures / defaults in history.

this would make very painful reading for any Argentine that lived through it. But is a great read for any one trying to get their head a round what has and is going on in Argentina.

Incredibly useful study of Argentina’s financial patterns - reading it meant no surprises when IMF stepped in during May 18.

Will be difficult to match the issue which deals with it sensitively, descriptively and with as many technicalities as necessary

With the IMF being increasingly seen as the saviour of the EM sphere, this book is a chilling account of the ineptitude and political chaos that is epedemic in this institution. Argentina in 1998-2001 was an accident waiting to happen as the IMF tried to prop it up, eventually making the situation worse.This book pulls no punches. It exposes the players and suggests ways of preventing it happening in other countries. It is a crying shame that much of the advice here will be ignored by policymakers.It is a must read book for anyone in an emerging market economy. I hope a few copies find their way onto the desks of those working at the IMF.SAR