For the past 30 years, the social power of Wall Street went unchallenged. It had both major political parties under its spell, and a state whose primary function was to keep inflation low and to clean up the mess caused by its massive busts. All of that changed this week, when the United States Supreme Court decided that the interests of a class of bondholders was far more important than even the survival of Wall Street itself. New York Times has the story:

Hard cases, it has often been said, make bad law.

That is just what happened this week. The United States Supreme Court, ignoring the pleas of the governments of numerous countries, including the United States, turned the world of sovereign debt restructuring on its head.

In so doing, the court most likely damaged the status of New York as the world’s financial capital. It made it far less likely that genuinely troubled countries will be able to restructure their debts. And it increased the power of investors — often but not solely hedge funds that buy distressed bonds at deep discounts to face value — to prevent needed restructurings.

The case concerned an appeal by Argentina, a country that the United States Court of Appeals for the Second Circuit called, with ample reason, “a uniquely recalcitrant debtor.” This is a country that has made default a national habit over the last two centuries, making you wonder why anyone ever lends to it.

In the next 10 days, much attention will be focused on whether Argentina will succeed in defying the United States courts. On June 30, there is a scheduled interest payment on a set of Argentine bonds that its government wants to pay. But the courts say that interest may not be paid unless the country pays all it owes on bonds it defaulted on years ago, something Argentina says it cannot and will not do.

The thing is this: There are two types of bondholders (meaning, rich people who hold sovereign debt) when a country finds itself broke and on the brink of defaulting—those who are willing to restructure the debt and those who want to hold out and get paid according the exact terms of the agreement. It is easy to guess that those who are willing to restructure the debt are not as wealthy as those who want to hold out (they are few in number and called holdouts). The ruling by the United States Court of Appeals for the Second Circuit favored the holdouts by saying that no structuring of Argentina's (or any other country's) debt can occur without first meeting the demands of the few holdouts. Because the Supreme Court "declined to hear an appeal of that decision," all of this comes down to the once-invincible Wall Street getting truly fucked by the richest of the very, very rich. Why because? Because the price of the ruling might be its position as the center of global banking. NYT:
The United States government told lower courts that this could create big problems. It could lead to countries choosing to borrow under English law, rather than New York law, and thus diminish the role of New York as a world financial center. That, the government said, could have “a detrimental effect on the systemic role of the U.S. dollar.”
The new order of the US economy: The breed of bondholders called holdouts do not give a fuck about Wall Street (investments must have no risks whatsoever), and Wall Street does not give a fuck about corporations (it's not about developing new products but shareholder value), and corporations do not give a fuck about the workers (no benefits, low pay, relocation of jobs).