People gather during a small demonstration in support of the Argentinian government in a dispute over $1.5 billion with a U.S. hedge fund in Buenos Aires, on July 30, 2014. (Photo: Victor R. Caivano, AP)

One of the popular sayings in Cell Block D is, If you can’t do the time, don’t do the crime. For investors, the lesson from Argentina’s default Wednesday should be, If you can’t take a loss, don’t invest in emerging markets with a bad history of debt repayment. No one said investment maxims have to be catchy.

Argentina’s woeful economy and its repeated defaults on its government debt are one of the tragedies of the past century. At the start of the 20th century, you could have made a good argument that Argentina’s economy would surpass the U.S. economy. Both countries had large influxes of hard-working and educated immigrants, vast natural resources and plenty of room to grow.

Instead, Argentina has defaulted twice on some of its debt in the past 13 years, and its economy is a mess. It’s a testimony to how you can wreck a country through military juntas, feckless fiscal policy and a worldwide meltdown in emerging-markets currencies. For investors, it’s also a lesson in what can happen when you make big bets on risky loans. It doesn’t matter whether you’re lending money to Argentina, Detroit or your no-good relative: Lending is a risky business, and if you take a big loss, it’s because you took a big risk.

Unless, of course, you’re Paul Singer, the billionaire hedge-fund manager whose determination to be paid in full on bonds he bought for pennies on the dollar has precipitated Argentina’s most recent default. Let’s recap a bit here.

Argentina’s first default 13 years ago was nobody’s fault but its own. Awash in debt and mired in recession, the country could no longer afford to make payments, and it defaulted in 2001. It eventually offered exchange bonds to its bondholders, which were worth about a quarter as much as the original bonds. About 93% of bondholders accepted the deal.

Typically, if a bond is in default, or in threat of default, you can buy it for far less than its face value. Suppose, for example, the fictional country of Hoovaloo issued bonds, which are long-term, interest-bearing IOUs. The bonds had a face value of $1,000, and paid $50 a year, or 5%, in interest.

Unfortunately, Hoovaloo’s economy collapsed, and rumors began to swirl that the country would default. Panicked buyers dumped their $1,000 bonds for $500 apiece, a 50% haircut. After all, a 50% loss is better than bupkis, which is what you’d get if the country defaulted.

Why would anyone buy those bonds? Because if you get a $50 interest payment on a $500 bond, you have a 10% yield. And if the bond should miraculously return to its original $1,000 value, you’ve doubled your money, plus interest.

The drawback, of course, is that Hoovaloo could say, You want your money? Come over here and get it. You might want to bring your army. In this case, you’d usually be stuck with bupkis.

Singer, however, refused to take no for an answer. In 2012, he persuaded a court in Ghana to impound an Argentinian naval vessel in an attempt at repossession. The court released the ship. Eventually, he won a ruling in a New York saying, essentially, that Argentina must settle with Singer and other holders of the pre-2001 default debt before paying any of its current bondholders. The U.S. Supreme court upheld the ruling.

Normally, one nation could thumb its nose at another nation’s legal opinion, except that the U.S. court order says that banks that transfer money from Argentina to its current bondholders would be held in contempt. Because of that, Bank of New York Mellon has declined to transfer the $539 million that was supposed to go to Argentina’s bondholders.

To Argentina, the ruling was a blow to national pride. More important, it could open the door to full payment to bondholders, possibly including those who accepted the exchange bonds. And the country has not fully recovered from a searing 1998-2002 depression. About 30% of the population is below the poverty line, and the current unemployment rate is 7.5%, according to the Central Intelligence Agency. Inflation runs at more than 20%.

Another default on Argentina’s debt — forced by a billionaire hedge-fund owner – will simply increase the suffering in an already struggling country of 43 million. Argentina will have to pay higher interest rates for loans, if it can get any. Its currency will tumble, making imports more expensive and adding to its already rampant inflation.

What does all this have to do with U.S. investors? Low interest rates in the U.S. have prompted many investors to seek higher yields, typically, by investing in bonds with a high chance of default — junk bonds and emerging-markets debt, to name two. Those bonds carry the same risks as any other shaky loan: If the borrower defaults, investors are left holding the bag.

Currently, junk-bond yields are near an all-time low, and their prices are near all-time highs. Emerging-markets bonds are also pricey. These are all simply variants on Singer’s bet on Argentina — except that Singer bought low and has the leverage to force governments to settle. You don’t. What happens when you buy junk high? In the 12 months ended November 2008, the average junk fund fell 30% — and that’s including re-invested interest.

In the best-case scenario, the U.S. economy will improve, taking the world economy with it. The worst-case scenario is what happened in 2007-2008 — or, in the case of emerging markets, what happened in 1998, when emerging markets collapsed, taking governments, currencies and lives with it. The time to buy junk is when yields are high and the world looks hopeless. That time isn’t now.

As for Singer: Few things are as appalling as a very wealthy person forcing millions deeper into poverty. Losing money is the price of taking risky bets — one that most investors, even wealthy ones, must accept as the price of capitalism and free markets. He may become richer for his victory, but he’s a lesser man for it.