Vulture Funds Are A Disgrace
Debt vultures are nothing new in America – especially in health care. Collection firms can buy medical debts for pennies on the dollar, and then they try aggressively to collect the full amount.
However, this ugly business model also operates on an international scale.
I refer to the ‘Vulture funds’ — who have spent decades honing a predatory playbook, designed to extract maximum profits out of struggling, debt-ridden countries.
The vulture funds business model is based on….
- buying up heavily discounted debt from countries in financial trouble;
- refusing to engage in good faith negotiations to cut debt obligations by a reasonable amount;
- then suing the country to demand full repayment.
Billionaire Paul Singer – a longtime patron of Supreme Court judge Samuel Alito — has made exorbitant profits this way.
Singer was the mastermind behind the legal fight to extract $2.4 billion from the government of Argentina — for bonds that the fund had purchased for $117 million.
Singer went on to spend 15 years hounding Argentina for lapsed debt payments ultimately forcing the country to sacrifice important government services. Singer brazenly strong-armed the country by freezing its assets abroad, and even coercively detaining a naval ship in a foreign port.
The debts were finally settled in Singer’s favor in 2016, after Argentina paid its loan and years of accrued interest, at a 1,270 percent return. Singer won all 11 of the lawsuits his firm filed in New York courts
(Paul Singer is decidedly not a master of the markets; he is just an opportunistic lawyer who has found a niche doing something that most people couldn’t stomach.)
Vulture funds have run the same scenario across the world, targeting countries like Argentina, Greece, Peru, the Republic of Congo (also known as Congo-Brazzaville), as well as Puerto Rico.
Their playbook relies heavily on favorable legal judgments from federal courts in New York — because the majority of sovereign debt contracts around the world are governed by New York State or English law.
For example: in November of 2008, a court ordered Liberia to pay $20 million to two vulture funds investors, Hamsah Investments of the British Virgin Islands and Wall Capital of the Cayman Islands.
The sum was equivalent to 5 percent of the 2009 budget of Liberia, which is recovering from a 14-year civil war that ended in 2003.
The claim was based on a $6.5 million loan to Liberia by former U.S. bank Chemical Bank in 1978. A New York court ruled that Liberia owed $18 million, and the two funds have been trying to collect that sum plus interest.
According to The International Monetary Fund, at least 54 vulture fund companies have taken legal action against 12 of the world’s poorest countries, for claims amounting to $1.5 billion. If a country fails to pay up, the vultures go after the country’s assets abroad, threatening trade, investment and even aid agreements.
Recent Efforts For Reform
The group Debt Justice found that debt payments from lower-income countries will hit a 25-year high by the end of 2023. Today, about 3.3 billion people live in countries where debt interest payments are greater than expenditure on health or education. At least 19 developing nations allocate more money to interest payments than education, and 45 allocate more money to servicing debts than health care spending.
Reformers are focused on a concept called “model law,” developed by Duke University law professor Steven Schwarcz and the International Insolvency Institute. The bill would create a framework for distressed countries to restructure their debt with creditors, similar to the current process for corporations undergoing bankruptcy.
“It’s a bankruptcy process for countries,” said Jose Gonzalez, director of data initiatives for New York Communities for Change (NYCC) and an advocate for the bill.
Michael Kink, executive director of the Strong Economy for All Coalition — a New York-based economic justice network pushing for legislative action on sovereign debt reform.
“We’re trying to reduce the power of these insanely, historically, bombastically greedy hedge fund managers that seem willing to destroy millions of lives to make explosive, never-before-seen-in-the-history-of-profits profits,” said Kink.
Another way to make extortion more difficult is for all newly issued bonds to have collective action clauses. These clauses provide that if a future supermajority of bondholders agrees to a restructuring, would-be vultures will be unable to enforce their own greedy terms.