In defense of vulture funds

Greg Palast is an admirably bulldoggish reporter. Pop over to his blog, and you’ll see that the last six entries are all on the subject of vulture funds in general, and the Donegal vs Zambia case in particular. Palast reported on the subject for BBC’s Newsnight: You can see the full video here, or get essentially the same gist in text form here.

At the same time, the Guardian’s Ashley Seager has been following the news of the case from a decidedly Palastian perspective. Here are some of his recent headlines, which give a pretty good idea of the tone he’s taking:

‘Vulture’ feeds on Zambia

Court lets vulture fund claw back Zambian millions

Bush could block debt collection by ‘vulture’ funds

All of this reporting is predicated on the basic notion that vulture funds are inherently evil things, doing things which can and should be banned. (This notion is not confined to leftist journalists, by the way. It is shared by sophisticated international economists, such as Anne Krueger, the former first deputy managing director of the IMF.)

I am broadly sympathetic to where people like Palast and Seager and Krueger are coming from: I think that debt relief for heavily-indebted poor countries is a very good idea, and I think that poor Africans struggling under their governments’ enormous debt burdens care little about distinctions between different types of creditors and other matters which I’m going to discuss here.

At the same time, however, I’ve seen the vulture funds get almost no defense in the press, and there are in fact quite a lot of reasons why they perform a good and useful function. (In this respect, they’re rather similar to the birds after which they’re named.) So read Palast if you want the argument against the vultures: What I’m going to write here is a deliberately one-sided defence of what they do and how they do it. With luck, I’ll be able to get Palast to respond.

(One big hat-tip before I start, to Andrew Leonard, whose blog entry on the subject I read just as I was heading into a completely unconnected meeting with Palast’s wife on Thursday. Another participant in the meeting asked for a “primer” on all this: I think between Palast’s stuff and my own, we should be most of the way there – assuming that the length of this entry doesn’t disqualify it from primer status.)

So. What is a vulture fund? Here’s Palast’s definition (actually, I should be accurate here – the byline on the piece is actually Newsnight’s Meirion Jones, who was the producer on Palast’s report):

Vulture funds – as defined by the International Monetary Fund and Gordon Brown amongst others – are companies which buy up the debt of poor nations cheaply when it is about to be written off and then sue for the full value of the debt plus interest – which might be ten times what they paid for it.

There’s a lot of stuff to unpack here. But to begin at the end, vulture funds – or distressed-debt investors, as they prefer to be known – are no great fans of litigation strategies. Yes, they do sue countries in US and UK courts, on occasion. But there are lots of other ways they can make their money. For instance, consider a vulture distressed-debt fund which bought Ecuadorean Brady bonds at 25 cents on the dollar in 1999 after that country defaulted, and then tendered into Ecuador’s 2000 debt exchange, in which bondholders were given securities worth about 70 cents on the dollar.

That was a highly lucrative trade, which involved no legal fees and which probably made more money, in terms of annualized return net of fees, than most if not all of the litigation strategies which vulture funds get into. As for debt which “is about to be written off”, that might be true in the Donegal-Zambia case, but it is far from being the norm. In fact, I don’t know of any other distressed-debt situation in which a vulture fund “swooped in” (sorry, these things are unavoidable) and bought debt which was about to be cancelled. I daresay there might be one or two situations that I don’t know about, but such trades are emphatically not the norm. In the vast majority of situations, vulture funds buy debt from investors who, for whatever reason, no longer want to hold it. And in doing so, they provide a very useful service.

Consider this: You’re an investor, and you buy the bonds of the sovereign nation of Ruritania for 100 cents each. The bonds pay their 7% interest for a couple of years and you’re happy, until one morning Ruritania decides it is going to default and not pay you anything. Now what do you do? “Oh well,” you can say to yourself, “easy come, easy go, I guess I lost all of my money”.

You could say that, but that would be pretty unlikely, because you’re a bond investor – and bond investors tend to be reasonably risk-averse. If you wanted to risk losing all your money, then you would have invested in something much riskier, like stocks.

But that’s not your only option. A bond is, after all, a legal contract, and Ruritania is contractually obliged to pay you your interest and principal in full and on time. Just as your bank can sue you if you stop making your mortgage or credit-card payments, you can sue Ruritania if it stops making its coupon payments.

But there’s a problem here. Legal fees are expensive, and you don’t have any money. What’s more, Ruritania has high-powered lawyers of its own, such as William Blair QC, Tony Blair’s brother, and can call at will on the awesome might of huge international law firms such as Cleary Gottlieb Steen & Hamilton.

There’s no way you can even retain, let alone afford, that kind of legal firepower – and in any case you have no appetite for a drawn-out legal fight which could last for years. What’s more, even if you win the legal fight, there’s still no guarantee that Ruritania will have any more respect for a court judgment in your favor than it had for the original bond contract. In other words, you could win in court and still be no better off than you were to begin with – worse off, in fact, since you’d be down all those legal fees.

Back to square one, then, it would seem: You’ve lost all your money. Except – there is one more option. Bonds, after all, are securities, which can be bought and sold. At any point in time, including now, any bondholder is free to sell his bonds to the highest bidder (or anyone else). And it turns out that in the market for Ruritanian bonds, there is a bid at 50 cents on the dollar.

Rather than losing your entire 100-cent investment, you can sell your bonds for 50 cents instead, and lose only half rather than all of your money. Ruritanian debt hardly turned out to be a fabulous investment, but at least it didn’t wipe you out completely.

Who would pay 50 cents on the dollar for Ruritanian debt? Well, bonds in default are known as “distressed debt”, so by definition anybody buying such a thing is a distressed-debt investor. Or, to use the more abusive term, a vulture.

From the point of view of bondholders, however, these particular vultures look more like white knights. Many large institutional investors will never pursue legal strategies against deadbeat debtors: that’s simply not their skill-set. And most of them aren’t even allowed to hold defaulted debt in the first place: they’re forced to sell their bonds if an issuer defaults. So what they need in such a situation is a market in such instruments which will give them some kind of non-negligible recovery value on their defaulted paper. Without such a market, there’s a good chance that they would never take the risk of investing in any foreign country’s debt in the first place.

I can hear Palast in the back of my head already. “Good!,” he’s saying. “Countries shouldn’t run up burdensome debts which will ultimately have to be repaid, with interest, by poor future generations.” Well, Palast is entitled to think that – if, indeed, that’s what he thinks. There’s certainly a case to be made that development institutions such as the World Bank should move away from loans and towards more grants to poor countries.

I’m not going to get into that debate here. I’m simply going to point out that ever since the 18th Century, successful nations have been those which have been able to finance themselves through the issuance of debt securities. (See James Macdonald for much, much more on this idea.)

More generally, debt is a Good Thing. On a personal level, few of us would ever be able to buy a car or a house without some kind of debt finance – and on a sovereign level, countries which desperately need roads or ports or schools or hospitals can build them today, rather than having to save up for years before being able to build them, only because they can raise debt capital.

Obviously, too much debt is a bad thing – that’s what “too much” means. But every democracy in the world borrows money, and it’s the worst type of paternalism to tell poor countries that they can’t or shouldn’t do something which all countries do and which its own citizens have voted for.

For debt finance to work, you need three things: a borrower, a lender, and a contract. The contract can be as simple as a verbal agreement that “I’ll pay you back tomorrow,” or it can be an inch-thick loan agreement with repayment schedules and covenants and negative pledges and waivers of sovereign immunity. But the important thing is that the borrower contracts to repay the lender. And one of the interesting things that lenders have learned over the years is that abstract sovereign entities, such as governments, are actually more reliable in this respect than sovereign individuals, such as kings or emperors.

Governments can and do repay their debt for ever. (Britain started issuing perpetual bonds in 1853, and by 1935, perpetual bonds made up more than 60% of the UK’s debt issuance.) Individuals, by contrast, die – and when they do, it’s often impossible to collect on their unsecured debts. Today, the safest debt instruments in the world are US Treasury bonds – the sovereign debt of the US government. Indeed, the rate of return on Treasury bonds is known as the “risk-free rate”.

So there’s nothing obscene about the idea that governments should owe individual creditors money, and there’s nothing remotely unusual about those debts being enforceable in a court of law. Pretty much every government in the world, with the possible exception of Cuba, has implicitly accepted the fact that they are responsible for the debts incurred by previous governments – and that, in turn, they can compel future governments to make certain repayments. Every so often, sovereign debts become overwhelming, and they are restructured by the mutual agreement of the debtor and its creditors. But outright repudiations of outstanding debt are very rare – and even when they do happen, as in the case of Cuba, the bonds continue to trade on the secondary market for 30 cents on the dollar or more – in the expectation that, sooner or later, a future Cuban government will finally make good on the debt.

If a government defaults on its obligations, then, the debt doesn’t simply disappear. It’s still there – and, sooner or later, it will have to be dealt with. Vulture funds are long-term investors who buy defaulted debt and then try to persuade the issuer to deal with it. Because they buy the debt cheap, they’re often willing to settle at much less than face value – in the famous case of Elliott vs Peru, for instance, the vulture fund, Elliott Associates, made numerous attempts to settle with Peru at a discount, all of which failed.

So Elliott resorted to litigation, and eventually got paid off, by Peru, in full.

Here’s how Palast puts it (it’s worth knowing that Paul Singer is the founder of Elliott Associates):

Newsnight went to New York to try to interview Paul Singer – the reclusive billionaire who virtually invented vulture funds.

In 1996 his company they paid $11m for some discounted Peruvian debt and then threatened to bankrupt the country unless they paid $58m. They got their $58m.

Now they’re suing Congo Brazzaville for $400m for a debt they bought for $10m.

I have some idea where the $400 million number comes from – I’m very familiar with the Congo case, having written about it at length in the September issue of Euromoney. I think that here Palast is wrong, and that he’s confusing the amount that Elliott is claiming from Congo with the amount that Elliott is claiming from French bank BNP Paribas in a separate, if related, case. And as for Elliott threatening “to bankrupt” Peru – what does that even mean? The only thing that Elliott threatened was that they would try to attach payments which Peru was making to other creditors. Elliott’s position was simply that Peru shouldn’t be able to get away with paying some of its creditors in full and on time, while ignoring the claims of other creditors of equal or greater seniority. How that’s related to bankruptcy, I have no idea.

But back to Donegal vs Zambia. In this case, Donegal and Zambia signed an agreement in April 2003, enforceable under UK law, under which Zambia would make certain debt payments to Donegal. Prior to that, in 1999, Zambia had officially recognized Donegal as a legitimate creditor. In the 2003 agreement, Donegal settled its $44 million debt for 33 cents on the dollar, to be repaid over the course of 36 monthly payments. Does that sound to you like they sued for repayment in full? Not at all: they were perfectly happy to take 33 cents on the dollar, and signed a legally binding agreement to that effect. It was only after Zambia defaulted on the 2003 agreement that Donegal took Zamiba to court, under the terms of the same legally binding agreement that had allowed Zambia to pay Donegal just 33 cents on the dollar.

It’s worth bearing in mind, here, that if Zambia had simply paid Donegal the payments it agreed to make in 2003, neither Palast nor anybody else would even have noticed, let alone cared. A country making debt repayments is simply not news. But when Zambia stopped paying and Donegal sued, then, suddenly, Zambia making the debt payment is tantamount to Donegal killing children, or at the very least preventing them from being educated. In the BBC piece, Palast finds a Zambian who says that if the country makes the payment, “you are talking about in excess of 300,000 children being prevented from going to school” – as if the payment is coming out of Zambia’s education budget, which it clearly isn’t. (In fact, it’s coming out of Mofed, a UK company owned by the Zambian ministry of finance.)

Half of the outrage against Dongeal comes from the fact that it is pursuing a legal strategy against Zambia – that it’s using a UK court to force Zambia to pay up. But it’s worth bearing in mind here that Zambia has broken its legally binding promises with regard to this debt not once but three times. It defaulted on the original debt it owed to Romania and which it promised to pay Romania in 1979; it broke its 1999 agreement with Donegal that it would recognize the transfer of the debt from Romania to Donegal; and it broke its 2003 agreement with Donegal setting out a repayment schedule at a highly discounted rate.

Zambia’s apologists would have you believe that we should pay no attention to the country’s previous promises. Zambia is poor, they say, and therefore it should be able to break its promises with impunity. But that simply doesn’t work. Countries need debt finance in order to be able to grow. That original debt, for instance, was used to buy tractors – material of immediate financial benefit to the Zambian economy. Zambia either didn’t have the money to buy the tractors outright, or it felt it had better use for that money, so it borrowed the money instead. But if it can’t pay for its tractors in the present, all that means is that it has to pay for the tractors in the future. If Zambia wants to invest in its economy today, it will similarly have to borrow money. But no one will lend the country anything if Zambia can simply decide on a whim to stop repayment agreements made as recently as 2003.

There’s a fascinating subplot running through the Donegal-Zambia case about corruption. The anti-Donegal types mutter darkly about the fact that Zambians may or may not have accepted bribes from people who may or may not have had association with Donegal, before signing the 1999 and 2003 agreeements. As a result, they say, any repayment obligations associated with those agreements are null and void. (Or, to use the legal term, ex turpi causa, known in the US as “unclean hands”.) The world of distressed debt is secretive and shadowy, and in his 134-page ruling, Mr Justice Andrew Smith spends a lot of time trying to unpack who paid what to whom, and when and why. Although he finds Donegal’s evidence unreliable on many occasions, ultimately he does side with them. And the main allegation of outright bribery relates to a payment of just $4,000 – which, as the judge says, “seems to me a very modest payment if the Acknowledgment [the 1999 agreement] had the value to Donegal that Zambia assert.”

Palast tends to ignore the $4,000 payment and concentrate more on a much larger payment of about $2 million in debt that Donegal made to Zambia’s Presidential Housing Initiative (PHI) in 1999. This payment is very much in line with the kind of thing that Donegal’s principal, Michael Sheehan, used to do before he founded Donegal, when he worked at an American not-for-profit corporation called Debt-for-Development Coalition, Inc. The idea behind the non-profit was exactly the same as the idea behind more contemporary calls for debt relief: that if a country owes money to a creditor, then the creditor writing off the debt has the same kind of development effects as the creditor donating money to the country in question. Donegal’s donation was debt relief, which makes it kinda ironic that Palast is so keen to portray it as a bribe.

It’s worth noting that Zambia’s PHI was a real development initiative, and that Donegal’s donation of $2 million in debt was not a bribe to any individual. It’s true that Donegal’s donation was not entirely selfless. When Zambia accepted the donation, it acknowledged formally and legally that Donegal did indeed own the debt that it was donating, and that the debt was legitimate. Both of these things were true. But from a tactical legal standpoint, the acknowledgment was something of a mistake, because until that point Donegal would have found it very difficult to successfully sue Zambia for recovery of the money it was legitimately owed.

Yet even after getting that formal acknowledgement, still Donegal did not sue Zambia for anything. Instead, it looked for debt-to-equity conversion opportunities: swapping its debt for ownership of a Zambian lottery, or a local bank, or Kafue Textiles, or other parts of the Zambian privatization program. It was only when these ideas went nowhere that Donegal started negotiating with Zambia for repayment in cash. Naturally, Donegal threatened legal action should they not come to an agreement, and indeed did eventually start to sue Zambia in the British Virgin Islands. While that litigation was pending, in 2003, Zambia and Donegal signed an agreement whereby Zambia would pay Donegal back 33 cents on the dollar.

Zambia made a few payments under the 2003 agreement before defaulting again. And so yet again Donegal started negotiating with Zambia. Donegal could have declared default as early as October 2003, thereby trebling the amount of money they were owed – but they didn’t, preferring intead to negotiate in good faith with Zambia for the arrears that Zambia owed under the agreement they had signed just a few months earlier. It was only when it became abundantly clear that Zambia had no interest in remaining current on the agreement that Donegal finally declared Zambia in default, ultimately giving rise to the proceedings which culminated in the court case in London.

Much of the literature on this case makes it seem as though Donegal simply bought debt from Romania for about $3.3 million, then turned around and sued Zambia for over $50 million, including legal fees. In fact, Donegal spent many years in negotiation with Zambia before it ever sued anybody for anything. It is Zambia, not Donegal, which has most egregiously violated its legal agreements, and it is Zambia which has chosen to spend its money on expensive lawyers rather than simply follow through on its own promises. Really, it’s the Zambians, not Donegal, who decided on a litigation strategy. It turns out that their strategy was not successful, and that they would have been better off simply paying Donegal what they agreed to pay Donegal in 2003. That’s not Donegal’s fault – it’s Zambia’s.

Palast also tries to explicitly tie the money that Donegal is receiving as a result of these court proceedings to the debt relief that Zambia has received from rich countries under the Heavily Indebted Poor Countries (HIPC) initiative. He asks Donegal’s Sheehan, in an ambush interview, “aren’t you just profiteering from the work of good people who are trying to save lives by cutting the debt of these poor nations?”. But in fact Sheehan’s court case against Zambia has no relation whatsoever to the HIPC initiative, and would surely have gone ahead whether or not Zambia received debt relief from the Paris Club of creditor nations or the World Bank or the IMF or anybody else. If Gordon Brown gives Zambia debt relief and Michael Sheehan doesn’t, that doesn’t mean that Michael Sheehan is “profiteering” from Gordon Brown’s work. It just means that Zambia doesn’t need to repay Gordon Brown on top of what it needs to pay Michael Sheehan.

There’s one other big beef which Palast, and Leonard, and Seager, and other journalists covering the case, seem to have with Sheehan: that he’s making a profit on his transaction. Well, yes, he is. But profit, in and of itself, is not a bad thing. There are plenty of other financiers who are making much more money than Sheehan, and some investors, such as Warren Buffett, are treated not as villains but as heroes for their ability to make money.

It’s also worth noting that Sheehan’s profit isn’t nearly as large as most of the journalists are making out. The stories concentrate on the $55 million that Donegal is claiming, rather than the $20 million or so that Donegal is likely to actually receive at the end of the day. And they tend to ignore the fact that Zambia really did borrow a lot of money back in 1979 to buy tractors – money on which it agreed to pay interest. If you take the $15 million or so that Zambia borrowed, and add on any reasonable interest rate on top of that, the result will take you to far more than the $20 million that Donegal is going to receive in settlement of that debt, including its own non-negligible legal costs. The real loser in this whole case is not Zambia but Romania, which sold its $30 million debt for $3.3 million. Even there, however, Donegal is a hero: Romania was in negotiations to sell the debt back to Zambia, but because there was another bidder involved (Donegal), Romania ended up receiving roughly twice as much money as it would otherwise have been able to receive.

Donegal’s opponents like to portray Zambian sovereign debt as debt of the Zambian people. Here’s Peter Otto:

While the judge was bound by the law to find in favour of the vulture fund, it is disappointing that he did not give a more imaginative decision. Remembering the judge in The Merchant of Venice, it would have been more to the point to require Michael Sheehan of Donegal International to collect the money “owed” in person from each of the Zambians, in cash. I think $7 per head is about right. And to add a clear explanation to each one as to why they should not eat for the following week would make the “justice” more personal.

Does Otto really think it would be more just for Donegal to force individual Zambians to pay $7 each in cash than for Donegal to receive $20 million from a company owned by the Zambian ministry of finance? ($7 multiplied by Zambia’s population of 11.5 million comes to over $80 million, so maybe $1.75 might have actually been more apropos.) Does he think that forcing individuals to starve is a good way of paying sovereign debts? Because certainly Zambia can pay this debt without forcing any Zambians to go without food.

And more to the point, does it make sense to think of a sovereign debt as being owed by the citizens of that country severally? Let’s say that the US government owes China $1 trillion. Should the Chinese government try to collect more than $3,000 from each US citizen, in cash? Maybe it should just go to each person and collect $150 or so in annual interest payments? Sovereigns, and sovereigns alone, have the ability to demand payments from their citizens. (They’re called taxes.) And so far, there has been no indiation whatsoever that Zambia will raise taxes as a result of this judgment. So let’s be a little bit careful with the rhetoric.

And let’s not take articles like this one from Ashley Seager, claiming that “President Bush could come to the aid of Zambia,” too seriously either. If you’ve come this far in this blog, you’ll be able to pick out the weaknesses in the report quite easily.

For instance, Seager says that

Donegal bought the debt, with a face value of $30m, from Romania in 1999 for less than $4m. Zambia agreed to pay Donegal $15m in return for a payment to the then president’s favourite charity. This payment, exposed by Mr Palast but which Mr Sheehan denies was a bribe, could mean Donegal falls foul of the US Foreign Corrupt Practices Act.

The idea that Zambia agreed to pay Donegal “in return for a payment to the then president’s favourite charity” is profoundly silly. After all, the payment to the charity was in the form of the very debt which Zambia was agreeing to pay. If the debt was worthless, then the donation to charity was worthless. And the payment was hardly “exposed by Mr Palast” – it’s all there in Zambia’s defense papers, and I’m sure that Palast was simply given the information on a plate by William Blair, QC.

(For the record: I have spoken to nobody about this subject since the Zambia news started coming out. All of my information comes from publicly-available sources, primarily the court judgment in the UK. I have never spoken to Michael Sheehan or any of his colleagues. I have spoken to some of the principals at Elliott Associates in the past. But since my story on their Congo case, I seem to have persona non grata status there, and I doubt that they would consider me particularly friendly to vulture funds in general.)

But back to that alleged bribe. Here’s some of what the judge has to say about the payment to PHI, and Zambia’s claim that Donegal’s offer to make a payment to PHI was tantamount to a bribe:

There is no reason to suppose that [PHI] was inherently an improper scheme or that it was set up with improper motives or that Donegal did or should have supposed at any relevant time that the PHI was other than a worthy scheme…

Mrs Chibanda was aware, before the debt was assigned by Romania to Donegal, that the purchasers of the debt had indicated that they might contribute, or that they proposed to make a contribution, to the PHI… However, there is no reason to suppose that that information was given to Mrs Chibanda covertly, …and it is apparent from Mr Mbewe’s evidence that she did not keep that information secret. It has been suggested that the information was given to Mrs Chibanda in order to influence her to obstruct the delegation’s proposal, and so was something in the nature of a bribe or improper inducement… I am unable to accept that. The mischief of bribes, or secret commissions, is that they are secret. It might be that Mrs Chibanda thought that the prospect of support for the PHI was attractive, and it might be that… Mrs Chibanda thought that the potential benefit to Zambia of having finance for housing those on low incomes was something properly to be weighed when deciding upon the relative benefits of Zambia buying back the debt and allowing it to be bought by a third party. I am unable to conclude that it was in itself improper for Mrs Chibanda to be made aware of the possibility that Donegal might contribute to the PHI.

In other words, nothing improper happened.

As for the idea in the Guardian article that “Mr Bush has the power to block collection of debts by vulture funds, either individual ones or all of them, if he considers it to be at odds with US foreign policy,” I’m not entirely clear where that comes from. Apparently Congressman John Conyers thinks that “the Foreign Corrupt Practices Act and the comity doctrine brought from our constitution allows the president to require the courts defer in individual suits against foreign nations” – and that’s something I simply don’t understand.

In any case I’m quite sure that Treasury, if and when they get wind of such a proposal, would swiftly squash it. There are hundreds of billions of dollars of dollar-denominated sovereign bonds traded under New York law, and all of them include a waiver of sovereign immunity. It seems to me that Conyers is asking Bush to reinstate precisely that sovereign immunity which the bond issuers have voluntarily waived – and that’s something that no debt-issuing country would want. If countries reverted to having absolute sovereign immunity in New York courts, then none of them could ever borrow money in dollars again. Capital flows to emerging-market countries would dry up overnight, and there would probably be an enormous rush to dump any bonds issued under New York law – creating a monster liquidity crisis in the financial markets, and probably consigning most of Latin America, at the very least, to another brutal recession like that seen in 1998. So the chances of anything like this happening are precisely zero, even if it were constitutionally possible, which I doubt it is.

The fact is that private-sector capital flows to emerging markets are vastly larger and more important for development than public-sector flows from the likes of the World Bank. All of those private-sector capital flows are predicated, ultimately, on contract law. When trillions of dollars in flows are based on contract law, eventually some contracts are going to end up in court. And when a country gets taken to court, sometimes it will lose.

But if you add up all of the judgments awarded against all of the emerging-market countries which have ever been sued in the history of the international capital markets, the final number would be so minuscule in comparison with the magnitude of international capital flows to emerging-market sovereigns that it would barely constitute a rounding error. And yet the tiny outside chance that a country might one day be taken to court is absolutely crucial if that capital is to continue to flow. Big institutional investors don’t like doing the work of suing sovereigns, so they essentially outsource that work by selling their defaulted debt to vulture funds. People might not like what the vulture funds do, but what they do is utterly necessary for everything else to function smoothly.

Oxfam has launched a campaign against Donegal entitled “Don’t let the debt vultures make a killing”. They should remember that vultures don’t kill anything. There are lots of reasons why Zambians are living in abject poverty today, and Donegal’s lawsuit is not one of them. Vulture funds create the conditions under which countries like Zambia can raise money for investments in health, education, and infrastructure.

Maybe Oxfam should consider sending them a thank-you letter instead.

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40 Responses to In defense of vulture funds

  1. Tom says:

    Fascinating article. The BBC does have an increasing penchant for simplistic arguments to explain complex problems.

  2. anon says:

    What if Ruritania’s debt had been contracted by a dictatorship or some other kind of despotic regime, against the interest of the people? Could the New York court rule that the debt was “odious debt” in a legal sense, or does the waiver of sovereignity prevent this?

  3. Felix says:

    The concept of “odious debt” is much talked about, but to my knowledge no one has ever tried to actually use it in a New York court. Specifically, the US government, when it was restructuring the Saddam-era debts of Iraq, never tried to use it. So in one sense it’s never been tested. But basically it simply isn’t a statute on the books, so it be almost impossible for a New York judge to simply conjure it out of thin air.

  4. anon says:

    Yes, but this is the whole point. AFAICT, the doctrine is generally accepted in international law, as well as having desirable incentive consequences. If its applicability is undermined by “vultures’” practices, some of the opposition to them may be justified.

  5. Felix says:

    I’m not an expert on international law or odious debt — although I’ve certainly heard enough debates on the subject of odious debt to know that it isn’t “generally accepted”. But I can’t for the life of me see how if it were generally accepted, its applicability could be undermined by vulture funds. Surely quite the opposite: if and when a vulture fund took a sovereign to court, that sovereign would have the opportunity to claim that the debt concerned was odious — and the doctrine of odious debt was applicable. Without any court cases from vulture funds, no one will ever be able to apply the doctrine of odious debt in any court. In other words, if you want to apply the doctrine of odious debt in practice, you need vulture funds.

  6. M. Tubin says:

    Felix –

    Excellent and interesting piece. It seems to me that Oxfam, Gordon Brown, and the bunch, if they are concerned about the implications of the Zambia case should not focus their entrepreneurial energies on the vultures, but presumably should look more closely at the systemic costs and benefits of securitization of official sector debt. After all, the vultures in this kind of case are merely consumers of a product offered by Governments. Especially as a question of regulation – it makes more sense for governments, especially major Paris Club creditors, to consider how they might be able to alter their own behavior and that of other states to ensure this class of deals never make it to the vultures beak. The make up of this particular case suggests something more interesting was going on beyond distressed-debt investors engaging in a search for profits.

  7. bsetser says:

    Felix — I thought I was a bit windy, especially on a topic like reserves, but you are giving me a run for the money. The role distressed debt specialists currently play in the sovereign debt ecosystem — and the role they should play — is certainly an interesting one. I think there is a meaningful difference between say your run of the mill hedge fund buying Argentina’s old bonds off ill-advised Italian retail investors who stayed out of an exchange that would have (by now) returned them about 70 cents on the dollar (the par is above 50, close to 55, and the GDP warrant is now at 13, plus you got a bit of cash and a smallish coupon … )in the hope Argentina will reopen the exchange and a litigation specialists. And there is a difference in my view — between the role litigation specialists play when a sovereign basically walks away from its debt and the role litigation specialists play when there is a restructuring deal on the table and the litigation specialists walks away from a deal acceptable to a super-majority in the hopes of getting paid more. in the current legal regime, the legal claim from a sovereign that just decides it doesn’t want to pay is identical to the legal claim from a sovereign that defaults and does a restructuring but there are a few holdouts who stay out of the deal. In both cases, the country is in defualt on a valid legal claim and the creditor has a valid legal basis for initiating efforts to collect, but i think you can reasonably argue that the role litigation plays in the ecosystem is different. Peru was quite willing to pay on its bradies even when it was still in default on the commercial bank loans that elliot held; here, Elliot wasn’t acting as the discipling agent forcing payment — not really.

    I also think you are probably overstating three points.

    1) the argument that if sovereign’s had absolute legal immunity in New York, capital flows would dry up.

    Best to my knowledge, Brazil enjoys something close to absolute legal immunity on its domestic Brazilian debt (I certainly wouldn’t want to be a vulture litigating in brazil against brazil’s government before judges paid by the BRazilian state), Argnetina absolute legal immunity on its domestic argentine debt, Russia absolute legal immunity on its domestic Russian debt and so on. The US has something close to absolute legal immunity on its domestic treasuries (de facto if not de jure) — the documentation is more or less the US promises to pay. Talk to Anna.

    yet international investors have been more than willing to hold Brazilian domestic debt, Argentine domestic debt, Russian domestic debt (and there is a bit of history there) and US domestic debt … sometimes, promise that cannot be enforced is still good enough …

    2) the enormous flows of funds provided by private capital markets for development.

    REmember, right now, official flows (reserves) dwarf private flows — and on net emerging economies are financing the uS and europe, not the other way around. LEss money flows to BRazil or China = less reserve accumulation. Nothing more or less.

    The most successful development stories over the past fifty years generally haven’t relied on cross-border flows but rather on domestic savings (FDI has also contributed, but not big sums of funds so much as through the transfer of technology). And right now, most emerging markets are so afraid of volatiltiy in private capital flows (volatility that doesn’t seem tied to fears that ems will walk away from their debts) that they aren’t willing to run sustained current account deficits financed by private capital flows.

    Obviously, a lot matter if you look at gross v. net flows, but say in 95 and 96 and even 97 (the crisis came toward the end of the year, and only hit asia …) net private capital flows (inflows-outflows) to the emerging world were around $200b. $100b were used to build up reserves. $100b financed a current account deficit. Now a $100b net flow is bigger than what the world bank provides, to be sure. but it also isn’t absolutely enormous. it is bigger not in the same basic order of magniutude. Countries who finance themselves at the bank generally don’t build up reserves to guard against a sudden stop, so more of the financing can be put to use … in 98 that net flow disappeared. it came back in 99 and 00, but we are talking a net cumulative private financial inflow to finance ongoing current account deficits (i.e. investment levels in excess of domesitc savings) of under $500b from 96-00 (five years). The net outflow (Savings in excess of domestic investment) from the emerging world — i.e. their net current account surplus — was over $500b in 2006 alone.

    nEt official outflows were almost certainly close to $900b (that is the sum of reserve growth + oil investment fund growth, definining reserves broadly). I think it is hard to make a case that private flows are central to development when — setting eastern europe aside — emerging markets are financing the us and europe, not vice versa, in part b/c they worry that private flows are too volatile to cover ongoing deficits.

    3/ Vulture funds create the conditions for countries like Zambia to raise money to invest in health, education and infrastructure?

    Are you sure that Elliot doens’t like you after your euromoney article? you sound like a character witness for the vultures …

    analytically, I am not sure the argument is true, for the reasons noted above. Zambia actually has attracted financial inflows into its local t-bill market (exotics have been hot), and there isn’t any legal risk there. And so long as countries like Zambia don’t trust the markets to finance current account deficits and instead take any money raised extenrally and sock it way in reserves, the funds aren’t exactly financing health or education or infrastructure.

    More importantly, we don’t really know what drives sovereign payment. litigation — at least effective — litigation usually hits a government well after the initial default is but a distant memory. the punishment is very lagged. govenrnment’s political horizons are short. Plus, it seems that litigation is generally speaking insufficiently effective to be all that much of an incentive to pay (argentina isn’t rushing to pay its $20b in defaulted debt b/c of legal concerns). The reality that it is dififcult to collect quickly against a sovereign in default calls into question just how big a role litigation plays in assuring payment. I am not saying that it plays no role, but it does seem to me that its assumed role is a bit over stated.

    sovereigns pay because reputation counts — both domestic and internationally. the ability to borrow is a very good thing for a sovereign, and unless folks think you will pay them back, they won’t lend. interestingly enough, if you have too much debt b/c you defaulted, the interest compounded and you didn’t get much relief at the end so you got stuck with a big debt burden, you often cannot borrow either … even if you have a decent but not perfect record of paying. reputation matters but so does your debt burden– at some level, it doesn’t make sense to try.

    personally, i suspect the biggest reason to pay your external bonds is that a) a lot of external bonds are held domestically and b) if you don’t honor your extenral promises, your citizens often lose confidence in your ability/ will to honor your domestic promises …

    finally, my initial point also applies. I haven’t looked into zambia’s details, so i don’t know if this applies here — this is general point, not a specific one. But it isn’t at all clear that the threat of litigation by creditor who stays out of a deal that others accept with the intention of litigating to get a better deal than others really serves to motivate the country to pay on its new debt. It is — in these cases — already paying, and has ever intent to continue to do so b/c it wants the ability to borrow in the future. in such cases, a creditor seems to me to be gaming the system — using provisions designed to make sure debtor’s don’t walk away from their debt to try to get a better deal than other creditors have gotten. The greater social purpose served by the litigation in that specific instance isn’t obvious to me. remember, the country already is paying (Peru, Bradies). And the theat of litigation from the vulture actually impedes the country’s ability to raise money in the market and thus dilutes one incentive for paying what it is — namely, the desire to raise funds in the future.

  8. Fascinating on the mechanics of vulture funds

  9. Felix says:

    Brad, thanks very much for your comments. A few points in reply:

    First, you make the distinction between a sovereign in broad default, on the one hand, and a sovereign dealing with a handful of holdouts, on the other: “you can reasonably argue that the role litigation plays in the ecosystem is different,” you say. But as your own Argentina example shows, it’s sometimes hard to work out which category a sovereign falls under. Governments nearly always pay some of their obligations — World Bank debt springs to mind as one example. It’s the obligations they’re not paying which are prone to litigation. And I’d be more swayed by your distinction between “good litigation” and “bad litigation” if you could give me a single example of what you consider to be “good litigation”.

    Next, you say that if sovereigns had immunity in New York, they could still issue bonds under New York law. I doubt it, somehow. You’re right that investors in local-market debt have relatively little hope of successfully litigating their claims in, say, Brasilia in the event of default. On the other hand, governments almost never repudiate outright their domestic debt. If sovereigns had immunity in New York, then the cost of defaulting on New York-law bonds would be very low. Investors care deeply about the cost of default, since it’s one of the main factors which drives governments to make their debt repayments. They calculate that the cost of a domestic default would be very high, so they’re reasonably confident making local-market investments. But the cost of a foreign default is only high because of the legal consequences. If there aren’t any legal consequences, then appetite for foreign debt will dry up very quickly.

    And I am actually aware of one case right now where a distressed-debt fund has amassed a position in the domestic defaulted debt of an emerging-market country. They may or may not have a litigation strategy in their back pocket, I’m not sure. But don’t think that there’s no market in defaulted domestic sovereign debt.

    You also point out that capital flows to emerging markets are negative these days, thanks to huge build-ups in the foreign reserves of countries such as China and Brazil. You also say that “the most successful development stories over the past fifty years generally haven’t relied on cross-border flows”. This is all true. Maybe the era of sovereigns borrowing large sums from abroad is over. Or maybe it’s simply in abeyance. We’ll see. But insofar as sovereigns borrow abroad, they will have to do so under the auspices of some foreign legal regime.

    Then you say that you doubt that litigation plays much of a role in assuring payment. Well, I never said it did. You’re quite right that litigation normally comes many years after any default. But remember that what I was defending was vulture funds, not litigation per se. The funds are very useful to investors at the time of default, because they provide a bid for investors’ securities. And because investors know that bid will be there, they’re more likely to buy the bonds in the first place.

    As for the ethics of the Elliott/Peru case and similar cases such as Dart/Brazil, that’s a whole other blog entry right there. But basically such cases serve to keep governments honest during things such as Brady negotiations.

  10. brad setser says:

    Good litigation — if Ecuador defaults with oil at $60 …

    Bad litigation — if Ecuador defaults with oil at $20 and puts restructuring terms that offer it a bit of insurance v oil price volatility on the table, and a few folks stay out of it …and then sue for full payment, trying to get a far better deal than those creditors who accepting restructuring terms that make sense for the country and its creditors and might create a more heathly relationship between ecuador and the bond market.

    I cannot off hand think of any cases of litigation that I thought were deeply justified, but that may be b/c relatively few sovereigns have walked away from their debt. and to be clear, i don’t know enough about the details of zambia to have an informed opinion.

    Your claim that “Investors care deeply about the cost of default, since it’s one of the main factors which drives governments to make their debt repayments” is true — but it can be decompressed.

    The costs of default on domestic debt aren’t legal, but they are still high enough that foreign investors are quite happy to hold domestic debt. though i would note that the restructuring terms on GKOs in 98 were rather punitive, and Russia certainly did default — if foreigners own most “legally” domestic debt (as with US treasuries), the political economy of payment may change. again, see Russia’s GKOs — lots were held by foreigners, and russia found other way sof helping those domestic folks hurt by the GKo default

    the same is true of foreign debt — the cost of default matters, but in my view, the main cost of default is NOT legal. Even with all the current provisions waiving sov. immunity, sovereigns have de facto immunity. that is what makes the regime work — there is no rush to the courthouse b/c there is nothing to get in the courthouse (the successful litigation strategies — zambia excepted — have targetted payments on the new bonds … where i don’t think litigation keeps the sov. honest so much as the threat of litigation reduces the benefits of resuming payments b/c you don’t get quick market access). I always thought market participants actual behavior (buying local currency debt, buying english law bonds ) was at odds with their stated rethoric (creditor protections essential, creditor protections on existing debt are too thin, etc).

    in effect, you are assuming that litigation is a key cost of default. but in reality, right now, under the current regime litigation isn’t a cost of default (no successful litigation on argentina between end 01 and the restructuring). the risk of litigation is a cost of restructuring. that strikes me as creating perverse incentives …

    as for the threat of litigation after a restructuring keeping a sovereign honest (darts pushed brazil to pay more, elliot in peru … ) it is possible that the threat of litigation after a restrutcuring is what encourages restructuring, but it isn’t obvious to me. afterall, one way of avoiding litigation right now is to stay in default … so the darts et al might encourge an outcome where once in default, it is rational to stay in default to minimize legal vulnerability. the basic incentive for doing a deal that gets the support of a majority of creditors is that the ability to borrow — domestically and internationally — really is valuable. if it isn’t, then it would be optimal, given the difficulty collecting on litiation, for everyone to default on their existing debt and stay there.

    so my sense is that you are (along with a lot of creidtors, not the least the vultures) overstating the role the threat of litigation plays in encouraging payment or more accurately the resumption of payment. and i have never heard a convincing argument why it makes sense to have the shadow of litigation hang over a successful restructuring rather than over the actual default. the incentives seem perverse (i.e. stay in default, once you have paid the costs of getting there …)

    incidentally, it seems like Belize may have found a way of addressing your argument that it doesn’t make sense to use CACs in an exchange, since it eliminates the penalty for holding out (the risk that you will end up like Argentina’s current creditors) – -namely amend the old bonds so they are slightly less good versions of the new bonds offered in the exchange.

    finally, i don’t consider all distressed debt specialists to be vultures — only those looking to stay out of an exchange and then litigate for a better deal than the participants. (obivously, some folks play both sides — participating if the terms are good enough and holding out otherwise). those who bought argentina’s bonds in 02 were looking to buy something that fallen too far and profit on an exchange — that is not a vulture strategy. I agree that this serves a useful function. I think those buying argie’s defaulted bonds off retail looking for a reopened exchange are also playing a positive role in the market … and i think argentina should reopen the exchange (small coupons on par, big increase in participation, regain option of borrowing abroad) now you can say that this part of the market wouldn’t exist w/o the possibility of litigating after a restrucutring (remember, that is when litigation happens — it penalizes normalization, not default). but looking at the role specialists play in bankruptcy in the us where there isn’t the possibility of holdout strategies (votes are done by classes of creditors and by a supermajority, and the terms approved by the supermajority are crammed down on the minority) it doesn’t seem that the market can function so long as the rules are clear.

    my basic questios for you are thus — 1) given that waiving immunity doesn’t really eliminate immunity, and litigation is effectively impossible after a default, why are certain provisions — which as really hard to enforce — so crucial, espeically when investors now don’t worry aobut the absence of such provisions in the now very hot local markets and 2) why is it optimal to have the threat of litigation hang not over default, or even over staying in default for a really, really long time — presumably the most anti-social of behaviors in any debt market – but rather over a successful restructuring? Shouldn’t litigation punish default (espeically default w/o an economic cause) or staying in default, not trying to get out of it?

  11. Felix says:

    Brad, I think that you think that most vulture fund litigation is some kind of rerun of Elliott vs Peru — and I don’t think that’s the case. Some vultures are holdouts, but by no means all. Remember that the Brady Plan was by and large a Latin phenomenon — outside Latin America, only a few countries (Nigeria, Bulgaria, a couple of others) had Brady bonds, and those were generally pretty small. Other countries stuck more or less to the tried-and-true London Club approach.

    And even if most vultures are holdouts, it’s by no means the case that most vultures’ litigation strategies concentrate on attaching coupon payments. That was tried once by Elliott, with reasonable financial if not legal success, and has barely been attempted since — mainly because the Lowenfeld reading of the Pari Passu clause has been entirely discredited at this point, Hal Scott notwithstanding. (Note to anybody who’s not called Setser reading this: many apologies for the abject wonkery into which this discussion has now descended.)

    So I don’t think it’s reasonable to assume that sovereigns’ anti-vulture legal costs will go up if they start making coupon payments to foreigners abroad. Vultures will litigate on any grounds they can find, and will attempt to attach any manner of assets, regardless of whether the country in question remains current on other debt payments.

    As for Belize, my point was always that it DID make sense to use CACs as part of an exchange — which is exactly what Belize did. My point came in rebuttal to those people who said that CACs would replace exchanges.

    As for your distinction between vultures and distressed debt investors, I don’t see it. Both of them buy debt low, and seek to maximize the rate of return they get on that investment. It only makes sense to have a fallback litigation strategy if the exchange isn’t as attractive as the investor thinks it should be. But very few if any vulture funds will buy debt with the intention of litigating.

  12. Debt is a good thing? Are you crazy?

    Debt=Slavery

    No one seems to consider that these debts are owed for money that was created out of thin air.

    http://www.wikiprotest.com/index.php?title=The_Federal_Reserve#Quotes_Referencing_the_Federal_Reserve

  13. Debt is a good thing? Are you crazy?

    Debt=Slavery

    No one seems to consider that these debts are owed for money that was created out of thin air.

    http://www.wikiprotest.com/index.php?title=The_Federal_Reserve#Quotes_Referencing_the_Federal_Reserve

  14. Alex G says:

    Old story, I know. But this article is utter BS. It only serves in showing how perverse is the system we’ve come to accept through centuries of indoctrination.

    The simple bottom line is that those millions would serve better in the hands of a poor country than those of already rich vultures.

    The reason countries like Zambia are poor in the first place is because they have been exploited by the hands of private interests.

    There isn’t even sufficient currency in circulation to resolve all of current debts and interest because those funds are sitting on it and using it to create more loans that could never be funded with real cash.

    They know it is all speculation, that 100% of debts with interest will never be recovered, so they are all racing to get the bigger piece of the pie. Truth is, the paid out amount far exceeds that of the initial loans, so the scheme is highly profitable at the depends of starving and homeless people worldwide.

    Not un-similar to a billionaire bank repossessing a house, throwing the occupying family including children flat out on the streets. That is, even if the value of the house has been repaid, but not the interest.

    The result: the obscenely rich get more wealth “on paper” while billions of people are starving. Everyday the rich gets richer, the poor gets poorer. Vulture funds are a major instrument in this perverse trend.

    A few hands claw up the world, but it’s not their fault if nothing is left for others? Give me a break. Utter BS.

  15. Turk says:

    I’m not an economist but I’ll take this issue as someone who believes in God’s mercy.

    No wonder the interest is forbidden in the Holy Books but who cares, or who worship God and not money, so far only Muslim countries are trying to reject this system but they are blamed for following a code that belongs to 1300 years ago.

    Interests create a certain distinction: Some make money off money, some can’t make money off their labor. We must stop feeding this system.

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  18. BJ Feng says:

    The socialist attitudes, senseless conspiracy theories (yes money can be created, but it doesn’t make money worthless, dollars are borrowed, their worth is determined by the market or us), and general ignorance is why countries like Zambia are so poor in the first place. No suprise that Ethopia, which operates under Marxist thinking, is poor while nations like the US are rich. If you want charity, ask for charity, but a loan is meant to be repaid. In the end, all the billions given to African countries won’t matter in the long run if their institutions do not change. It’s the system that creates wealth or poverty. They need to adopt a system where people can be rewarded for providing goods and services, that is where people can make a good profit, along with the rule of law. In other words, they need an US system.

  19. BJ Feng says:

    The socialist attitudes, senseless conspiracy theories (yes money can be created, but it doesn’t make money worthless, dollars are borrowed, their worth is determined by the market or us), and general ignorance is why countries like Zambia are so poor in the first place. No suprise that Ethopia, which operates under Marxist thinking, is poor while nations like the US are rich. If you want charity, ask for charity, but a loan is meant to be repaid. In the end, all the billions given to African countries won’t matter in the long run if their institutions do not change. It’s the system that creates wealth or poverty. They need to adopt a system where people can be rewarded for providing goods and services, that is where people can make a good profit, along with the rule of law. In other words, they need an US system.

  20. Ellie says:

    Thanks for taking a far more nuanced view of vulture funds than I’ve seen elsewhere. I’m interested in learning more about this issue. One point you didn’t bring up is that the Romanian tractors Zambia bought were useless and fell apart within months. Maybe that’s why they were so reluctant to pay back such a huge debt after seeing so little benefit.

  21. anon says:

    you are so full of shit. you sound like dubya when he says “see you’ve got to understand” like we’re in kindergarden. karma will kick your ass.

  22. Sam says:

    ‘xx’ has clearly wields a limited understanding of the issue.

    Rich people did not create Zambian poverty; they are simply seeking repayments on the loans that Zambia contractually agreed to pay back.

    If Zambia does not pay back the loans, other countries, as rational and perhaps selfish individuals, lose any economic motivation to LEND money to Zambia.

    Zambia is poor due to infrastructural problems, not vulture funds looking to regain money that is owed.

  23. Sam says:

    ‘xx’ has clearly wields a limited understanding of the issue.

    Rich people did not create Zambian poverty; they are simply seeking repayments on the loans that Zambia contractually agreed to pay back.

    If Zambia does not pay back the loans, other countries, as rational and perhaps selfish individuals, lose any economic motivation to LEND money to Zambia.

    Zambia is poor due to infrastructural problems, not vulture funds looking to regain money that is owed.

  24. Stu says:

    Ellie

    That is an interesting point you make about the quality of the tractors they purchased, is there a particular article you could a reccommend regarding this issue?

  25. PY says:

    The only entry I found concerning the tractors’ quality was on http://www.commondreams.org/views07/0220-21.htm

    “The tractors didn’t work well…”

    That’s all. Would also like to know more about that, if it’s true.

    Another article I would like to recommend is David Bosco’s ‘The Debt Frency’. It mainly argues for different treatment for cases like Argentina on the one hand and Zambia on the other hand. Donegal has the right to suit Zambia, but we have to ask ourself, if this is an desireable outcome right now. Should countries be suited, if they are “struggling with wrenching poverty and a runaway AIDS epidemic”?

  26. hippieswereright says:

    Here’s how a vulture operation works. The vulture fund buys up the debt of poor nations cheaply when it is about to be written off and then sue for the full value of the debt plus interest — sometimes more than ten times what they paid for it. Singer, for example, paid just $10 million for Congo Brazzaville’s debt and is now suing for over $400 million.

    Singer knew he’d turn a 1000%-plus profit on his $10 million investment with George Bush’s help.

    Bush convinced the US Congress to forgive the money Congo owes the US taxpayer, but once the US taxpayer forgives Congo’s debt, the vulture, Singer, swoops in with lawyers to claim, “Congo now has the money to pay ME.”

    But wait a minute – the debt money given up by US taxpayers wasn’t supposed to go to Rudy’s predator Singer. In fact, the US Constitution provides power to the President to stop vultures from suing a foreign country in a US court if the President states such a private lawsuit interferes with America’s foreign policy.

    Singer, by suing Congo for the taxpayer money meant for debt relief and medicine, is interfering with US foreign policy. Yet Bush has done nothing.

  27. hippieswereright says:

    Here’s how a vulture operation works. The vulture fund buys up the debt of poor nations cheaply when it is about to be written off and then sue for the full value of the debt plus interest — sometimes more than ten times what they paid for it. Singer, for example, paid just $10 million for Congo Brazzaville’s debt and is now suing for over $400 million.

    Singer knew he’d turn a 1000%-plus profit on his $10 million investment with George Bush’s help.

    Bush convinced the US Congress to forgive the money Congo owes the US taxpayer, but once the US taxpayer forgives Congo’s debt, the vulture, Singer, swoops in with lawyers to claim, “Congo now has the money to pay ME.”

    But wait a minute – the debt money given up by US taxpayers wasn’t supposed to go to Rudy’s predator Singer. In fact, the US Constitution provides power to the President to stop vultures from suing a foreign country in a US court if the President states such a private lawsuit interferes with America’s foreign policy.

    Singer, by suing Congo for the taxpayer money meant for debt relief and medicine, is interfering with US foreign policy. Yet Bush has done nothing.

  28. hippieswereright says:

    Here’s how a vulture operation works. The vulture fund buys up the debt of poor nations cheaply when it is about to be written off and then sue for the full value of the debt plus interest — sometimes more than ten times what they paid for it. Singer, for example, paid just $10 million for Congo Brazzaville’s debt and is now suing for over $400 million.

    Singer knew he’d turn a 1000%-plus profit on his $10 million investment with George Bush’s help.

    Bush convinced the US Congress to forgive the money Congo owes the US taxpayer, but once the US taxpayer forgives Congo’s debt, the vulture, Singer, swoops in with lawyers to claim, “Congo now has the money to pay ME.”

    But wait a minute – the debt money given up by US taxpayers wasn’t supposed to go to Rudy’s predator Singer. In fact, the US Constitution provides power to the President to stop vultures from suing a foreign country in a US court if the President states such a private lawsuit interferes with America’s foreign policy.

    Singer, by suing Congo for the taxpayer money meant for debt relief and medicine, is interfering with US foreign policy. Yet Bush has done nothing.

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  31. investing says:

    I am not sure what to think about this. I think it is a good thing for investors.

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