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Photo: solidarity-us.org


The birds & the funds

Vulture birds recycle dead animal carcasses, thus protecting healthy animals from the dangers of decomposition. As ugly as they may look, nature welcomes vulture birds.

Instead, vulture funds (VF) prey viciously upon injured economies that the world badly needs alive and growing, while hurting dozens and dozens of millions of real human beings and their future generations. “Real hurt, real people” Judge T. Griesa announced without batting an eyelash (Bloomberg News, 22 July, 2014) 

Obviously enough, common sense points to the illegality of VFs. As a matter of fact, Anglo-Saxon countries had banned the vulture business long ago through the “Champerty Doctrine”.

Ever since UK’s Gordon Brown coined the term, vulture funds add insult to injury by pushing default business no matter the appalling consequences for financial markets and the countries they harass and prey upon. VFs have never lent a cent to anyone nor supplied any liquidity to speak of through their tiny,‘strategic investments’.

“Me-too” bondholders are a mix of individual and institutional investors from around the world who decide not to accept the terms of the resulting restructuring process of a defaulted sovereign but at the same time do not take any legal action against such country right off the bat. They just sit tight and wait it out till someone else in a similar position does sue and eventually gets a favorable ruling. “Me Toos”are a very patient breed of vulture funds of sorts…less eager, but just as mean.

In the case of Argentina, the “me toos” have been waiting for many years for someone else to take legal action, namely NML Capital – Elliott and Aurelius Management… and win. Once that Wall Street judge Thomas Poole Griesa ruled in their favor to the tune of USD $1.6 billion, the “me toos” now merrily jump in and claim their fair share of the spoils.

Easy does it, see ?

Just sit tight and see the light…

The model

Vulture Funds readily buy very small quantities of “bad debt” at dirt cheap prices from desperate defaulted (or ready to default) bond-holders. In the case of Argentina, VFs represent less than 1% of creditors.

Thereinafter they wait out for hold-in creditors to help the imperiled country to recover by accepting a steep haircut — because otherwise they wouldn’t collect a penny either. In the case of Argentina, the latter were 92.4%.

As years later the country prey recovers thanks to the effort of the hold-in creditors and the country itself, VFs pounce in on their target with rogue judicial support claiming 100 cents on a dollar they never lent, plus sky-high vulture-style expenses… and the kitchen sink.

They also hedge themselves with CDSs (Credit Default Swaps) which in Argentina’s case, curiously enough, have been already collected additionally to whatever they end up negotiating for their defaulted bonds. So they’d get paid twice. As explained hereinafter, VFs also entice “me toos” amongst Argentina’s other hold-out creditors (7%) to join the party.

This misbegotten business model (for want of a better term) is un-ethical, non-productive, anti-capitalistic and even ineffective (eventually) for vulture funds. ”

If Argentina were a bankrupt US corporation, there would be no vultures”.

(B.Herman, The Globalist, 5 August 2014)

So ‘recalcitrant’ creditors which torpedo highly beneficial and overwhelmingly accepted (92.4%) re-structured sovereign debt solutions shouldn’t exist either.

US judges to the rescue

Wall Street Judge T. Griesa, the Second Circuit Appeals Court, and the Supreme Court of Justice of the United States (SCOTUS) have turned into active required associates of the VF business model through unprecedented ‘vulture friendly’ rulings against Argentina… while the US Solicitor General, and the US Attorney General idly sit by the sidelines.

From now on, the US judiciary can overwrite decisions from any sovereign state and/or international organization as the potent injunctions in case are unbelievably ‘on-your-face’ extraterritorial.

Also, the US has become a clearing house for vulture funds’ full discovery (precise information) of Argentina’s attachable (seizable) assets worldwide so that VFs don’t waste time, money and energy finding that out.

Justice Ruth Bader Ginsburg fully dissented with her SCOTUS colleagues on this ‘exorbitant’ decision making “financial service providers worldwide sovereign debt enforcement agents” (TS Öncü and J. Vilches, EPW, January, 2015). This includes clearing corporations, operators and systems, depositaries, settlement, transfer and trustee paying agents, etc.

In the case of Argentina, the US judiciary have shamefully allowed themselves to be hijacked by a sub-set of smooth financial operators, with no ‘Champerty Doctrine’ considerations whereby both in England and the US (Section 489) to purchase debt with the intent of litigating was considered a crime.

‘Free riders’ join the party

“Me Toos” salivate seeing Argentina now stuck with the mother of all class action problems by having to include each and every one of its 2001 default hold-out creditors into an agreement.

“… (now) each of the remaining creditors has effective veto power over the potential settlement, and every incentive to hold out for 100 cents on the dollar. In fact, if Argentina settles with some creditors for less than 100 cents, the remaining holdouts could simply replicate the NML lawsuit the next day. Anything less than full participation opens up the entire debt stock to NML-style ambush, and does not get Argentina or any of its creditors the certainty they need.” (A. Gelpern, CreditSlips.org, 30 June, 2014).

“Me Toos” sit tight to see the light

In the case of Argentina, ‘Me-Toos” have also truly benefitted from their day in (judge Griesa’s) court.

The octogenarian, health-impaired Wall Street judge has just ordered Argentina to pay more than 500 “Me-Too” holders of defaulted debt at the same time as restructured creditors. The Griesa ‘real-hurt-real-people’ ruling has now pushed the total bill for holdout funds to USD $7 billion, following a previous order to pay NML Capital – Elliott and Aurelius Management USD $1.6 billion, including interest.

As highly permeable judge Griesa now acknowledges for all creditors of Argentina the same terms as the ‘vulture’ funds, Argentina will be asked to pay between US$15 billion and US$17 billion.

Not all the ‘me-too’ bondholders have exposed their faces though. The cunning Wall Street judge has adopted the strategy to have them show up gradually so as not to make his deceitful, aberrant ruling obvious.

VF ‘must-get’ prices

Q.: why do Vulture Funds require such exorbitant price on the Argentine 2001 restructured bonds that they actually bought for pennies on the dollar ?

 A.: their business model requires to ‘invest’ tons of money in ‘other expenses’ that well-meant people (and the US judiciary for that matter) would not be proud to write home about… without any social function of capital in this Vulture Fund world of cabaret ‘investments’.

The VF ‘hounding costs’

Obviously, it is impossible to access verifiable data on VFs cost structure.

Only educated guesstimates and reasoned speculation allow to shed some light on this matter.

Other hidden costs might still arise after closer scrutiny.

Yet, the message is clear: the compensation claimed by vulture funds and already ruled in their favor includes (a) the face value price (b) CDS hedging costs (c) Many hundreds of seizures attempts worldwide (d) a finely tuned and handsomely funded lobby apparatus (e) overblown overhead (f) NY legal fees and ‘special expenses’ plus (g) non-accrued rolled over punitory interests all along.

Accordingly, VFs claim USD $ 800 million on a USD $ 50 million original ‘vulture investment’ on fully defaulted bonds meaning 1600% profits.

Beyond the un-ethical nature of this non-productive ‘business model’ there is an 800 lb. gorilla watching the scene: In this century, Argentina just won’t have that kind of money. It’s arithmetically impossible.

Taking “Me Toos” in consideration, we are talking dozens and dozens of billions of dollars For an economy that cannot bear such burden without even getting into the moral low ground of vulture fund activity.

Let alone if the above corresponds to utterly un-enforceable contracts such as sovereign debt bonds which, by definition, payment of which is strictly voluntary. This is not an opinion, it’s lack of internationally accepted law…and it’s also history. There is no shortage of examples, including very recent large ones, such as Germany post WW2.

 In a nutshell, Argentina does not have and will not have the foreign reserves to pay for anything other than (basically) hold-in compensation and only if and when agricultural commodities maintain or increase their current price and the barrel of oil maintains or decreases its current price.

The US Constitution (Article I, Section 8, Clause 4) foresees bankruptcy for a reason.

Countries are no exception and their sheer size makes things worse, not better.

Argentina's “Me-Toos” make sure no

       vultures left behind


          By Jorge Vilches, IIPRC, Counterpunch, June 11, 2015