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12/15/2021

Pain and Profit in Sovereign Debt: How New York Can Stop Vulture Funds From Preying on Countries

VULTURE FUNDS have spent decades honing a predatory playbook designed to extract maximum profits out of struggling, debt-ridden countries. The vulture fund business model involves 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, and then suing the country to demand full repayment. Vulture funds have made exorbitant profits deploying this playbook, which often involves freeriding on the money a country accumulates through development aid and the implementation of austerity measures. This report profiles notorious billionaire vulture investors like Paul Singer and Kenneth Dart who have perfected this playbook, and highlights real world examples of their predation in action, from Argentina to the Republic of Congo. In the past few decades, New York State law has played a key role in enabling the vulture fund playbook. In the absence of a binding international sovereign debt restructuring framework, vulture funds have weaponized New York law in their quest to extract as much money as possible from struggling countries. Because most sovereign debt contracts are governed by either New York State or English law, New York is uniquely positioned to step in and pass laws that would disrupt the vulture fund playbook and stop them from profiteering at the expense of countries in financial trouble. Specifically, New York lawmakers can take immediate action by providing a framework for restructuring unsustainable sovereign and subnational debt; barring the purchase of sovereign debt for the purpose of filing a lawsuit; and eliminating one of the vulture funds’ favorite tax loopholes which allows investment managers’ fees to be taxed at a far lower rate than workers’ wages.

Published By

Hedge Clippers
    In partnership with Center for Popular Democracy, LittleSis, Churches United for Fair Housing (CUFFH) & New York Communities for Change (NYCC)