My first exposure to “vulture funds” was at the 2010 Left Forum in NY, where I walked into a BBC documentary by Greg Palast that was in progress. Although I didn’t care for Palast’s Michael Moore-like shtick as he accosted and badgered the financiers who buy up the debt of poor countries at reduced prices and then sue them to get inflated repayments, I was glad to see attention paid to what Woody Guthrie once referred to as bankers robbing people with a fountain pen.
Although I didn’t make the connection at the time, this comment on my blog from an Argentinian who was subscribed to the Marxism list that preceded Marxmail was dealing with the same kind of larceny:
Hi, dear Louis. I’m Julio Fernández Baraibar, your friend from Buenos Aires. I lost the contact with you, but I remember you very heartly.
We are struggling just now against the decision of Judge Griesa and I remembered that you, once, told something about him in relation with somo trotskist militants. Do you remember the case?
I wait for your response.
In 2001 Argentina’s economy had totally collapsed, foreshadowing in many ways what has befallen most of southern Europe. It defaulted on $95 billon worth of bonds. When Nestor Kirchner took office in 2003 he proposed that Argentina offer new bonds paying 30 cents for each dollar owed in default, an offer accepted by 93 percent of the original bondholders.
A couple of bondholders held out, however. One was NML and the other was Aurelius Capital Management Inc., both who insisted on getting 100 percent of the face value of the bonds. On October 26th Judge Thomas Griesa ruled in their favor, forcing Argentina to pay $1.4 billion. NML was particularly aggressive in pressing their demands, winning a court order to detain an Argentine naval vessel in a Ghana port as a kind of hostage. (On December 17 the U.N. ruled that the ship had to be released.)
The June 10, 2011 Irish Times described the strategy of Aurelius:
MANHATTAN-BASED lawyer Mark Brodsky named his hedge fund after the Roman emperor Marcus Aurelius, a Stoic philosopher.
He set up the fund in 2005 but Brodsky fine-tuned his skills as a distressed debt investor over nine years at Elliot Associates, a hedge fund known for taking on sovereign states that defaulted on debt, particularly Peru and Argentina.
The strategy he learnt at Elliot was straightforward buy debt on the cheap and then run a legal campaign to recover a higher value. This is the art of the vulture fund which sees value in high-risk investments in the debts of financially stricken firms and countries.
A recent win for Aurelius was its purchase of just $5 million out of $25 billion in debt at Dubai World, the state-owned investment fund, for 50 cents in the dollar.
NML is a subsidiary of Elliot Associates, the forenamed vulture fund. Paul Singer is the CEO and a major player in rightwing politics, having contributed millions of dollars to the Romney campaign, serving as the chairman of the Manhattan Institute, and funding the American Spectator, a key rightwing magazine. During the Occupy movement’s heyday, a Spectator reporter named Patrick Howley basically functioned as an agent provocateur by his own admission:
This weekend, journalist Patrick Howley of the American Spectator admitted infiltrating the Occupy DC protest and leading a charge into the Smithsonian Air and Space Museum which resulted in his and several other protestors’ being hit with pepper spray. His explanation? The protesters had been ruining his story of how crazy they were by failing to think of this course of action on their own.
In his original story on the subject (now removed from the Spectator site) Howley noted: “As far as anyone knew I was part of this cause — a cause that I had infiltrated the day before in order to mock and undermine in the pages of The American Spectator — and I wasn’t giving up before I had my story.”
Argentina’s minister of the economy Hernán Lorenzino reacted angrily to Griesa’s decision, calling it “a kind of legal colonialism” and that all “we need now is for Griesa to send us the Fifth Fleet.”
On November 29 the United States Court of Appeals for the Second Circuit issued a stay on Griesa’s order. Ironically one of the factors favoring Argentina is the determination of some other scumbag hedge funds to keep NML and Aurelius from getting their way.
Chief among them is Gramercy Funds Management that holds the discounted Argentine bonds as a tax shelter for its clients. It fears that a full-blown nationalist response by Argentina to default once again will harm its own profit-seeking interests. In many ways the rivalry between Gramercy and NML/Aurelius is like a war between rival mafia gangs over who will control a legitimate business.
There’s another mafia gang that has taken Gramercy’s side in all this, namely the U.S. government that worries about the turbulence that would ensue if Argentina defaulted. Reuters reported on December 13:
U.S. government lawyers reiterated their position that the court’s interpretation of the “equal treatment” clause in Argentina’s defaulted bonds “may adversely affect future voluntary sovereign debt restructurings, the stability of international financial markets, and the repayment of loans extended by international financial institutions.”
The U.S. government argued this point in April with an amicus brief when Argentina first appealed the original court orders made by U.S. District Court Judge Thomas Griesa in Manhattan.
Let me conclude with a word or two about Thomas Griesa who is now 82 years old. A life-long Republican, Griesa was appointed to the United States District Court for the Southern District of New York by Richard Nixon in 1972.
In that capacity Griesa served as the judge in the landmark suit that the Socialist Workers Party filed against the FBI in 1973 for its decades-long disruption of party activities, including the burglaries and poison pen letters that victimized many members including me.
In between jobs at the time, I was able to attend many sessions of the trial and observed Griesa as entirely fair-minded despite his Republican roots. In one of the more memorable exchanges, he allowed Stephen Cohen to make the case that the Russian Revolution was a massively supported movement despite constant objections by the FBI lawyers. He decided in favor of the SWP claims but disappointed us by awarding us only $264,000, a relative pittance compared to the $28 million we had demanded.
The irony of course is that in the final analysis we ourselves destroyed the party far more efficiently than the FBI bumbling ever could. Let’s hope that Argentina proves far more resilient since—after all—the Latin American revolution that “Kirchnerism” is a constituent part of has a lot more importance than we ever had.