Vulture Funds: The Preservation of Power and GreedBy Nicole C. Lee
-Guest Columnist- | Last updated: Feb 11, 2009 - 11:56:00 AM
International issues can seem pretty remote from our everyday lives. At my organization, we are constantly trying to make the “global-local” personal. One such issue has been Vulture Funds. They are, in short, hedge funds that buy up sovereign debt of the world’s poorest countries and then threaten to sue or extort natural resources out of the countries.
This secretive, elusive world has been difficult to explain. However, since our own financial crisis began some illustrations of corporate greed have spoken resoundingly in favor of oversight.
For example, take Bernie Madoff.
Bernie Madoff, a hedge fund and investment broker, managed the assets of extremely rich and famous clients such as Steven Spielberg and Kevin Bacon, as well as charitable organizations and foundations. Allegedly, it has all been a Ponzi scheme, a fraudulent investment plan that pays returns to investors out of the money paid by subsequent investors rather than from profit. Entire charitable organizations’ and pensions’ funds have been lost in the last six months.
And yet, the U.S. government was aware that Madoff’s actions were extremely questionable for years but did nothing. In past administrations, the government has turned a blind eye toward debatable business practices so as not to interfere with “innovation” or “competition.”
The Madoff scandal is just the latest example of how power and greed—when left unchecked—can destroy lives.
But it doesn’t take a scandal to destroy lives. Owned by corporations, Vulture Funds have been preying on the world’s poorest people for decades. As their name suggests, they swoop in and buy up debt for no reason other than to get as much money out of the countries as possible.
And they are proud of it. They arrogantly parade through the world’s courts acting as if they have been damaged in some way by these countries that haven’t paid millions, sometimes billions, of dollars back into the Vulture’s already padded pockets. They don’t care that the debt they are buying is mostly odious and illegitimate, nor that the countries they target cannot even provide clean water and adequate health care for their people.
All these Vultures see are dollar signs. They use pressure and threats of litigation to extort money and resources from African countries like Zambia and Congo Brazzaville, most of which are saddled with debt from previous regimes.
In the past few years, the behavior of some Vulture Funds has garnered some much needed press attention, but this has led to even more under-handed tactics. The last few years has seen an increase in a strategy known by the innocent title of “local investment.” To hear the Vultures describe it, they are offering to invest the money that the country owes into local economies that desperately need the influx of cash.
Doesn’t that sound nice?
What they don’t tell you is that the “local investment” is a lot closer to extorting national resources from the people of these countries than it is to investment. The African continent has some of the most resource-rich nations on the planet, and these Vultures know it.
Why go through lengthy and costly litigation to try to get a cash settlement when they can “negotiate” an ownership interest in a diamond mine or an oil field?
With these tactics, the Vultures stay out of the courts and instead choose to pressure these countries behind closed doors. Many times, the countries are led to believe that they have no legal options other than to grant these investment interests. With one swipe of a pen, these Vultures have essentially stolen the value of the natural resources from the people of the country to whom they belong.
The welcomed change in administration in the U.S. should allow for more productive conversations about these Vulture Funds, and their effects on the poorest countries. The economic climate is also creating a forum where people can understand the effects that hedge fund secrecy has on the pocket book of the average American.
(Nicole C. Lee is executive director of TransAfrica Forum. This column was distributed by NNPA.)