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For those not familiar with the term "Vulture Fund", there is some background at the following links: Cashing in on the crash http://www.economist.com/node/968

For those not familiar with the term "Vulture Fund", there is some background at the following links: Cashing in on the crash http://www.economist.com/node/9687782 http://www.economist.com/node/9687782 Vulture funds – how do they work? http://www.guardian.co.uk/global-development/2011/nov/15/vulture-funds-how-they-work http://www.guardian.co.uk/global-development/2011/nov/15/vul...

Dylan16807 14y ago
I'm having a bit of trouble understating the problem with vulture firms. Is it the fact that they bought a lot of risky debt at low prices? That is how risk works; I feel like objections along these lines are focusing on specific cases where the vultures got lucky and are ignoring the big picture. Is it the fact that they are demanding money out of bankrupt countries? This seems odd to me; wouldn't the original debtors want repayment too? The second article there mentions vultures discouraging real investment in the countries. This seems like a serious issue but I don't understand how vultures specifically would have that effect.
- andyjohnson0 14y ago
  As I understand it, the problem is that the debtor states are often unable to repay the debt, at least not without taking money away from areas like public health and education. The loans are often quite old. Presumably the original lenders often decide that the loans are never going to be repayed, and the debtor states budget on that assumption. Years later they find themselves pursued for debts they believed were lapsed.
  - Dylan16807 14y ago
    I have to think that in that case it's the original lender that resurrects the loan, it just took a reminder. A vulture wouldn't buy a loan that was truly dead. I guess you can blame vultures for incentivizing old lenders to resurrect loans but that's a pretty indirect thing to be upset about.
    - molmalo 14y ago
      As sethg pointed out, there's a difference between privete companies and sovereign countries. When you lend money to a company and that company can't pay you back, bankruptcy law gets in the game. But when you lend money to a state, you know that there's a calculated risk that they won't be able to pay you and you won't be able to do anything to force them to pay your money back. You protect yourself by adjusting the interest rate. But if the risk is just too high and you lend anyway, it's up to you to take that bet... If that country can't afford their debt, they can try to renegotiate with you, so you can get paid at least something. If it were a private company and the creditor does not accept the new terms, they could ask for a bankruptcy. As you can't do that with a country, if you reject the new terms, then the sovereign state can say "screw you" and never pay you anything. You had your chance to get something, and you lost it. Some vulture funds buy this kind of bonds, and then try to reclaim the money... As I said earlier... good luck with that. Even the U.S. Supreme Court and the US Government agrees with this [1]. That's why they are now trying this kind of weird actions, in some place where they managed to make a judge put his signature to their service... But it's mostly a media show. [1] Supreme Court Rejects Elliott's Argentina Appeal http://www.finalternatives.com/node/20864 http://www.finalternatives.com/node/20864 And some more extra info, even mentioning US Administration's support to Argentina's claim: http://marceloballve.wordpress.com/2012/06/27/who-pays-when-countries-go-broke-the-implications-of-nml-capital-ltd-vs-republic-of-argentina/ http://marceloballve.wordpress.com/2012/06/27/who-pays-when-...
      - Dylan16807 14y ago
        So the 'screw you' should transfer along with the debt and vultures aren't a legitimate problem?
        molmalo 14y ago
        If you have a useless paper, and you sell it to someone else, it's still a useless paper... They are more of an inconvenience, and if they have deep pockets (like in this case), they can keep trying to fight legal battles, over and over for years. Making the other spend money in lawyers. Depending on the amount, it may be cheaper to just pay them and forget the whole thing, just like what happens in some patent cases with the hated patent trolls. But when there's a huge sum at stake, sovereign states will fight in court. Until now, this fund has lost every case, but they keep appealing the verdicts. A few months ago, the US Supreme Court ended some of the demands, but they have opened a few more. You get the idea... the kind of lawyers that make their profession look so bad.
- kylebrown 14y ago
  > Is it the fact that they bought a lot of risky debt at low prices? That is how risk works; The risk was already taken by the original lender, it was risk of default and was the reason for charging interest. The ability to default by declaring bankruptcy is a legal principal which distinguishes our society from a barbarous past full of relentless loan sharks. So The risk assumed by debt collectors is less legitimate, and a collector's claim is on shakier legal basis (even less consensus in international law, of course). Societal norms change, children no longer inherit the debt of their parents. IMO, personal bankruptcy ought to default student loans (in the US, it no longer does due to a recent law). Hatred of debt collectors goes back to biblical times, and for good reason.
  - Dylan16807 14y ago
    Sure, the risk was originally on the primary lender. But later on they can sell their stake to get rid of the remaining risk. There's nothing wrong with buying a lot of debt that is likely to default. I agree though that if the country actually defaults then the vulture shouldn't get anything.
  - anamax 14y ago
    > The risk was already taken by the original lender, it was risk of default and was the reason for charging interest. ... So The risk assumed by debt collectors is less legitimate, and a collector's claim is on shakier legal basis Not so fast. The price that I'm willing to pay for something, the risk that I'm willing to take, depends on whether I'm able to sell my interest to someone else. Curiously enough, other people aren't very willing to buy worthless things. If debt collectors have "less legitimate" claims than the original lenders, they're not going to pay as much as they will if their claims have the same legitimacy. As a result, original lenders are going to demand more interest and protection for their interests. If you want people to make risky loans, you must protect the rights of folks who buy loans that have fallen on hard times.
    - kylebrown 14y ago
      > If you want people to make risky loans, you must protect the rights of folks who buy loans that have fallen on hard times. Maybe lenders shouldn't be making such risky loans. Perhaps that could have averted the housing bubble. Maybe college tuition in the US wouldn't be rocketing sky-high past inflation. Its hard to know who is real benefactor of such willingness to lend. Far from clear that its the borrower..

Dylan16807 14y ago

I'm having a bit of trouble understating the problem with vulture firms. Is it the fact that they bought a lot of risky debt at low prices? That is how risk works; I feel like objections along these lines are focusing on specific cases where the vultures got lucky and are ignoring the big picture. Is it the fact that they are demanding money out of bankrupt countries? This seems odd to me; wouldn't the original debtors want repayment too? The second article there mentions vultures discouraging real investment in the countries. This seems like a serious issue but I don't understand how vultures specifically would have that effect.

andyjohnson0 14y ago
As I understand it, the problem is that the debtor states are often unable to repay the debt, at least not without taking money away from areas like public health and education. The loans are often quite old. Presumably the original lenders often decide that the loans are never going to be repayed, and the debtor states budget on that assumption. Years later they find themselves pursued for debts they believed were lapsed.
- Dylan16807 14y ago
  I have to think that in that case it's the original lender that resurrects the loan, it just took a reminder. A vulture wouldn't buy a loan that was truly dead. I guess you can blame vultures for incentivizing old lenders to resurrect loans but that's a pretty indirect thing to be upset about.
  - molmalo 14y ago
    As sethg pointed out, there's a difference between privete companies and sovereign countries. When you lend money to a company and that company can't pay you back, bankruptcy law gets in the game. But when you lend money to a state, you know that there's a calculated risk that they won't be able to pay you and you won't be able to do anything to force them to pay your money back. You protect yourself by adjusting the interest rate. But if the risk is just too high and you lend anyway, it's up to you to take that bet... If that country can't afford their debt, they can try to renegotiate with you, so you can get paid at least something. If it were a private company and the creditor does not accept the new terms, they could ask for a bankruptcy. As you can't do that with a country, if you reject the new terms, then the sovereign state can say "screw you" and never pay you anything. You had your chance to get something, and you lost it. Some vulture funds buy this kind of bonds, and then try to reclaim the money... As I said earlier... good luck with that. Even the U.S. Supreme Court and the US Government agrees with this [1]. That's why they are now trying this kind of weird actions, in some place where they managed to make a judge put his signature to their service... But it's mostly a media show. [1] Supreme Court Rejects Elliott's Argentina Appeal http://www.finalternatives.com/node/20864 http://www.finalternatives.com/node/20864 And some more extra info, even mentioning US Administration's support to Argentina's claim: http://marceloballve.wordpress.com/2012/06/27/who-pays-when-countries-go-broke-the-implications-of-nml-capital-ltd-vs-republic-of-argentina/ http://marceloballve.wordpress.com/2012/06/27/who-pays-when-...
    - Dylan16807 14y ago
      So the 'screw you' should transfer along with the debt and vultures aren't a legitimate problem?
      - molmalo 14y ago
        If you have a useless paper, and you sell it to someone else, it's still a useless paper... They are more of an inconvenience, and if they have deep pockets (like in this case), they can keep trying to fight legal battles, over and over for years. Making the other spend money in lawyers. Depending on the amount, it may be cheaper to just pay them and forget the whole thing, just like what happens in some patent cases with the hated patent trolls. But when there's a huge sum at stake, sovereign states will fight in court. Until now, this fund has lost every case, but they keep appealing the verdicts. A few months ago, the US Supreme Court ended some of the demands, but they have opened a few more. You get the idea... the kind of lawyers that make their profession look so bad.
kylebrown 14y ago
> Is it the fact that they bought a lot of risky debt at low prices? That is how risk works; The risk was already taken by the original lender, it was risk of default and was the reason for charging interest. The ability to default by declaring bankruptcy is a legal principal which distinguishes our society from a barbarous past full of relentless loan sharks. So The risk assumed by debt collectors is less legitimate, and a collector's claim is on shakier legal basis (even less consensus in international law, of course). Societal norms change, children no longer inherit the debt of their parents. IMO, personal bankruptcy ought to default student loans (in the US, it no longer does due to a recent law). Hatred of debt collectors goes back to biblical times, and for good reason.
- Dylan16807 14y ago
  Sure, the risk was originally on the primary lender. But later on they can sell their stake to get rid of the remaining risk. There's nothing wrong with buying a lot of debt that is likely to default. I agree though that if the country actually defaults then the vulture shouldn't get anything.
- anamax 14y ago
  > The risk was already taken by the original lender, it was risk of default and was the reason for charging interest. ... So The risk assumed by debt collectors is less legitimate, and a collector's claim is on shakier legal basis Not so fast. The price that I'm willing to pay for something, the risk that I'm willing to take, depends on whether I'm able to sell my interest to someone else. Curiously enough, other people aren't very willing to buy worthless things. If debt collectors have "less legitimate" claims than the original lenders, they're not going to pay as much as they will if their claims have the same legitimacy. As a result, original lenders are going to demand more interest and protection for their interests. If you want people to make risky loans, you must protect the rights of folks who buy loans that have fallen on hard times.
  - kylebrown 14y ago
    > If you want people to make risky loans, you must protect the rights of folks who buy loans that have fallen on hard times. Maybe lenders shouldn't be making such risky loans. Perhaps that could have averted the housing bubble. Maybe college tuition in the US wouldn't be rocketing sky-high past inflation. Its hard to know who is real benefactor of such willingness to lend. Far from clear that its the borrower..