Vulture Funds Are Immoral Profit Makers
Calling for tighter financial oversight of the international economy, Pope Francis recently chastised world leaders that fiscal irresponsibility by a wealthy minority has made life miserable for millions of the world’s poor. Francis went on to say that “the worship of the golden calf of old has found a new and heartless image in the cult of money and the dictatorship of an economy which is faceless and lacking any truly human goal.”
Last week Jubilee USA’s Network Council hosted a congressional briefing to inform constituents on U.S. policies of debt restructuring and responsible lending and borrowing practices in the developing world. Jubilee, a coalition of organizations, faith communities, and global partners, seeks debt cancellation for some of the world’s most impoverished countries and promotes a fiscally responsible and just international economy.
A primary focus of the briefing was to remind attendees of the humanitarian issues inextricably linked to nations experiencing sovereign debt (or bankruptcy) crises. Protecting the poor and ending creditor corruption are two means that were discussed by panelists representing international regulatory bodies, business industries, and social welfare organizations.
The meeting opened with a prayer from Timi Gerson, director of advocacy for the American Jewish World Service. In the call to intention and meaningful action, Gerson upheld that all faith traditions teach that the borrower/lender relationship should be a good one. After highlighting passages in Exodus and Psalms, she urged those attending to bear in mind the moral aspect amid complex international finance issues.
Among the largest phenomena that have arisen from foreign debt crises and loan repayment structures are predatory hedge funds, known as vulture funds. Simply said, vulture funds intentionally target the debt of financially distressed nations. They monitor the likelihood of a country’s ability to gain international debt relief. Right before the country receives aid, vulture funds buy up the nation’s debt. Then, they call in their debt bonds, suing the country once it receives resources that help debt cancellation. The result is that vulture funds, after buying distressed debt for pennies on the dollar, turn around and sue to recover up to ten times the purchase price.
Because vulture funds locate themselves in such offshore tax havens as the Cayman Islands, the companies or individuals remain a secret. Many times, there is no source of reliable information on who actually owns them, making accountability impossible.
If a heavily indebted country loses a lawsuit to vulture funds, there are significant losses to its people. First, the International Monetary Fund rarely lends a sufficient amount to even protect poor citizens from austerity measures. Then, the cash flow out of the country removes even a greater amount of resources from a nation suffering sovereign insolvency. Historically, when huge cuts need to be made to address the predatory creditors, public welfare services are the first to get axed. These cuts, called austerity measures, disproportionately hurt those at the bottom. Healthcare, education, and welfare entitlements to elderly and those in poverty are frequent targets. The poor and especially poor women thus end up shouldering the burden of a government debt they do not owe, bought out by a nefarious hedge fund, which doesn’t care about their lived reality. The staggering debt takes its toll on the vulnerable, while vulture funds net millions of dollars in victory. Funds internationally intended for social services are effectively co-opted, or “stolen,” by powerful, predatory creditors.
We saw this play out very recently in Greece, which, should be noted, is not even considered a “developing country.” Protestors flooded the streets in opposition to government imposed austerity measures. Even non-distressed nations must sit up and take notice of the real threat sovereign defaults post to global economic security. The forced choice to either pay debts or pay for social services is a patently unjust one, and often not made by those who will bear its affects.
The lack of formal international finance institutions is one reason why this economic injustice is so easily perpetuated. Debt restructuring must be revamped, says Dr. Cephas Lumina, United Nations Independent Expert on the effects of foreign debt. He likened the current state of affairs as the “Wild West” of global debt repayment and loan finance. Lumina asserted that the absence of internationally recognized legal frameworks allows vulture funds to pursue nefarious activities. These activities can result in winning lawsuits extracting a huge percentage of the distressed country’s GDP.
A written statement from U.S. Rep. Maxine Waters (D-Calif.) accused offshore hedge funds of constituting a major source of the problem for developing nations in achieving sustained growth and development. Any practice, the statement continued, that worsens economic inequality poses a threat to global finance. Waters appealed that just as people should be given a fresh start in hard times, so too ought nations facing back-breaking debt.
Vulture funds are immoral profit makers. Sustained economic growth of developing nations cannot be achieved given the amount of cash flow exiting those countries in the form of paid interest fees and lost court battles to vulture funds. And for all the aid given to Africa, people may be surprised to learn that the continent is a net creditor to the global economy, not taker. If that sounds wrong, it is. It is morally wrong.
As people of faith, we recognize the need to care for our poorest brothers and sisters suffering around the world from global economic inequality. We recognize ill-gotten gains are not hidden from the eyes of God, nor the resulting harm done to the weak.
Motivated by scriptural truths and encouraged by calls from faith leaders, including the pope, let us also be advocates for increased transparency and accountability in global financial dealings. May we continue to pray and work for economic justice and fairness to citizens of highly indebted nations, and a forgiving, reconciliatory nature for their creditors.
Anna Hall is campaigns assistant for Sojourners.