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Vulture Funds

By tumeric in MLP
Tue Jan 30, 2001 at 12:47:43 AM EST
Tags: Politics (all tags)
Politics

A story about at the end of last year brought attention to Vulture Funds. These are companies that buy third world debt on the cheap (I have no idea how you do this) and make money by extracting the debt (in full) from the poor country.


There is further coverage of the story here. Unfortunately, I haven't been able to find many balanced articles on vulture funds because the practice is little reported in the mainstream media and I have only been able to find sites with a political agenda.

The company involved with the Peruvian debt has a website which doesn't mention this practice other than a vague reference to "distressed securities".

Does anyone have more information on this? My personal opinion is that this sort of thing is morally dubious and leads to a world with haves and have nots. I'd also like to see it more widely reported -- hence the bit of MLP.

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Vulture funds are
o Immoral 25%
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Vulture Funds | 26 comments (23 topical, 3 editorial, 0 hidden)
Oops! (none / 0) (#2)
by MeanGene on Mon Jan 29, 2001 at 07:58:20 PM EST

Goofed up and posted this as an editorical comment while it's clearly topical. If somebody could correct my error...

"Vulture funds" (3.22 / 9) (#3)
by trhurler on Mon Jan 29, 2001 at 08:25:47 PM EST

So what you're saying is, if you're poor, it is ok to default on your loans? I'm sorry, but I don't buy it. Even if you're a socialist, you shouldn't buy it either. Here's why:

These loans are not government loans. Private businesses fund them. "Debt relief" screws those private businesses over. They then refuse to loan money to foriegn governments or businesses. This screws over those foriegners. The more this happens, the less funding will be available. People who don't pay their loans soon find that nobody will loan them money. You want to see those countries improve? Convince them to be fiscally responsible and to allow free enterprise. They'll soon be prosperous, just like everyone else who does so. Government-sponsored looting, on the other hand, will create your world of haves and have-nots.

These vulture funds are doing banks AND their customers a big favor. By buying the loans, they keep the banks from cutting off further loans to those customers, which does the customers a favor. By collecting the debts, they turn a profit while relieving the banks of the need to spend massive money and time collecting for themselves. Everyone is better off.

You want to see haves and have-nots, look to a country that is not allowed to have any foriegn investments, or in which they are limited. Afghanistan, for instance, or Iraq. Those places are shitholes, and they will remain so for a long time, because no foriegner in his right mind will spend any money there for fear that it will be "nationalized" or "relieved" or whatever the lie of the day that means "stolen" happens to be.

--
'God dammit, your posts make me hard.' --LilDebbie

Stop spreading this lie (4.28 / 7) (#8)
by Flavio on Mon Jan 29, 2001 at 09:10:39 PM EST

"The more countries don't pay their bills, the less funding will be available?" HAH!

There is not such option. The BIS, IBRD, GATT/WTO, IDB and all private banks *want* you to pay your debt, jackass. They profit much more on the interest than on the debt itself. These institutions want you to pay your bills indefinitely and will make things "easy" for you. This is accomplished with numerous bribes and blank promises of future business deals and investments. My favorite kind of quote goes around "this is a new era for [fill in country's name], which has shown independence and embarks on an era of new opportunities."

"People who don't pay their loans soon find that nobody will loan them money."?

You expressed it well: PEOPLE.

Countries aren't people and they HAVE to pay their bills. These loans NEVER expire and stopping payments only makes matters worse by increasing your debt and the interest on top of that.

Not paying debts forces you to make new loans AT HIGHER INTEREST to pay old debts. Again I tell you: banks WANT you to take their money.

> You want to see those countries improve? Convince them to be fiscally responsible and to allow free enterprise. They'll soon be prosperous, just like everyone else who does so.

Sure! Ignore the billions of dollars they already have of debt, their small internal gross product, the huge interest rates they must have [before you say anything regarding interest: ALL countries need to get loans. Must I remind you the US has the largest external debt? [1]]

What you ignore the most is that tons of officials [emphasis on the word officials] profit enormously from this deal. They are part of organizations like the IMF, private banks and part of governments. There must exist corrupt leeches on BOTH teams and these have been working the system since colonial times.

Meanwhile you say the fault is of the illiterate stinking niggers who insist on living on shantytowns, not going to school to work on pseudoslavery conditions and above all INSIST ON NOT PAYING THEIR DEBTS! My God, we must shoot the bastards in the back of their heads with a .45. Better yet, put them all in a row and give one rifle shot to the back of the last one so you waste just a bullet with them.

It's not about choice, idiot. And SHAME on you who rated this comment high. You're no better than fascists you so much condemn.

Flavio
--
[1] About the US's debt. The US has a huge internal gross product so paying that isn't very complicated. On the other hand, it's partly interesting to keep things the way they are. Believe it or not, you're partially right on this one. "The more countries don't pay their bills, the less funding will be available". At 4% interest, the US's debts aren't nearly as profitable as a third world country's but they hold up tons of money. Money that could be used by Japan, Germany, Britain and others to drastically increase competitivity and give the US a hard time.

[ Parent ]
No, you stop spreading yours! (4.00 / 1) (#17)
by trhurler on Tue Jan 30, 2001 at 11:27:53 AM EST

These loans NEVER expire and stopping payments only makes matters worse by increasing your debt and the interest on top of that.
They can stop paying and then state outright that they will never pay. They will be refused any further money, but that's beside the point; short of a military invasion, which banks lack the muscle to carry out, NOTHING will happen as a result. The odds are that nobody would do a damned thing about it. Sure, the banks can keep calculating interest, but if they never get any money, they're just shit out of luck. That's what being a "government" means - paper debt is only as good as the "government" backing it, and if that government chooses to default, banks have no real recourse. Any bank that complained would probably find its assets in that country threatened quickly, and would then shut up. Of course, as you point out, the country in question probably needs loans on occasion, but that's hardly relevant - nobody sane would loan them money anyway, so they're paying ridiculous rates that they can't afford, which is just as bad as not being able to get a loan at all - worse, actually.
Ignore the billions of dollars they already have of debt,
Why do they have debt they had to know they couldn't pay? That's my whole point.
[before you say anything regarding interest: ALL countries need to get loans. Must I remind you the US has the largest external debt? [1]]
The US also has the ability to pay its loans, and has a reasonable system in place to guarantee that they will be paid. Loans are one thing, but some of these countries took out huge loans they didn't need for boondoggle projects to make their leaders feel important, and now want out. I can't find any sympathy for them, because well, those are private citizens who lent that money, you see. Even if the government of, say, the US decided to assume the loans FOR the other country, which wouldn't happen, all that would mean is US taxpayers would be footing the bill for some foreign leader's excesses. His people should pay those bills, and they should learn a lesson in what happens when you have shitty leaders.
What you ignore the most is that tons of officials [emphasis on the word officials] profit enormously from this deal.
I ignore no such thing. A country is liable for the acts of its leaders.
Meanwhile you say the fault is of the illiterate stinking niggers who insist on living on shantytowns, not going to school to work on pseudoslavery conditions and above all
No, actually, I say the fault is on the country. If a "country" can take a debt, then a "country" is responsible for it. You cannot have your legal fiction when it suits you and then say "oh, well, we're tired of that, it has become inconvenient, so now we're a bunch of poor shantydwellers."
And SHAME on you who rated this comment high. You're no better than fascists you so much condemn.
Yeah! Shame on someone who disagrees with the mighty Flavio's enlightened worldview! Flavio forever! You fucking idiot, that is NOT what the comment rating system is for. It does not exist to determine whether or not a comment is in agreement with Flavio. It does not exist to decide whether a comment is sufficiently socialist enough or anti-WTO enough or whatever you call yourself. Go to hell and DIE with your lame ratings abuse.
At 4% interest, the US's debts aren't nearly as profitable as a third world country's but they hold up tons of money. Money that could be used by Japan, Germany, Britain and others to drastically increase competitivity and give the US a hard time.
The US debt exists largely because Ronald Reagan spent money on the military like it didn't matter. This was both good and bad, but it certainly was not a gigantic US conspiracy to stifle other countries. Some of those countries are probably getting a significant boost to their economic growth by the accumulation of that 4% on such huge sums - and we're paying that interest, whether you realize it or not. By now, many of them have received a full third of their money back purely in interest!

--
'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
Lies, more lies and statistics (4.33 / 3) (#18)
by Flavio on Tue Jan 30, 2001 at 12:55:39 PM EST

*sigh*. I don't answer this for you, but to people who might actually learn something with the following text.

They can stop paying and then state outright that they will never pay. They will be refused any further money, but that's beside the point; short of a military invasion, which banks lack the muscle to carry out, NOTHING will happen as a result.

No country or institution would never, EVER invest in that place again.

That's what being a "government" means - paper debt is only as good as the "government" backing it, and if that government chooses to default, banks have no real recourse.

No recourse, eh?

3rd world contries all have extremely corrupt governments and these banks will make it interesting for the country to pay its debts, I assure you.

(...) some foreign leader's excesses. His people should pay those bills, and they should learn a lesson in what happens when you have shitty leaders.

Fascist. If you were born a black man in miserable condition in Madagascar you wouldn't have this attitude. You're saying 3rd world contries stay in poverty because their inhabitants are mentally inferior to 1st world counterparts.

Loans are one thing, but some of these countries took out huge loans they didn't need for boondoggle projects to make their leaders feel important, and now want out.

"Leaders" of 3rd world countries don't represent the population's wishes. The population is so poor, uninformed and unenlightened that they unconditionally rely on "leaders" to make decisions for them. What would your "madagascan counterpart with an attitude" do? He can't speak correctly, can't articulate this thoughts, is illiterate, doesn't even know the names of the countries around him, doesn't know what interest rate is, doesn't know what WTO and IMF stand for, wears ragged clothes and a thousand people like him don't have enough money to buy an AK-47 rifle to kill their leader EVEN IF THEY COULD.

What you ignore the most is that tons of officials [emphasis on the word officials] profit enormously from this deal.

I ignore no such thing. A country is liable for the acts of its leaders.

I refer you to my previous paragraph.

A country IS liable for its past and for its leaders but your decision of cutting all supplies and communication to them only makes matters worse. Do you believe this nation's leaders will fall if the US et al decide to turn their backs on them? NO. Leaders will make the people's situation worse and they won't be the ones dying on gutters.

Meanwhile you say the fault is of the illiterate stinking niggers who insist on living on shantytowns, not going to school to work on pseudoslavery conditions and above all (...)

No, actually, I say the fault is on the country. If a "country" can take a debt, then a "country" is responsible for it. You cannot have your legal fiction when it suits you and then say "oh, well, we're tired of that, it has become inconvenient, so now we're a bunch of poor shantydwellers."

The leader is by now off to LA, Hawaii, the Bahamas or wherever else he likes spending his vacations. The country is now made of shantydwellers who have all the debt's weight layed upon them.

Yeah! Shame on someone who disagrees with the mighty Flavio's enlightened worldview! Flavio forever! You fucking idiot, that is NOT what the comment rating system is for. It does not exist to determine whether or not a comment is in agreement with Flavio. It does not exist to decide whether a comment is sufficiently socialist enough or anti-WTO enough or whatever you call yourself. Go to hell and DIE with your lame ratings abuse.

Your comment reflects your lack of knowledge of how international finances and politics truly work and worse: your lack of respect for other people, specially those less fortunate than you.

People aren't by default born enlightened with the power to act, choose and speak freely.

The US debt exists largely because Ronald Reagan spent money on the military like it didn't matter.

Oh, REALLY? Now imagine every single president you've EVER HAD squanders 850 times [1] more money than Ronald Reagan, every politician in your country supports him AND steals along with him and you can't do SQUAT to change things.

Puts things in perspective, doesn't it?

This was both good and bad, but it certainly was not a gigantic US conspiracy to stifle other countries.

News Flash: I NEVER SAID IT WAS! [2]

Some of those countries are probably getting a significant boost to their economic growth by the accumulation of that 4% on such huge sums

Repaying the trillion dollars would give a boost. What you give is A LOT but not a boost.

- and we're paying that interest, whether you realize it or not.

Ohhh, sorry, I didn't realise [3] that!

By now, many of them have received a full third of their money back purely in interest!

http://www.jubilee2000uk.org/fiasco.html

You can see on the main site that Africa pays $200 million each week in interest alone. For a continent with less revenue than most North American states, I'd say that's pretty much absurd.

Flavio
--

[1] approx. the ratio from US' 1999 GDP ($9.255 trillion) to Madagascar's GDP ($11.5 billion) accoding to CIA's World Factbook.
[2] it was even written as an unimportant foot-note.
[3] still on the subject of unimportant foot-notes: realise and realize are both correct.

[ Parent ]

Ooh! Call me a racist! Spank me, baby! (5.00 / 1) (#19)
by trhurler on Tue Jan 30, 2001 at 01:09:02 PM EST

No country or institution would never, EVER invest in that place again.
Yes, I mentioned that. Although actually, they would as soon as new and more "trustworthy" leaders were in power, because they're not stupid.
Fascist. If you were born a black man in miserable condition in Madagascar you wouldn't have this attitude.
Probably not. That doesn't mean I'm wrong. Nice way to drag out the old race card, though! Idiot. You still haven't answered the fundamental issue, which is that if THEY don't pay their debts, someone else has to - and probably someone unwilling. By the way, fascist apparently does not mean what you think it does.
You're saying 3rd world contries stay in poverty because their inhabitants are mentally inferior to 1st world counterparts.
I did not say that. Are you a complete and utter fucking moron who can't read and likes to slime people, or do you just play one on k5?
You can see on the main site that Africa pays $200 million each week in interest alone. For a continent with less revenue than most North American states, I'd say that's pretty much absurd.
If they'd quit fighting stupid civil wars and establish some semblence of law and order, they'd make more money. As it is, they borrow money and then squander it on guns and other crap they don't need.

--
'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
dear me, facts are pretty thin on the ground (none / 0) (#24)
by streetlawyer on Wed Jan 31, 2001 at 10:01:24 AM EST

A few points: Mexico has defaulted on its debts pretty much every twenty years since 1894. The United States of America defaulted on its debts numerous times during the 19th century. Other than ending its policy of apartheid, there has been no significant change in its political system since the defaults.

The interest rates charged on emerging market debt reflect the expectation of default. Defaults are part of the cost of doing this kind of business and are subsumed in the spreads charged. For third world countries to be forced to struggle on and pay these debts would be a ludicrous subsidy to the lenders, who have indeed earned an acceptable return on their invested capital.

"Would be" is indeed the case, because, no matter what trhurler says, the loans covered by jubilee2000 are not, in any significant degree, extended by the private sector. The private sector has long since abandoned hope of ever seeing payment on African lending, and made large charges to its P&L account between 1988 and 1993 to prove it. These loans are almost entirely assets of the IMF, IBRD and OECD governments.

Since most of the leaders installed in African states, who ran up these debts, were puppets of either the CIA or KGB, the major powers very definitely bear some responsibility for the debts themselves. Most of Africa's debts are a result of it being used as a sideshow to the Cold War.

--
Just because things have been nonergodic so far, doesn't mean that they'll be nonergodic forever
[ Parent ]

This isn't new, but good job (5.00 / 14) (#4)
by Flavio on Mon Jan 29, 2001 at 08:34:04 PM EST

Excellent idea on informing the masses.

I'll give a very short intro to what this really means because the article is somewhat vague. [And I've just reloaded the submission page and read some garbage that makes me shudder]

Every country has a national bank which covers transactions such as loans, imports and exports. The national bank's task is to convert the local currency into US Dollars (and vice versa), which are since the Bretton Woods treaty the standard all other currencies refer to. The so called "third world" or "developing" countries also have national banks, of course.

The major difference between national banks from 3rd and 1st world countries [apart from the amount of capital they have on reserve] is the interest rate they have on loans.

The United States' Fedederal Reserve has a low interest rate. I'm not sure on what it is at the moment, but it's usually around 4,5%. The Bank of Brazil's interest rate, on the other hand, is around 12%.

Why is that? Companies and governments need to finance their investments and do so with loans. Banks desperately want to lend people money so they profit on the interest. Governments/national banks also want foreign companies investing in their contry.

Whenever an American company invests in Brazil, their investment in Dollars must be exchanged for Reais (Brazil's currency). The Dollars go to Brazil's reserves and our bank either uses uncirculated Reais that it has on reserve or prints more Reais.

Investments are almost equivalent to exports in the sense that Dollars get converted Reais. This is a Good Thing.

Excessive imports, on the other hand, are a Very Bad Thing. If we don't have enough money on reserve [or don't want to use ALL our reserve; remember that a country with no or little reserves is wide open to currency speculation attacks, which is another topic] to pay for our imports we need to get a loan.

A bank gives us the loan in Dollars. In exchange for that Brazil's Bank gives a foreign debt title. Things aren't that simple, though, as banks want to exploit their clients as much as possible, specially if their clients have no alternative. That means banks refuse to lend Brazil (or whatever other country we're talking about) money until we agree to pay them back at a high interest rate "to compensate for the risk they're taking for lending us money".

This risk argument is total bullshit. A country isn't like a person who can die and never pay his bills. A country can proclaim moratorium on their debt payments as Brazil and Mexico have done in the past, but that's the stupidest, dumbest action one can possibly take. Proclaiming moratorium only forces a country to raise its interest rate for next DECADES, as foreign banks will truly have a reason to use the "risk compensation" argument.

Even after declaring moratorium and not making debt payments for an indeterminate amount of time, a country resumes to pay its foreign debt. During the time it neglected to make payments the debt grew and "renegotiations" that usually follow consist of nothing more than secondary loans to help pay for the first ones and deadline extensions.

As I stated before the moratorium digression, the government sometimes desperately needs loans to cover speculative attacks or a huge deficit. Loans are given only if we promise to pay enormous interest.

"Buying third world debt" is a synonym for giving out a loan to a third world country. "Selling a foreign debt title" is a synonym for taking a loan from a foreign bank.

Welcome to the wonderful world of international finances. They work better than the "make money fast" tactics you get in your mail and anyone with a few billion can do them.

Flavio -- Fast fact: during the Real crisis a few years ago, Brazil's Bank's interest rose over 45%.

A country can't die and never pay its bills? (none / 0) (#20)
by marlowe on Tue Jan 30, 2001 at 05:03:39 PM EST

Gee, maybe I should buy up the debt of the Holy Roman Empire.

-- The Americans are the Jews of the 21st century. Only we won't go as quietly to the gas chambers. --
[ Parent ]
Really irresponsible (1.50 / 4) (#5)
by jack doe on Mon Jan 29, 2001 at 08:34:05 PM EST

and I'm not one bit surprised. This is a pretty shady practice.

Not immoral... (3.50 / 6) (#6)
by klamath on Mon Jan 29, 2001 at 08:39:38 PM EST

... in my opinion. First off, these procedings should obviously be checked for legality. If they are illegal, they should obviously not be allowed. But keep in mind legality have nothing to do with morality (IMHO), so the defense of "it's mean to poor countries" has no relevance.

So the question of whether it is moral or not: IMHO, it's perfectly moral. These countries, poor or not, entered into a legally binding contract (I assume). Just like you or I, they should be expected to repay this debt. Perhaps asking for the loan was poor judgement -- but that's it's the responsibility of the poor country to assess this for itself. And all these companies are doing is looking for debt they think they make a profit on: similar to a company which buys debt off a bank, and then tries to make the debtors re-pay them. Again, it is the responsibility of the poor country to pay back its debts, no matter how poor it is (can a country go bankrupt?).

I think the whole policy of government's lending money to developing countries is flawed -- if we would avoid that, we wouldn't get into a mess like this. In fact, the idea of a government lending money to another government strikes me as just plain dumb. But's that's another topic for another time.

I realize the leftists out there probably disagree with practically everything I've said (which is fine with me) -- but I'd love to hear some criticism of my opinions. Bring it on! ;-)

countries and debt (none / 0) (#10)
by Nyarlathotep on Mon Jan 29, 2001 at 09:18:19 PM EST

Actually, all this foreign aid stuff was started because American industry had "won" and exports were dropping off. The idea was that they could buy more stuff if you gave them money to build a little infastructure. Regardless, the original foreign aid agenda seemed to be "take money from American citizens to help American corperations in international markets," i.e. it was more likely a right wing project, but the left has plenty of corperate welfare too.

Gernerally, leftists foreign aid is more "feal good" peace corps type stuff, health stuff, or enviromental stuff. I'm not really shure which side dose the really dumb "cure hunger by giving them free food (and put the local farmers out of buisness)" crap, but I expect that it's both sides.

Executive Summery: Lefty foreign aid is generally less harmful.

Campus Crusade for Cthulhu -- it found me!
[ Parent ]
Nice argumentation, but I believe it's immoral (4.66 / 3) (#11)
by Flavio on Mon Jan 29, 2001 at 09:23:09 PM EST

I believe this is immoral. You reason that legality is the only requirement for morality. Can't something be legally correct and be immoral?

Markets can be manipulated in very legal ways by influential people. These manipulations can collapse less powerful people or institutions.

The problem is that a country CANNOT go bankrupt. I wish one could.

> I think the whole policy of government's lending money to developing countries is flawed -- if we would avoid that, we wouldn't get into a mess like this. In fact, the idea of a government lending money to another government strikes me as just plain dumb.

It's extremely smart. It's by far the easiest way of making money. Remember that YOU aren't in a mess unless you're part of a third world country. You'll get your monthly income as usual from the people who work for it at this moment.

Flavio
P.S.: Again, nice argumentation. You've clearly exposed your ideas (which are correct; I just disagree with them on a subjective level) without being fascist.

[ Parent ]
WTF? (4.00 / 2) (#13)
by Estanislao Martínez on Mon Jan 29, 2001 at 10:12:20 PM EST

IMHO, it's perfectly moral. These countries, poor or not, entered into a legally binding contract (I assume). Just like you or I, they should be expected to repay this debt. Perhaps asking for the loan was poor judgement -- but that's it's the responsibility of the poor country to assess this for itself. And all these companies are doing is looking for debt they think they make a profit on: similar to a company which buys debt off a bank, and then tries to make the debtors re-pay them. Again, it is the responsibility of the poor country to pay back its debts, no matter how poor it is (can a country go bankrupt?).

What kind of warped system of morality is this, that the consequences the actions available could have upon millions of innocent persons are not even acknowledged in the discussion, much less given weight?

The answer, of course, is capitalism, the doctrine that places capital above persons.

--em
[ Parent ]

Re: WTF? (none / 0) (#26)
by klamath on Wed Jan 31, 2001 at 12:11:55 PM EST

What kind of warped system of morality is this, that the consequences the actions available could have upon millions of innocent persons are not even acknowledged in the discussion, much less given weight?
First off, the country in question is Puru. While I'm sure they're not rich, neither are they extremely poor. The consequences of paying off this money will probably be inconvenient for the Purusians, but it's not likely to cause nation-wide starvation.

The point is that the Purusians, by their own hand, have caused this situation. They borrowed the money, fully aware of the consequences of their actions. If borrowing the money was a poor decision, it was up to them, at that time, to not enter into the contract. However, they choose to do so, and they must accept the consequences for their actions. These so-called 'innocent' people are not innocent at all: their they, through their representatives in government, pursued this course of action; and they will suffer the consequences. It's too bad for the Purusians, but it's perfectly moral for the American companies to collect on this debt.

[ Parent ]

very immoral... (4.00 / 1) (#14)
by grifter17 on Mon Jan 29, 2001 at 11:18:27 PM EST

Here is a good argument why collecting these debts are immoral, I'll quote the first paragraph.

The simplest answer to the argument that countries who borrowed from the WB/IMF have no right to ask for debt forgiveness is that the presupposition is false, so the argument is vacuous. E.g., the "country" of Indonesia didn't borrow; it's US-backed rulers did. The debt, which is huge, is held by about 200 people (probably less), the dictator's family and their cronies. So those people have no right to ask for debt forgiveness -- and in fact, don't have to. Their wealth (much of it in Western banks) probably suffices to cover the debt, and more.


[ Parent ]
Why can't nations declare bankruptcy? (4.00 / 1) (#21)
by sera on Tue Jan 30, 2001 at 08:25:32 PM EST

In the U.S. -- and in most industrialized nations, as far as I know -- both people and corporations can declare bankruptcy. One of the fundamental tenets of bankruptcy is that past a certain point, the economic good that might be gained by forcing full repayment is outweighed by the social harm of putting that person (or a corporation's shareholders) into what is essentially slavery. We've progressed past the point of 18th century debtor's prisons: If your debt is overwhelming, you can declare bankruptcy and move on, though you'll have a hard time buying a car in the future. If you were foolish enough to invest in Pets.com before it went belly-up, there are laws to prevent Pets.com's creditors from knocking on your door and demanding your share of Pets.com's debt.

And yet we don't allow this for countries. Why not? It's pretty clear that many developing countries are in what could be essentially considered debt-based slavery in attempts to pay off old debt, often taken out by dictators who were just filling their own pockets. Often these debt repayment programs are so dehabilitating -- they often force countries to slash investment for future growth, such as education and infrastructure -- that the country will probably never be able to pay them off.

When the international finance organizations refuse to allow countries to declare bankruptcy, of course, they're protecting the interests of creditors (many of whom are often based in industrialized nations) who don't want to see their loan defaulted on. Personally, I think that's bullshit. Reward and risk are related: This is how capitalism works, and creditors are acting like spoiled children when they ask for anything else. If you didn't want to lose your money, you shouldn't have gambled it the first place.

firmament.to: Every text is an index.
[ Parent ]

Debt relief and Bancruptcy? (3.00 / 1) (#9)
by ToastyKen on Mon Jan 29, 2001 at 09:17:26 PM EST

I'm curious.. can someone explain to me the difference between debt relief and bankruptcy? It seems to me that we can consider debt relief as a form of bankruptcy.. that is.. giving a second chance.. a fresh start without as much old baggage.

One of the realities behind debt relief (3.33 / 3) (#12)
by Flavio on Mon Jan 29, 2001 at 09:38:31 PM EST

A quick google search gave me this:

http://www.jubilee2000uk.org/fiasco.html


[ Parent ]
didn't answer question (1.00 / 1) (#22)
by ToastyKen on Tue Jan 30, 2001 at 11:04:56 PM EST

That didn't answer my question at all..

[ Parent ]
Use a dictionary (5.00 / 1) (#23)
by Flavio on Wed Jan 31, 2001 at 08:42:01 AM EST

The only way you could be possibly having trouble with definitions is because you don't know what bankrupcy means.

The article clearly explains by example what debt relief is, so go get a dictionary and look up the other word.

[ Parent ]
Debt 101 (4.00 / 3) (#15)
by onyxruby on Tue Jan 30, 2001 at 12:01:34 AM EST

When a debt is created it is often sold or commissioned to a third party. This can happen regardless of wither or not the debt has defaulted. If you've ever been notified that your student loan is now in another companies name, than your debt was sold. This is very common in the financial sectors. I have a friend who works for a very large bank, and does nothing but buy and sell mortgages all day, to the tune of over $100 Million US a day. This frequently occurs without the debt ever becoming delinquent.

This practice is no different with a debt that is defaulted by the debtor. Let's say that you owe money on a credit card. You fail to make your payments for a period of 6 months and your account is permanently closed. Legally, your charge is now a loss called a "charge-off". The company you owe money is now legally ogliged to report this as a loss on their quarterlies. If they get to many of these, their own credit rating drops.

Once an account charges off their are three things that you can do with it, try to collect in house, commission the debt, or sell the debt. If they try to collect in house (very rare, as "in house" has already failed), they get 100% of the value of the debt. What is far more common is to commission someone to collect on the debt. Typically the original creditor will get somewhere between 80% to 90%, or points for each dollar that is collected by the agency. The agency would get 6 months to collect, and then uncollected debt is "returned" to the original creditor. At this point the debt is commissioned to another collection agency for a reduced rate. This process is repeated until debts will be commissioned as low as 1.5% of the dollar. This is by far the most common arrangement. The last arrangement is to actually sell the debt, this is not done as often since you might only get 60% initially instead of 80% to 90%. This also brings the debt out of the original creditors hands.

In short, no big deal here folks, this is industry standard practice.


The moon is covered with the results of astronomical odds.

vulture funds not typically trading 3rd world debt (none / 0) (#25)
by streetlawyer on Wed Jan 31, 2001 at 10:04:00 AM EST

I know a few people who work for vulture-type investors, and they more usually get involved in corporate debt in OECD countries. In 3rd world debt, there is typically no legal arrangements in place which would allow them to extract the debt -- otherwise, why would the debt be available on the cheap?

The only vulture investor which I am aware of getting a better deal than other creditors is the Dart Family Trust in the case of Brazil. This is a red herring.

--
Just because things have been nonergodic so far, doesn't mean that they'll be nonergodic forever

Vulture Funds | 26 comments (23 topical, 3 editorial, 0 hidden)
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