Recently, a resonant legal victory of hedge funds over Argentina has captured the attention of the global community. The hedge funds in this case aren’t run of the mill investment shops, however. Popularly known as vulture funds, their modus operandi is to buy up the debt of countries suffering crises at bargain prices, only to fiercely litigate with them afterwards. They attempt to claim full payment—principal and interest—employing a variety of tactics (including hiring lobbyists) to put pressure on the distressed debtors to satisfy their claims. And in the wake of Argentina’s loss, Puerto Rico may be in their crosshairs next.
It may not seem to matter whether a sovereign debt crisis is resolved quickly or not, but in fact delays in resolution are bad for almost everyone involved. They worsen the situation of the country in distress, and dim prospects for creditors to recover their investments. The small group of notorious Wall Street vulture funds have seized on these national crises to create extraordinary business opportunities for themselves. Over the past twenty years, these companies have raked in billions by undercutting orderly operation of the world’s financial markets.