Hedge Funders Take Their Pounds of Flesh
by NICK DEARDEN
The hamstrung negotiations over a new Greek bail-out recommence
tomorrow with little sign of resolution. As the Greek economy suffers
from rapidly rising unemployment and debt levels, and its people
experience rises in rates of suicide, murder and HIV, big profits still
stand to be made or lost. The financial sector which has destroyed Greek
democracy continues to hold the country down as it demands rich
pickings.
The European Union has told Greece that another bail-out will only go ahead if Greece can persuade private sector holders of Greek debt to accept a voluntary reduction in their claims on the country. They are looking to a 50% reduction, although the International Monetary Fund has suggested – correctly – that even this will not be nearly enough this late in the game.
Banks have been pressured by their governments to accept the write-down. But many of the investment funds that hold Greece’s debt are unwilling to take the offer. While they howl about the unfairness of them having to take a write-down which the European Central Bank will probably avoid, financial reporters suggest that many of these funds are simply out to make a speculative profit off Greece’s misery.
Around €70 billion of Greek debt is held by investment funds – pension funds, sovereign wealth funds and hedge funds – with another €55 billion held by European banks and insurance companies, including many funds headquartered in London. While some of these companies might represent the pensions of ordinary people, others represent nothing but the capital of the super-rich.
There is mounting evidence that some of these investment funds are not even original lenders, but have bought Greek debt cheaply after the economic crisis had already hit precisely in order to be able to blackmail the country. Elsewhere in the world Jubilee Debt Campaign has called these companies ‘vultures’ – funds which buy up the debts of a crisis-hit country for small amounts of money, in order to be able to make large profits.
German daily Der Spiegel estimates that ‘speculative investors’ could account for an enormous €50 billion of Greek debt. Bloomberg reported that a fund called Saba Capital Management bought Greek debt at a price suggesting a 75% chance of default. Reuters reports the likelihood that funds have been “building up their positions in the past months” buying debt for 40% face value, and that the “bet had already worked for some funds” as Greece has paid out on smaller debts to get rid of the claims.
There are a number of scenarios under which these funds get their pound of flesh. If most creditors accept a write-down the vultures – by being more ‘unreasonable’ – get paid in full. Alternatively, European politicians might be so desperate for a deal that bailout funds are given anyway, allowing Greece to continue paying the funds off, essentially with European taxpayer money. If all else fails, Greece could be forced into a default by 20 March, in which case the funds get paid out on their credit default swaps, which act like a sort of gamble that a country will default.
When we won a campaign to prevent vulture fund activity last year, the law was limited to protecting highly impoverished countries. But the sight of vultures swirling above Athens proves that this activity is neither marginal nor helpful to the functioning of the global economy.
None of this excuses either the incompetent muddling or the unenlightened self-interest of European leaders or the European Central Bank. They have presided over the destruction of a European economy, and the Greek people are bearing the costs. Unemployment has reached nearly 19% – up 5% in just 12 months and expected to rise to 21% this year. The Greek economy was supposed to contract by 3% this year – in fact it shrunk by just under 6%, with another 6.5% expected this year. Health specialists are now warning of a ‘humanitarian crisis’ as companies demand up-front payments for deliveries of medical supplies.
Another bail-out is certainly not the answer to Greece’s problems. However, the sight of speculators seeking high profits from such misery will be abhorrent to most people. Much wider changes need to be made to the global economy to prevent vulture activity.
On 20 March a large batch of Greek debt will need to be paid off. If the lives of millions of Greeks is not to be decided by a fight between greedy hedge funds and self-interested Eurozone politicians, there is no alternative to radical debt cancellation in Europe and restrictions on the functioning of investment funds. In Greece, Ireland, Portugal, Spain, Italy and now France campaign are up and running to demand debts are publicly audited and unjust and unsustainable debts are cancelled. Everyone who puts human life above the drive for profit must join them.
The European Union has told Greece that another bail-out will only go ahead if Greece can persuade private sector holders of Greek debt to accept a voluntary reduction in their claims on the country. They are looking to a 50% reduction, although the International Monetary Fund has suggested – correctly – that even this will not be nearly enough this late in the game.
Banks have been pressured by their governments to accept the write-down. But many of the investment funds that hold Greece’s debt are unwilling to take the offer. While they howl about the unfairness of them having to take a write-down which the European Central Bank will probably avoid, financial reporters suggest that many of these funds are simply out to make a speculative profit off Greece’s misery.
Around €70 billion of Greek debt is held by investment funds – pension funds, sovereign wealth funds and hedge funds – with another €55 billion held by European banks and insurance companies, including many funds headquartered in London. While some of these companies might represent the pensions of ordinary people, others represent nothing but the capital of the super-rich.
There is mounting evidence that some of these investment funds are not even original lenders, but have bought Greek debt cheaply after the economic crisis had already hit precisely in order to be able to blackmail the country. Elsewhere in the world Jubilee Debt Campaign has called these companies ‘vultures’ – funds which buy up the debts of a crisis-hit country for small amounts of money, in order to be able to make large profits.
German daily Der Spiegel estimates that ‘speculative investors’ could account for an enormous €50 billion of Greek debt. Bloomberg reported that a fund called Saba Capital Management bought Greek debt at a price suggesting a 75% chance of default. Reuters reports the likelihood that funds have been “building up their positions in the past months” buying debt for 40% face value, and that the “bet had already worked for some funds” as Greece has paid out on smaller debts to get rid of the claims.
There are a number of scenarios under which these funds get their pound of flesh. If most creditors accept a write-down the vultures – by being more ‘unreasonable’ – get paid in full. Alternatively, European politicians might be so desperate for a deal that bailout funds are given anyway, allowing Greece to continue paying the funds off, essentially with European taxpayer money. If all else fails, Greece could be forced into a default by 20 March, in which case the funds get paid out on their credit default swaps, which act like a sort of gamble that a country will default.
When we won a campaign to prevent vulture fund activity last year, the law was limited to protecting highly impoverished countries. But the sight of vultures swirling above Athens proves that this activity is neither marginal nor helpful to the functioning of the global economy.
None of this excuses either the incompetent muddling or the unenlightened self-interest of European leaders or the European Central Bank. They have presided over the destruction of a European economy, and the Greek people are bearing the costs. Unemployment has reached nearly 19% – up 5% in just 12 months and expected to rise to 21% this year. The Greek economy was supposed to contract by 3% this year – in fact it shrunk by just under 6%, with another 6.5% expected this year. Health specialists are now warning of a ‘humanitarian crisis’ as companies demand up-front payments for deliveries of medical supplies.
Another bail-out is certainly not the answer to Greece’s problems. However, the sight of speculators seeking high profits from such misery will be abhorrent to most people. Much wider changes need to be made to the global economy to prevent vulture activity.
On 20 March a large batch of Greek debt will need to be paid off. If the lives of millions of Greeks is not to be decided by a fight between greedy hedge funds and self-interested Eurozone politicians, there is no alternative to radical debt cancellation in Europe and restrictions on the functioning of investment funds. In Greece, Ireland, Portugal, Spain, Italy and now France campaign are up and running to demand debts are publicly audited and unjust and unsustainable debts are cancelled. Everyone who puts human life above the drive for profit must join them.
Nick Dearden is director of the Jubilee Debt Campaign.
