If you thought Bernie Kerik was bad, wait until you hear about Republican presidential hopeful Rudi Giuliani’s new best friend: Paul Singer, a long time Republican campaign contributor who has pledged to raise $15 million for Giuliani. The phrase “vulture capitalist” might sound trite, but when you hear how Singer made (and still makes) his fortune, you’ll agree there’s no other way to describe it.
Singer was the inventor of what are known as “vulture funds.” A vulture fund buys discounted international loans from developing countries and then sues the country and forces it to repay the loan at full value. If the country defaults on the loan, this will often tank the country’s economy. Here’s what Singer does:
In 1996 his company they paid $11m for some discounted Peruvian debt and then threatened to bankrupt the country unless they paid $58m. They got their $58m.
Now they’re suing Congo Brazzaville for $400m for a debt they bought for $10m.
Anyone who knows anything about international loans realizes that many of these loans were high-risk loans that should have never been made in the first place (note: this case did not involve Singer):
In 1979 the Romanian government lent Zambia money to buy Romanian tractors. Zambia was unable to keep up the payments and in 1999 Romania and Zambia negotiated to liquidate the debt for $3m.
Before the deal could be finalised one of DAI’s vulture funds stepped in and bought the debt from Romania for less than $4m. They are now suing the Zambian government for the original debt plus interest which they calculate at over $40m and they expect to win.
As the Romanian example shows, these loans have little to do with aid, and much to do with stimulating the economy of the donor.
Gordon Brown, Chairman of the International Monetary Fund’s International Monetary and Financial Committee, has called this practice “a morally outrageous outcome.” Giuliani, like most political candidates, has talked about his ‘faith’, which in his case is Catholicism. Caritas International, a group of 162 Catholic relief, development and social service organizations operating in over 200 countries and territories, has this to say about vulture funds (italics mine):
In considering proposals which will affect financial opportunities for millions, we start from the core belief affirmed repeatedly by John Paul II, that the goods of the earth are given by God to ‘the whole human race for the sustenance of all its members, without excluding or favouring anyone’ (Centesimus annus 31, 1991). Catholic Social Teaching does acknowledge the potential positive role of the market in the international economy. However, we are equally aware that leaving the development prospects of nations, and millions of people at the mercy of international financial markets is to abnegate our moral and ethical responsibilities, as nations, as governments, and as public officials.
Power and Responsibility in Free Markets
Catholic Social teaching has always pointed out that real world markets, including labour, trade and financial ones, are dominated by the realities of power. Agreements presented as free contracts, and so as bearing the full consequent obligations between employee and employer, or trading nations, or borrower and lender are in reality shaped by unequal power relations. Whatever claims are made in favour of the markets we recall the fact that ‘there are many human needs which find no place on the market’. With John Paul II we insist that it is ‘a strict duty of justice not to allow fundamental human needs to remain unsatisfied, and not to allow those burdened by such needs to perish’ (Centesimus annus 34). In the face of the inequality on which international financial markets are founded Catholic teaching does not passively or fatalistically accept this as the way of the world, but calls on those with power, and especially those with government power to protect the weaker parties to such contracts. As we become more and more conscious of the extent and the limits of globalisation we stress ‘that it is the universal common good which demands that control mechanisms should accompany the inherent logic of the market’ (John Paul II, Address to Pontifical Academy of Social Sciences, 2001). Ensuring that there are such control mechanisms which serve the common good is the responsibility of governments.
If you’re going to make your religion part of your presidential campaign, then your adherence–and lack thereof–to its values is fair game; otherwise, don’t bring religion up (this applies to Democrats and Republicans).
The president–including El Jefe Maximo–has the authority to stop any of these lawsuits that appear in U.S. courts under the concept of the power of comity. Bush hasn’t done this. Neither, I think, would President Giuliani.
A related post: There’s more here. And it’s even uglier than I described.