Vulture fund
As the 1980s progressed, debt rescheduling efforts in Latin America created many new and easily traded instruments such as Brady bonds that brought new players into the market, including banks and hedge funds.
That pricing encouraged funds to invest in recovery actions, which would not otherwise make financial sense due to their length and cost.
The term "vulture fund" is a metaphor which is used to compare these particular hedge funds to the behaviour of vultures (scavengers) “scavenging” on debtors in financial distress by purchasing the now-cheap credit on a secondary market to make a large monetary gain, in many cases leaving the debtor in a worse state.
[11][12][13] However financiers dealing with vulture funds argue that "their lawsuits force accountability for national borrowing, without which credit markets would shrivel, and that their pursuit of unpaid commercial debt uncovers public corruption.
"[14] A related term is "vulture investing", where certain stocks in near bankrupt companies are purchased upon anticipation of asset divestiture or successful reorganization.
[15] The term has gained wide acceptance from governments, newspapers, academics and international organizations such as the World Bank, Group of 77, Organisation of American States and Council on Foreign Relations, among others.
[21] A non-profit financial reform organization, Jubilee USA Network, supported the legislation citing the impact that vulture funds have on poor countries.
[17] The US-based Council on Foreign Relations questioned the US Supreme Court for rejecting Argentina's appeal in its legal dispute with the so-called vulture funds.
The organization claimed that such actions make it "more difficult for countries to free themselves from the burden of over-indebtedness" and are " very bad for international capital markets", as well as being a huge blow to national sovereignty.
The organization described Thomas Griesa's ruling against Argentina in favour of vulture funds as "punishing the innocent" and "turning the natural order of debt on its head".
[20] In 2002, the British Chancellor (and later Prime Minister) Gordon Brown told the United Nations that when vulture funds purchase debt at a reduced price, and make a profit from suing the debtor country to recover the full amount owed, the outcome is "morally outrageous".
[40] The affair caused a national scandal in Ireland,[41][42] and led to public backlash against the activities of US distressed debt funds,[43][44] and particularly when it was discovered that they had used children's charities controlled by Irish tax-law firms to mask their Section 110 SPV tax vehicles.
