In Defense of 'Vulture Funds' | Richard W. Rahn | Cato Institute

In Defense of 'Vulture Funds' | Richard W. Rahn | Cato Institute: "Argentina issued U.S. dollar-denominated bonds subject to U.S. law because most international bond buyers would not have been willing to buy Argentine currency bonds subject to the Argentine courts."

"Here is where the “vulture funds” come in. They are run by entrepreneurs who are willing to take very high risks by buying the defaulted debt of the corrupt or mismanaged country at deep discounts (usually after the original bondholders have fled) and, at times, use the court systems around the world to seize assets of the deadbeat countries as a way of pressuring them to pay their debts. Last month, one of the Argentine creditors managed to legally hold an Argentine naval training vessel (a large, beautiful, classic, four-masted sailing ship) that had docked in Ghana.

Those who buy the discounted bonds of countries in default in the secondary market do so to make a profit, but they often need to hold the debt for many years and engage in long and expensive court battles with an uncertain outcome."

"Several of the often disparaged vulture funds have track records of helping to bring corrupt government leaders to heel by insisting that governments pay what they promised. By creating precedents, they have reduced risk and borrowing costs for all."