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Saturday, July 7, 2012

Corporate financial greed and Greek economic crisis

Most of us have been taught by our parents that taking advantages of someone’s misfortune is simply unethical.

When a country was hit by an earth quake or tsunami, other countries will pour in humanitarian help and the UN will provide some relief aids.

But when a country is hit by economic crisis, vulture funds are more rampant and the UN does not do anything (such as starting a discussion group).  Indeed the UN is a non-performing (of its mission) organization in the world of “un-united nations”.

Before you call the Greeks lazy, you should read the articles below, and tell me if the guys who sit and do nothing and just buy vulture funds are lazier.  Greek economic crisis has many causes, but the following causes are less known yet exacerbated the situations and need to be mentioned more by people with conscience in the blogosphere.

What are Vulture Funds?
The term Vulture Fund refers to a company that seeks to profit by buying up debt in default on the secondary market for pennies on the dollar, then trying to recover up to ten times the purchase price, often by suing in U.S. or European courts.
While some Vulture Funds target failing companies, others go after the sovereign debts of impoverished countries, significantly undermining the intended impact of debt relief. These companies operate with little transparency. As shell companies (a company set up exclusively to pursue one goal, in this case, poor country debt), Vulture Funds are established in tax havens like the British Virgin Islands to avoid financial constraints and oversight. Because of the secretive incorporation strategies and locales, there is limited or no information on who actually owns and manages these Vulture Funds. 
Low-income countries that are eligible for debt cancellation are especially vulnerable. Vulture Funds track the debt relief process, buy soon-to-be-relieved debt from creditors, and then sue the poor country after it has received a windfall of resources thanks to debt cancellation.

Corporate financial greed

Thanks to Bloomberg, some transparency has started to surface about Greece’s secret loan from Goldman Sachs Group Inc. (GS) was a costly mistake from the start.

On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said.  Read the detailed article from this link.

When Greece announced in May that it had made a €436 million bond payment to the hold-out investors who rejected the country's historic debt revamping deal in March, almost 90 percent of this payment was delivered to the coffers of Dart Management, a secretive investment fund based in the Cayman Islands, according to people with direct knowledge of the transaction.  Dart is one of the best known of the so-called vulture funds, which have a track record of buying the distressed bonds of nearly bankrupt countries — and if they do not get paid, suing the governments for the money. Read the detailed article on this link.

How can a country get rid of debt when these vulture funds work against the initial intend of bailouts?

Other interesting links:
For Germans who read only the Bild and supported its POV on the Open Letter to Greek Voters, a news for you to realize that even a German company, Hochtief, likes to avoid paying taxes too.
End the unethical vulture funds, and a call for Greek debt audit.

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