Understanding Vulture Capitalism

The world of high finance can be confusing to experts, let alone to folks like me.  But presently we have a situation in which US vulture capitalists, are threatening the financial integrity of Europe, and the way in which they are doing so provides us a window into how they operate and into understanding Vulture Capitalism.

Who are the real villains on Wall Street? When it comes to institutionalized greed and corruption, nothing tops the too-big-to-fail banks like JP Morgan Chase, Bank of America and Goldman Sachs. But these financial giants form only one part of the financial oligarchy. Lurking in the shadows are aggressive hedge funds that are just as lethal to our economic well being. If Goldman Sachs is a vampire squid, as Matt Taibbi so aptly named it, then hedge funds are like schools of piranhas or sharks, eager to strip the financial carcass to the bone.

The sharks at this very moment are circling Greece, waiting to devour that nation’s resources. To understand this attack we need to enter into the rotting innards of our financial system. 

But aren’t the Greeks lazy?

Let’s starts with a closer look at why Greece has accumulated so much debt. The answer is not because they sit around sipping retsina rather than working. Instead it has everything to do with the attempt of Europe to improve the lot of the Greek people so they would embrace democracy. Let’s not forget that from 1967 to 1974 Greece was ruled by a military junta that inflicted enormous pain on its people. Helping the Greek people escape poverty was critically important. Greece’s entry into the European Union and the access to capital it provided, allowed the Greek people to rebuild the foundations of prosperity and democracy.

Of course, our vampire squid banks also played a critical role in exacerbating the debt problem. When Greece hit the debt limits set by the EU, large U.S. banks profited mightily by structuring loans to Greece to skirt those rules.

But the biggest blow came from the 2008 financial crash, which was wholly caused by Wall Street’s reckless gambling spree. When the world economy nearly collapsed into another Great Depression, the weaker economies in the EU took the biggest hit. Ireland, Portugal and Greece suffered enormous job loss and massive declines in tax revenues. These countries became the victims of the vast housing bubble that was pumped up by Wall Street’s fantasy financial schemes. Yes, they had accumulated too much debt, but the problem would have been manageable were it not for the Wall Street-created crash.

Enter the piranha hedge funds

Hedge funds are lightly regulated, privately managed investment funds created and designed for the super-rich, who expect to get much higher rates of return than the rest of us. While you and I are lucky to see a 2 percent increase in our 401ks, hedge funds hope to see gains far in excess of 10 percent. Pension funds and endowments have also followed the super-rich into these funds to gain access to these outsized returns. There are 8,000 or so hedge funds that now manage a total of nearly $2 trillion.

But making these super-profits doesn’t come easy. Hedge funds don’t just get lucky on a few stocks or bonds. They look for an edge, and more than a few go over the edge by engaging in criminal activity like insider trading. Others hope to get to the Promised Land by being tough SOBs who don’t think twice about impoverishing people. Those SOB hedge funds are circling Greece right now, doing all they can to get their hands on the money the European Union wants to lend Greece to reduce its long-term debt problems.

Here’s the play: Greece does not have enough money to pay off the loans that are coming due in the next year. So the EU and the International Monetary Fund have assembled a bailout package to help Greece make those payments. In exchange, the Greek people are being asked to suffer through enormous cuts in government spending – which means cuts in jobs, incomes, healthcare, pensions and public education. Everyday citizens are making enormous sacrifices.

But the European Union also insists that the bond holders of Greek debt take a hit. After all, under the supposed rules of capitalism, if you make a bad loan, you suffer the losses. So the EU wants to recall the old bonds and replace them with new ones at lower interest rates more suited to Greece’s financial condition. Imagine that! Financial elites are being asked to sacrifice a bit to pay for the problems they helped to create.

Well guess what? The elites don’t like it. You see, hedge funds have been buying up Greek bonds at steep discounts. They want to milk the deal for as much as possible. So they are refusing to accept what the EU is offering. The hedge funds want to capture as much of the bailout money as possible. They could care less if the Greek people suffer. (Think Bain.)… [emphasis added]

Inserted from <Alternet>

I strongly encourage you to click through and read the rest of this article to get a better understanding on how greed on the part of vulture capitalists, similar to Mitt Romney, could cause a financial crisis in Europe, which would quickly spread across the pond to the US.

These are the people that Republicans represent.  They do NOT represent you!