Felix Salmon on Vulture Funds

Felix Salmon has a very interesting note up on his blog about vulture funds which engage in purchase of debt securities on which the issuer has defaulted. Why, on earth would you do that you ask? Well, go ahead and read Felix's note which provides a concise description of it. Now, of course the waters are bit more muddied than Felix merely describing what vulture funds are and do. In fact, Felix defends vulture funds and the function they perform in financial markets contrary to Greg Palast who over at his blog has been arguing against vulture funds recently.

So what are these vulture funds then?

So. What is a vulture fund? Here's Palast's definition (actually, I should be accurate here – the byline on the piece is actually Newsnight's Meirion Jones, who was the producer on Palast's report):

Vulture funds - as defined by the International Monetary Fund and Gordon Brown amongst others - are companies which buy up the debt of poor nations cheaply when it is about to be written off and then sue for the full value of the debt plus interest - which might be ten times what they paid for it.

I have not been following this debate so I won't take sides but merely say that Felix's note goes a long way to convince that something good can come of these funds or as they are aptly described 'depreesed debt collectors.' Especially, the point about how these funds can act as sort of hedge against buying risky government debt or crucially how vulture funds inderitctly allow less developed countries to raise capital to finance the running of a country. This does not mean that there cannot be a flipside to the story but these are points well made in my opinion.