Go Lean Commentary
We repeat the strong caution …
… just say “No” to debt!
Many bad things happen when people, institutions and countries depend on debt. A “slippery slope” can emerge … from dependence, to reliance, to requirement, to a “vital” status, to … debt slavery. Emancipation from debt slavery is not so easy, as many times its a voluntary slavery. The ransom to redeem from slavery is all about money, finance and/or economics. This is why the sage advice from a Subject Matter Expert in Economics is: The further one stays away from debt, the better!
It’s a lesson learned, as chronicled in the book Go Lean … Caribbean, from Detroit; not only does debt impact the past, but the future as well. Debt can be so bad that at times the providers … and collectors of debt may be derisively called “vultures”, as follows:
The term “vulture fund” is a metaphor, which can be considered a pejorative term, used to compare hedge funds to the behavior of vulture birds “preying” 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. The term is often used to criticize the fund for strategically profiting off of debtors that are in financial distress, and thus is frequently considered derogatory. 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.” A related term is “vulture investing”, where certain stocks in near bankrupt companies are purchased upon anticipation of asset divestiture or successful reorganization.
The term has gained wide acceptance from governments, newspapers, academics and international organizations such as the World Bank, Group of 77, Organization of American States and Council on Foreign Relations, among others.
Source: https://en.wikipedia.org/wiki/Vulture_fund retrieved February 24, 2016.
This dire disposition of debt is not exclusive nor limited to Detroit. This applies to many other communities, in North America, Europe (think Greece), Latin America and even in the Caribbean.
See the news article here – plus the accompany encyclopedic reference and VIDEO regarding Vulture Capitalists – conveying the harsh economic and governing realities in Argentina:
News Article: New Argentine govt resumes talks with ‘vulture’ creditors
By: Mariano Andrade, AFP
New York (AFP) – The new Argentine government reopened talks with bondholders in New York that for years have blocked the struggling country’s access to global capital markets.
Talks between bondholders and representatives of the new government of President Mauricio Macri, who has pledged to reform and revitalize the Argentine economy, opened in Manhattan under the guidance of the court-appointed mediator Daniel Pollack.
“We’ll be presenting Argentina’s proposal during the week of Monday, January 25 to Pollack and to the holdout firms” Luis Caputo, an official representing Buenos Aires said at the close of five hours of negotiations on the first day of talks.
The previous administration of Cristina Kirchner had refused to compromise with the creditors, mainly hedge funds it branded “vultures,” after a US court ordered the country to pay the full value of bonds that Buenos Aires defaulted on some 15 years ago.
The leaders of the so-called “holdout” group, the hedge funds NML Capital and Aurelius Capital Management, bought up Argentine debt cheaply around the time of the default and over the next decade refused to join 93 percent of bondholders in restructuring the debt.
Speaking in Buenos Aires on Wednesday, Argentine Economy Minister Alfonso Prat-Gay said the South American country would negotiate “with toughness” but was committed to finding an agreement.
On Tuesday, Macri said he hoped for a “reasonable agreement” with the creditors, who have demanded 100 percent payment of their bonds even though most of the creditors in the country’s $100 billion default in 2001 accepted sharp losses in a negotiated debt restructuring.
“We will tell the mediator that there has been a change, another vision for our debts and how to stop being a defaulter and to resolve the pending issues,” Macri said.
The decision roiled the sovereign bond world.
The court said, moreover, that Buenos Aires could not make payments on the restructured bonds without first paying off in full the two hedge funds. And it forbade banks from handling any other bond payments before the hedge funds were paid.
Kirchner’s government refused, and talks on an ostensible compromise went nowhere.
– Heavy price tag –
The two hedge funds hold about $1.3 billion worth of bonds, whose accrued value is now about $1.7 billion.
Last October, the New York court further ruled that 49 other holdouts were covered by the 2012 ruling and also had to be paid first, adding another $6.1 billion to the sum Argentina is ordered to pay. Pollack has said the total amount owed to holdouts is around $10 billion.
The Argentine economy minister said the US court ruling gave the creditors lavish interest payments — up to 95 cents out of every dollar Buenos Aires has been ordered to pay, in the case of certain bonds.
“That is what we want to discuss quickly and resolve the problem,” he said.
“This is the cost of washing our hands of the problem for more than 10 years,” he said.
With foreign reserves believed to be at less than $30 billion, Kirchner’s government said it could not afford to pay, and Macri’s government will face the same challenge.
The conservative new president has launched into a program of difficult structural reforms for the economy that includes a more than 30 percent devaluation of the peso.
He has indicated he wants to resolve the problem with the bond holdouts quickly, as it impedes the country’s access to global capital markets.
Within days of assuming office on December 10, Macri sent representatives to let Pollack know the country was ready to negotiate in earnest.
(Source: http://news.yahoo.com/argentine-govt-resumes-talks-vulture-creditors-180051669.html posted January 13, 2016; posted February 23, 2016).
- Argentina resolves a bond debt claim for over $110 million – Associated Press
- US judge tentatively backs Argentina on debt payments – AFP
Reference Title: Vulture Capitalists
Vulture capitalists are investors that acquire distressed firms in the hopes of making them more profitable and selling them for a profit. Due to how vulture capitalist make firms more profitable, and their aggressive investing nature, vulture capitalists are often criticized.
Venture vs. vulture capitalist
A venture capitalist is an investor who provides funding for start-ups, early stage firms and companies with growth potential. These types of firms seek out venture capitalists, as they are too small or too new to have credit profiles, making them ineligible for bank loans and other forms of raising capital.
Although risky, venture capitalists invest in firms as there are very lucrative returns on their investments when the company they are investing in is successful. Furthermore, venture capitalists will often invest in a range of firms rather than just one or two, in order to mitigate risks if the investments are unsuccessful.
On the other hand, vulture capitalists are a type of venture capitalist, which provide a final attempt at gaining funding. Whereas venture capitalists seek firms with growth potential, vulture capitalists seek firms where costs can be cut in order to increase profits. Most often, these firms are distressed and on the brink of bankruptcy. Due to this reason, vulture capitalists are able to buy these firms for very low prices.
Once the firm is acquired, vulture capitalists cut-down costs wherever possible, which often means firing workers and cutting benefits. With reduced costs, the firm becomes more profitable, raising share price, giving investors profit. Lastly, the vulture capitalists sell any equity they own, allowing for more profit to be made.
Vulture capitalists receive a lot of criticism as they often go for firms that are in very poor shape, meaning these firms are unable to secure capital from banks or even venture capitalists as they are too risky of an investment. Due to this, vulture capitalists are able to acquire the firms for prices that are way below the actual market value price.
Once vulture capitalists acquire a firm, they often fire workers to reduce costs, in order to raise profitability for their own gain. Vulture capitalists are criticized for this as the newly unemployed people put pressure on the social system through needing unemployment benefits, which comes from taxpayers’ money. Meanwhile, vulture capitalists pay only 15% tax on their profits. In other words, while vulture capitalists reap in the rewards, they put more pressure on the social system.
Due to these reasons, venture capitalists can be accused of being a vulture capitalist, or vulture for short, depending on how they conduct their business. In this sense, vulture capitalist is used as a derogatory word for venture capitalists, as the vulture capitalists are considered to be preying on firms in distress for their own profit.
VIDEO – Argentina – Vulture Capitalism Takes Another Step – https://youtu.be/NhGhrRZ8NJg
Published on Aug 14, 2015 – Greg Palast, Billionaires & Ballot Bandits/Vultures and Vote Rustlers, joins Thom. A dispute between the country of Argentina and a block of New York hedge funds led by Paul Singer’s “Elliot Management” just entered a new chapter.
Argentina, according to the foregoing article, definitely has a crisis. But according to the book Go Lean … Caribbean, “a crisis is a terrible thing to waste”. Argentina – and all of Latin America and the Caribbean – needs to use crises to re-boot their debt-finance-economic eco-system. Though Argentina and Latin America is out-of-scope for the focus of the Go Lean book.
The focus is strictly on the Caribbean. The Go Lean book – with the simple pretext that only at the precipice do people change – serves as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU) to provide new oversight for the Caribbean region’s economic, security and governing engines. The book was conceived in the wake the 2008 Global Recession, heightened with the collapse of Investment Bank Lehman Brothers, by stakeholders intimate with the anatomy of that crisis – worked for Lehman – and composed a prescription for a Caribbean turn-around from all crises.
The publishers of the Go Lean book, used the insights and experiences of good, bad and ugly examples of debt servitude in the modern world. The book considered Egypt (1800s), Greece and Detroit to forge the roadmap for effecting change in the Caribbean without “Vulture” debt. The book also stresses the art and science of better Credit Ratings.
The better the Credit Rating – see Jamaica’s example in the Photo here; an Appendix from the Go Lean book (Page 274) – the less of a chance to be limited to Vulture Capitalists. Many lessons on debt (sovereign, municipal and personal), finance and economics have been detailed in previous blogs/commentaries. Consider this sample here:
|http://www.goleancaribbean.com/blog/?p=7268||Detroit’s ‘debt reality’ giving schools their ‘Worst Shot’|
|http://www.goleancaribbean.com/blog/?p=7235||Flint, Michigan – A Cautionary Tale for bad debt management|
|http://www.goleancaribbean.com/blog/?p=7140||Azerbaijan sets its currency on free float|
|http://www.goleancaribbean.com/blog/?p=6800||Venezuela sues Black Market currency website in US|
|http://www.goleancaribbean.com/blog/?p=6563||Lessons from Iceland – Model of Recovery|
|http://www.goleancaribbean.com/blog/?p=6531||A Lesson in History – Book Review on the 2008 Crisis|
|http://www.goleancaribbean.com/blog/?p=5818||Greece: From Bad to Worse|
|http://www.goleancaribbean.com/blog/?p=5759||Pressed by Debt Crisis, Doctors Leave Greece in Droves|
|http://www.goleancaribbean.com/blog/?p=5183||A Lesson in History – Troubles from Mexico’s Unpaid Debt|
|http://www.goleancaribbean.com/blog/?p=3814||Lessons from the Swiss un-pegging the franc|
|http://www.goleancaribbean.com/blog/?p=3582||For Canadian Banks: Caribbean is a ‘Bad Bet’|
|http://www.goleancaribbean.com/blog/?p=3311||Detroit to exit historic bankruptcy|
|http://www.goleancaribbean.com/blog/?p=709||Student debt holds back many would-be home buyers|
|http://www.goleancaribbean.com/blog/?p=372||Dominica raises EC$20 million on regional securities market|
|http://www.goleancaribbean.com/blog/?p=273||10 Things We Want from the US – # 3 American Capital|
The Go Lean/CU roadmap proposes debt, finance and economic solutions designed to avoid the tragedy of Argentina, Greece, Detroit and other communities that have succumbed to debt slavery. In summary, the strategy is to model the American capital markets, not with the same liquidity (initially on a per capita basis), but with similar accessibility and universal participation. With the success of this roadmap, Caribbean member-states and municipalities will be able to tap regional capital markets for bond financing in Caribbean Dollars (C$). This means repaying in C$, not US Dollars as related in the foregoing news article about Argentina. This means no foreign currency risks for repayment, and no foreign oversight on sovereignty.
The CU is designed to do the heavy-lifting of organizing Caribbean society to benefit from the lessons from sovereign, municipal and personal debt crises from other communities. The Go Lean book details the community ethos to adopt, plus the executions of the following strategies, tactics, implementations and advocacies to impact the economic turn-around of Caribbean communities:
|Community Ethos – Economic Principles – Economic Systems Influence Individual Choices||Page 21|
|Community Ethos – Economic Principles – Voluntary Trade Creates Wealth||Page 21|
|Community Ethos – Economic Principles – Consequences of Choices Lie in the Future||Page 21|
|Community Ethos – Economic Principles – Money Multiplier||Page 23|
|Community Ethos – Governing Principles – Lean Operations||Page 24|
|Community Ethos – Governing Principles – Return on Investments||Page 24|
|Community Ethos – Ways to Impact the Future – Count on the Greedy to be Greedy||Page 26|
|Community Ethos – Ways to Impact the Greater Good||Page 37|
|Strategy – Mission – Fortify the Stability of the Securities Markets||Page 45|
|Strategy – Provide Proper Oversight and Support for the Depository Institutions||Page 46|
|Tactical – Growing the Economy – Minimizing Bubbles||Page 69|
|Tactical – Separation-of-Powers – Depository Insurance & Regulatory Agency||Page 73|
|Implementation – Assemble Caribbean Central Bank as a Cooperative||Page 96|
|Implementation – Ways to Better Manage Debt – Optimizing Wall Street Role||Page 114|
|Implementation – Ways to Foster International Aid – Technical Assistance||Page 115|
|Planning – 10 Big Ideas – Single Market / Currency Union||Page 127|
|Planning – Lessons Learned from 2008||Page 136|
|Planning – Lessons Learned from New York City – Wall Street||Page 137|
|Planning – Lessons Learned from Detroit||Page 140|
|Planning – Ways to Measure Progress – Allow strategy of Plan, Do & Review||Page 147|
|Anecdote – Caribbean Currencies||Page 149|
|Advocacy – Ways to Grow the Economy||Page 151|
|Advocacy – Ways to Create Jobs||Page 152|
|Advocacy – Ways to Control Inflation||Page 153|
|Advocacy – Ways to Better Manage Foreign Exchange (fx) – Strong regional currency||Page 154|
|Advocacy – Reforms for Banking Regulations||Page 199|
|Advocacy – Ways to Impact Wall Street||Page 200|
|Advocacy – Ways to Impact Main Street||Page 201|
|Appendix GA – Caribbean Member-States Credit Ratings – December 2012||Page 274|
|Appendix – Tool-kits for Capital Controls||Page 315|
|Appendix – Lessons Learned from Floating the Trinidad & Tobago Dollar||Page 316|
|Appendix – Controlling Inflation – Technical Details||Page 318|
The Go Lean roadmap posits that change is coming to the Caribbean so that we can divorce ourselves from the dependence of Vulture Capitalists; see sample Vulture Capitalist in this commentary. Many Go Lean blog-commentaries have reported that change is now afoot to reboot public finances. Though Argentina is out-of-scope for the Go Lean roadmap, we can observe-and-report on the progress and regression of that country and other Latin America’s economies.
The Go Lean book declares: “A crisis is a terrible thing to waste” – quoting noted Economist Paul Romer. The opportunity exists now to forge change in the economic, security and governing engines of the Caribbean. The region’s economic engines can be better optimized with the Single Market integration of the 42 million people in the 30 member-states; together we can do much more – and effect more turn-around – than anyone member-state can accomplish alone.
The roadmap calls for a confederation of the 30 Caribbean member-states; thereby creating the larger Single Market that can absorb economic shocks and downward trends. The Go Lean book provides the details of this vision; in fact the following pronouncements are embedded in the opening Declaration of Interdependence (Page 13 & 14):
xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.
xxv. Whereas the legacy of international democracies had been imperiled due to a global financial crisis, the structure of the Federation must allow for financial stability and assurance of the Federation’s institutions. To mandate the economic vibrancy of the region, monetary and fiscal controls and policies must be incorporated as proactive and reactive measures. These measures must address threats against the financial integrity of the Federation and of the member-states.
xxxiii. Whereas lessons can be learned and applied from the study of the recent history of other societies, the Federation must formalize statutes and organizational dimensions to avoid the pitfalls of communities like East Germany, Detroit, Indian (Native American) Reservations, [and] Egypt …
According to the foregoing news article, Argentina is trying to recover from faulty decisions regarding debt repayment. They are attempting to turn the corner and turn-around to a better community ethos: other people’s money is important to them and needs to be repaid. Other communities have successfully applied a turn-around strategy, consider Iceland.
The Caribbean must also reboot and “bounce back”; to “step back from the precipice”. The effort is not easy; the Go Lean book describes it as heavy-lifting. We need to burn-off old debris and build new eco-systems. The returns – new Caribbean structures – will be worth the investment and sacrifice. This is true for Detroit … and the Caribbean.
The quest of the Go Lean roadmap is to elevate Caribbean society and economic engines from the parasite role we currently assume, where we were dependent on Vulture Capitalists (Wall Street Hedge Funds) for funding, to a new world where we garner funding from our own regional sources: the people and institutions of the Caribbean. We want to be a protégé of Wall Street, not a parasite! We want to master the credit rating metrics so that our member-states are considered safe investments, not prone to default. Despite the previous realities of credit unworthiness, the roadmap seeks to optimize the regional economics with advanced empowerments, “Economics 901”. Yes, we can!
All the stakeholders in the Caribbean – people, governments and institutions – are urged to lean-in to this Go Lean roadmap for the CU and the C$. We have so many lessons to learn from this case study from Argentina – past, present and future. We mostly learn that concept of a successful “Turnaround” is conceivable, believable and achievable. 🙂