Stop vulture hedge funds from profiting off others’ misery

In the past few weeks, we witnessed how, with the ease of a post, thousands of Reddit users were able to beat hedge funds at their own game. It was a surprise attack from smalldollar investors, who bought more and more of Gamestop’s stock in a battle against hedge funds that had bet against its future.

But just as quickly as these Gamestop enthusiasts were able to join the world of fastpaced trading, institutional players shut them out. This type of casino quality to the market that usually benefits hedge funds at the expense of companies, their employees, and the general public is nothing new. It simply exposed what hedge funds have become: a system of exploitation that puts greed and profit at its core.

Gamestop and Puerto Rico have some things in common. They have both attracted a group of vulture hedge funds that have a vested financial interest in their economic failure. The hedge fund manipulation in the Puerto Rico debt crisis shows they are willing to destroy whole companies and

There is a real solution to stop vulture hedge funds from profiting off sovereign debt crises, and it lies in New York state law.

nations simply to fill their pockets.

And the New York state Legislature can do something about it.

Vulture funds profit by purchasing debt at a steep discount and demanding full repayment. They swoop in when they know debt is no longer sustainable and aggressively use all the tools at their disposal to rake in huge profits — knowing full well that their short-term profits come at the expense of a nation’s future.

In fact, many vulture hedge funds were created to operate and succeed under a market that allows them to bet on a company or country's failure. The results of this process are catastrophic.

For a company like Gamestop, it can mean substantial job losses. For nations or a territory like Puerto Rico, the consequences can be poverty and even famine. Over the past 10 years, Puerto Rico’s austerity measures have caused the closure of over 500 schools, cut thousands in pensions and labor rights, and deteriorated its infrastructure to the point of collapse.

Take Goldentree Asset Management, an aggressive vulture hedge fund that pounced on Puerto Rico’s debt after Hurricane Maria. Goldentree was one of the many hedge funds that seized the opportunity to profit from the debt restructuring. Goldentree has already made hundreds of millions of dollars from its investments in Puerto Rico, pushing to get paid no matter the costs for the people of Puerto Rico. Goldentree, and its chief investment officer, Steven Tananbaum, are perfect examples of the type of “bad-faith players” who have taken over the financial game. So what can we do about it? There is a real solution to stop vulture hedge funds from profiting off sovereign debt crises, and it lies in New York state law, which governs approximately half of sovereign debt contracts. We can stop vulture hedge funds from continuing to decimate societies by creating an orderly process for restructuring unsustainable debt.

That’s why we will introduce legislation to allow a supermajority of a nation’s or territory’s creditors to amend or restructure its debt contracts. The legislation, which would also include an overall audit of the debt, would prevent any single hedge fund from having too much power in sovereign debt restructuring negotiations.

There is great power behind a peoplepowered effort. New Yorkers have an opportunity to plug the loophole and stop the theft. Redditors were able to cause hysteria on Wall Street with a simple post. Now it's time for New York state, the financial capital of the world, to pass laws that prevent these predatory practices.