Voices from the Occupation
The Asset Striptease & The Vultures
While vulture capitalists have asset stripped companies, vulture funds have asset stripped contintents. Now, the vultures are feeding on Britain . Today’s article takes a lingering look at the asset striptease taking place here in the UK, and seeks to poke the British public with a big stick, whilst yelling ‘That stripper just nicked your wallet!’
The Promise of Venture Capitalism
Ever seen an episode of Dragons Den? That’s venture capitalism in a nutshell. Growing up in the US in the 1950’s, it promised the vehicle by which innovators and business people could combine in mutual interest. Someone has an idea or innovation which could be spun off into a business but can’t raise the funds they need to move the project forward – often because the ventures are perceived as high risk. This is where venture capitalists (the Dragons) offer financial support in exchange for a stake in the business. The innovator doesn’t get to keep their business or the amount of profits they would without the venture capitalists, but without the venture capitalists they might not have a business at all. The promise of venture capitalism is the promise of Dragons Den.
However, even this glitzy, enabling brand of venture capital has its critics. The Mark Coggins novel Vulture Capital fictionalises the narrative of Venture Capital around the methods by which these Dragons effectively siphon the wealth of the innovator into their bank accounts, while the innovators and inventors are left in the cold. This is done through the multiple stage funding rounds, where the capitalists are able to negotiate ever higher stakes in the business, and ever better terms in the event of bankruptcy or liquidation. In some cases it has been known for the innovator to have no stake left at all in the business, by the end of this process.
But this didn’t put off the entrepreneurs. In just the third quarter of 2011, Venture Capital in the US made $21.2bn from 2,725 deals. This compared with $23.4bn from 3,496 dealsin the whole of 2010. Is this due to a dramatic rise in the success of American innovation and entrepreneurialism? No. It is in large part due to the meteoric rise of Vulture Capitalism. This is inverted Venture Capitalism – where you buy to break, not to birth.
Why Buy it Only to Break it?
Through the 1980’s, venture capitalists started changing their tactics. Instead of looking for promising ideas and breakthrough technologies, they started searching out wounded and distressed businesses.
There is a fortune to be made in the risk-free world of asset stripping Vulture Capital. Just ask Republican presidential nominee Mitt Romney. Vulture Capital seeks out businesses that, in their view, would make a bigger short term profit from being stripped to their basic parts and sold, than by continuing to operate as a business. As Venture Capitalists tell the story, to use an analogy, think of a poorly Ford Escort with a bad paint job. It’s worth a couple of hundred pounds as a car, tops. The sum total of its constituent parts would actually be more. A Vulture Capitalist comes along and buys your Ford Escort, takes it to pieces, and sells the parts to different groups of buyers. You make some money on your old banger, the Vulture Capitalist makes a much bigger amount of money –and everyone is happy.
However, this is not quite the reality of Vulture Capital operations. Imagine instead, that you live in a rural village in the hills of Yorkshire. The Ford Escort is your only means of getting to work, and you run a carpool taking four other people to work each day who otherwise don’t have travel. The Vulture Capitalist offers you a week’s wage for your car – you do the maths and realise this is a bum deal. The Vulture Capitalist punches you in the stomach, grabs the keys, and drives off in the Escort – tossing the payment out of the window as he speeds off to sell your banger for big bucks. You are left standing on your drive, with no idea how you or your friends are going to get to your jobs and make an income – while the measly pay-off dances on the wind.
Across the US and the UK, Vulture Capitalists have been raising risk free capital, and using it to buy then rip apart businesses; cutting jobs, suppressing wages, suffocating collective bargaining and making a killing. Whilst this might make a school full of people in the world hideously wealthy, it has a toxic effect on whole communities. So in the real economy, you have people without jobs, people in unsafe employment, people with jobs which do not pay a wage commensurate with the rising cost of living, an ever smaller pool of companies with an ever increasing monopoly power disenfranchising the consumer with increasing prices. In the Vulture Capital economy of GDP lunacy, you see a story of growth, profit and dynamism.
The Rise of the Vulture Funds
Whilst asset stripping companies is egregious in its own right, there are uber-vulture capitalists operating at a supra-national level. These are the vulture funds. They do to countries, what vulture capitalists do to companies. First of all, the IMF and World Bank seize a country into the debt trap. This has been a systematic system of co-opting ‘developing’ countries into the global capitalist system of economics since their establishment. Historically, the IMF or governments made loans despotic governments across Africa and Latin America. These despots then used that money, not to develop the country, but to entrench their own power - spending on police, weapons and the military (often buying from our weapons suppliers). Later, as the interest kicks in, the economy is weak and the country struggles to repay, the IMF offers a Structural Adjustment Programme: a loan to repay a loan, with a series of conditions attached which essentially asset strip the country. Public spending is slashed; so roads, hospitals, schools, energy networks – all these programmes are cancelled. All of which makes it even less likely that the country will actually ‘develop’ in the sense of growing life expectancy, higher literacy, expanding domestic businesses –because there is no infrastructure left to grow this at home. This leaves the country open to external operators to make the profits from the natural resources of the country – so you will see a hike in foreign direct investment and exports. The domestic population is reduced to a cheap supply of labour and resources. Outrage at these polices finally lead to a debt relief programme.
Enter the Vulture Funds. These funds then come along and buy the debts of said country based on the debt relief reduced rates, only to take the countries to court to extort the full rate of debt plus extortionate interest and fees.
In fact, the World Bank itself claims that a third ofcountries which have qualified for its debt relief programme, have beentargeted with lawsuits by over 26 Vulture Funds. Countries like the Democratic Republic of Congo, where 100 women a week die in childbirth, who could be directing their meagre funds towards dealing with just such a domestic catastrophe are instead defending lawsuits from Vulture Funds.
These funds include Donegal International, who bought a Zambian debt from the Romanian government in 1999. Donegal harassed the Zambian government into handing over $2.5m before suing them in court, where they were awarded a further $15.5m from Zambia. FG Capital bought just $2.6m of Democratic Republic of Congo debt from a corrupt Bosnian official, only to raise $108.3m from the Congolese government in a Jersey court case. Kensington Internationalmeanwhile, turned a $30m investment in cut price debt, to win $100m from Congo-Brazzaville through the courts.
Now, what this boils down to is peasant farmers in Zimbabwe, DRC, Angola, East Timor and elsewhere footing the bill for their own persecution and torture. The taxpaying population, who had no say over the amounts their unelected tyrannical leaders borrowed, who have suffered the destruction of life and livelihood, who have often lived through the consequent famine, disease outbreaks and wars – are now being taken to court to pay for the privilege. While it appears our governments are listening to the campaigns and cancelling or reducing world debt, it is merely being sold onto these mercenary funds to harass the vulnerable countries of the world through the court system.
The only way these vultures were successful is thanks to the infamous regulatory black hole that is Jersey. Most states in the world have made it illegal for vulture funds to use their courts to sue the poorest countries of the world for profit. But Jersey is still open for business.
In fact, right now, 22 vulture funds are using loopholes inJersey to fight for £1bn from Africa’s poorest countries. To put this in perspective, this is double theRed Cross’s annual budget for Africa.
Why you Should Care
Many people don’t need this question answered. The outrageous corporate opportunism of vulture funds is a debacle wherever it occurs. For others, sadly, Africa and Latin America are simply too far away. It doesn’t impact them directly and they have bigger concerns than some court case between Niger and Elliot Management. However, while we were watching Strictly Come Dancing, the British Government is supporting vulture capitalists in the UK do a little asset stripping of their own.
The £850bn Bank Bailout of 2008 is a prime example of socialising loss. The British tax payer was asked to foot the bill for the impact of members of the financial services industry making themselves very rich.
Since then, the Bank of England has been engaging in the largest Quantitative Easing (QE) programme ever seen on our shores. This is where money is invented electronically and given to banks at almost zero percent interest, for them to prop up their investments. This life support mechanism, which artificially maintains a dead market – has just been upped by £50bn to £325bn this year alone. All this, and the economy still contracted by 0.2% in the final quarter of 2011.
Then there are legislative changes to public services – where did our communal resources go? Gas, steel, electricity, communications, the postal service, the transport network. These have all been sold off at low prices to private interests, while maintaining a vast taxpayer subsidy. The train service alone receives a £6.2bn per year subsidy from the British taxpayer. Effectively, the tax payer pays twice – once in the subsidy, and again by the fee to use the service (the service which now costs more because the cost needs to account for the profit motive).
Two services stood alone for a long time as 'untouchable' by privatisation: our National Health Service and the Education system. But since the rise of New Labour, and continued by the Coalition - even these have become fair game for the private sector. Current legislation from the Welfare Reform Bill to the NHS Bill are legislation on behalf of Vulture Capital.
The Academy programme, which turns state schools into limited companies, has also accelerated at a pace.
In fact, wherever one might choose to look, new ways are being connived to find a means of generating a private profit from a public service.
All the while, this asset striptease is carried out under the guise of austerity and efficiency, just as in the African and Latin American continents before us. The vultures have come home to roost, and they are rapacious.
Cull Vultures, Not Values
These vultures aren’t doing business, they are killing business. This is asset stripping, on a quite horrifying scale. UK Plc has effectively granted planning permission for an enormous junkyard operated by Vulture Funds Inc. Instead of us bringing our junk to them, they are going out into the streets with economic fork lift trucks lifting schools, hospitals, railways, playgrounds, sick people, old people, the mentally ill, and dumping them into their yard for profit. They are junk baron asset stripping lunatics and while they do all this, most people are sipping their beer and talking about how we need to ‘tighten our belts in these times of austerity’. Britain, there is no austerity, merely a quite ostentatious act of theft – from public to private. It is time to cull the vultures, not our values. Austerity brings out the worst in people, as they scrabble over the crumbs. We don’t have to follow the routes of the past and be fooled into fighting each other, while our resources are plundered further. We can quit drooling at the asset stripper while they nick our wallet. We can come together and create a new future, rather than splinter and conflagrate.
It only takes consideration, education and information. The Occupy Movement, the Jubilee Debt Campaign, UK Uncut and others in the UK are doing incredible work getting this information out there. Now it is on us to take it in, and get involved. If not, we’re just another carcass on the pile.
How to Get Involved
Take action against the welfare reform bill and stand up for our disabled and physically and mentally unwell by signing Pat's Petition.
Join the Jubilee Debt Campaign and take action against the Vulture Funds. Thanks to their perseverance and intrepid research, Jersey has agreed to create Vulture Fund laws to close the loophole. Join s successful campaign seeking to cancel all 'third world' debt.
Join UkUncut and fight corporate tax evasion. They hit the high streets with exciting, thoughtful and sometimes downright hilarious protests to keep the spotlight on the tax avoiders.
And don’t forget to get down to your local Occupy camp or start one yourself. Get active, get visible, and get really annoying. Let’s irritate the hell out of these vultures, interrupt their feast and cast them out of our skies for good.