Theorising Vulture Capitalism: financialization, the secondary bond market, sovereign debt investors, and uneven development

Authors: Drew Forbes*, University of Toronto
Topics: Economic Geography, Development, Legal Geography
Keywords: Sovereign Debt, Financialization, Debt, Financial Crises, Accumulation, Credit, Bonds, Investors
Session Type: Paper
Day: 4/5/2019
Start / End Time: 1:10 PM / 2:50 PM
Room: Senate Room, Omni, West
Presentation File: No File Uploaded

Amidst financialization, value is captured outside of the productive process through the extension of debt. Scholars identify how credit-fueled growth displaces economic crises, modifies state policy, and cultivates socio-spatial inequality. However, the transnational dimensions and historical continuities of modern financial capitalism are under-theorized. Accordingly, this paper questions how uneven development between countries relates to the growth of financial metropoles. By examining vulture capitalism through economic and legal histories, this paper reveals how the extension of credit and the collection of debt co-constitute uneven geographies. It uses investors who trade in distressed sovereign bonds to place global capital flows within histories of imperialism. These sovereign debt-based investors (SDIs) utilise an acquisition-to-value framework to purchase assets in the secondary bond market. Investors then assert their legal rights as creditors through litigation, negotiation, and arbitration to claim either the full-face value of distressed assets, or to expand claims beyond their original value. In contrast to legal scholarship which frames SDIs as either market disciplinarians or financial parasites, I argue that ‘vulture funds’ are a product of finance-led capitalism with two claims. First, the securitization sovereign debt bonds resolved multiple financial crises in the late 20th century, paradoxically creating the conditions for the emergence of SDIs in the 1980s. Second, the expansion of financial profits necessitates a legal infrastructure. In this way, SDIs circulate legal practices, produce global legal discourses, and shape future financial spaces.

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