Playboy has long mixed its girlie pics with serious journalism, but it’s not always obvious why. Take the December 2010 issue, for instance. It includes a fantastic investigative piece on vulture funds by Aram Roston, which isn’t advertised on the cover and which wasn’t placed online either until I found out about it a few days ago and started nudging them.
In any case, all’s well that ends well: the story’s up now. It suffers from the same problem that bedevils all investigative features on vulture funds: for all that such people will talk to trade journalists and vulture-fund apologists like myself (although even I have difficulty talking to them), they’ll very rarely talk to anyone doing this kind of piece. Roston talked to one vulture on the record — Hans Humes — and includes a number of anonymous quotes as well, although some of the anonymous quotes are certainly from Humes as well. The result is necessarily one-sided, although not remotely as bad as other articles I might mention, and the real fault here lies with the vultures, rather than with the reporter.
What Roston has done is look into the early history of vulture funds — Ken Dart vs Brazil, Jay Newman vs Panama — in a way I haven’t seen elsewhere. This history is hard to dig up: he clearly knows what he’s talking about. I have quibbles — I always thought that Elliott Associates successfully lobbied in Albany to change the law about calculating compound interest, rather than unsuccessfully lobbying to change the law about champerty. But these things are minor. What’s impressive is some of the color that Roston has dug up around the way that Elliott works:
Newman tried to freeze, attach or seize anything belonging to the government of the Congo. The government tried to keep a step ahead of him, allegedly resorting to fraud or straw owners to keep its oil revenue out of the vultures’ talons.
The vultures set up an intelligence operation to gather information and pursue allegations of corruption against the Congo. Newman supposedly set up an operation in London to conduct private investigations.
One vulture fund investor described the cloak-and-dagger operations. “Think Casablanca,” he said. He told me an “information bazaar” tried to dig up dirt on the leaders of Congo-Brazzaville, and former CIA station chiefs cooperated. “They’re all former spooks,” he told me. “Senior guys, station chiefs.”
Their operator was proud of what he’d accomplished in gathering information about Congolese corruption, but he marveled at the cost of digging up the dirt. “This piece of information, $50,000.” He held out one hand as he said it. “This piece of information, $100,000.” He held out the other hand…
The country settled with most of the aggressive vulture funds at 55 cents on the dollar, but Newman and his financier at Elliott scored better than the others. Apparently by agreeing to stop providing reporters with negative information about the ruling family, Newman is said to have collected about $90 million from the Congo. He had paid less than $20 million for the old debt. His biggest cost may have been for lawyers, private eyes and lobbyists.
You can see how Elliott’s investors love this: it’s the very definition of uncorrelated returns.
Roston quotes one anonymous vulture as defending his work on the grounds that vultures expose corruption. That’s pretty weak, as even Humes admits. The reasons to admire vultures are a bit more subtle than that: their existence reassures big institutional bond investors that their will always be a bid for their paper, and thereby reduces sovereigns’ borrowing costs. Or to put it more generally, someone has to be willing able to enforce a legally-binding contract in a court of law. Otherwise, no one will buy any bonds at all, given that they’re nothing but legal contracts. (For a much longer defense of vulture funds, check out my 2007 post here.)