Glass-Steagall's Repeal Made Vulture Funds Possible; Argentina Should Run With BRICS Option
August 3, 2014 • 10:15AM

As Argentina continues to resist the British Empire's war to annihilate it, its defenders are increasingly pointing to the fact that the 1999 repeal of the Glass-Steagall Act allowed the vulture funds to flourish, as globalization took hold. President Cristina Fernandez de Kirchner also alluded to Glass-Steagall in her July 25 speech to an audience in Chaco province.

As reported by Telam on Saturday, Ernesto Mattos, an economist at the University of Buenos Aires, charged that the vulture funds' unbridled speculative operations, backed by arbitrary court rulings, are only possible because "in 1999, former President Bill Clinton repealed the law that said that banks must not only be involved in investment but also savings."

"The vultures are the transnational financial system," wrote Federico Martelli, director of the Argentine magazine Revista 2016 in its June edition. Debunking any notion that the vultures are just "residual" elements within the global financial system, he asserts they are in reality "the most advanced organic part" of that system, which gained prominence after the 1999 repeal of Glass-Steagall, "which regulated and limited the comingling of service banks with investment banks."

The financial consolidation which followed the law's repeal, he says, wiped out more traditional forms of banking and production, created huge financial conglomerates such as Citigroup, and eliminated any distinctions between investment banks, hedge funds and the "subset" of vulture funds. While the vultures specialize in buying up nations' defaulted debt at bargain-basement prices, "their origin and purpose lie with the financial system itself," which just rearranges roles according to the needs of the moment.

Martelli's article was written prior to the U.S. Supreme Court's June 16 ruling leaving intact Judge Thomas Griesa's ruling ordering Argentina to pay the vultures $1.6 billion, and also before the June 15-16 BRICS summit in Brazil. But he correctly notes that Cristina Fernandez's invitation to attend the summit opens the country to "the possibility of inserting itself into the geopolitical map in alliance with nations that are creating regional blocs that challenge the unipolar world that was born in 1989." The population size, military and economic weight of the BRICS nations, "confer on it a power that can serve as a counterweight to scenarios of conflict," he emphasizes, pointing to Russia's and China's role in forcing the U.S. to back down from intervening militarily in Syria.

Should the "strategic line of aligning with the BRICS prosper in the region," Martelli predicts, "our country will be strengthened in its goal of gaining maneuvering room to overcome obstacles to its development and [exercise of its] full sovereignty."

Argentina Demands SEC Investigation into Potential "Financial Crimes" Behind Forced Default

In response to the Aug. 1 declaration by the International Swaps and Derivatives Association (ISDA) that a "credit event"—default—had occurred in Argentina, Finance Minister Axel Kicillof announced that the local National Securities Commission (CNV) will request that the U.S. Securities and Exchange Commission (SEC) immediately launch an investigation into whether the vulture funds and Judge Thomas Griesa used privileged information and forced a default, to allow the vultures to collect millions in credit default swaps (CDS). Their activities could constitute a "multimillion-dollar fraud," he said.

In response to a July 31 request by Union Bank of Switzerland that the ISDA meet to determine whether a default had occurred, the ISDA acted "with lightning speed" to convene the 15-member committee on Aug. 1—normally the process takes two days—and voted unanimously to declare the country in default. Among the 15 members voting were JPMorgan and Citibank, both of which hold restructured Argentine bonds, as well as BNP Paribas, Deutsche Bank ,and other luminaries of the crumbling trans-Atlantic financial system. Also present in the meeting were several non-voting vulture funds, including Eliot Management, which is rumored to have purchased credit default swaps in recent weeks so as to collect after the ISDA's decision.

That decision immediately triggered an estimated $1 billion in CDS payments. In its Aug. 1 release, the Finance Minister asks the CNV to investigate whether the litigation against Argentina, and the clearly biased actions by both Judge Griesa and special master Daniel Pollack, were not in fact "the facade of a speculative maneuver to favor the vulture funds, to earn profit on the defaulted bonds they bought on the cheap, but also on credit default swaps that are paid out when the ISDA association decides so." He charged that Griesa was so biased, that he actually abdicated his responsibility to decide on whether to reinstate the stay Argentina had requested, and let the vultures make the decision instead.

Over the weekend, the CNV will prepared its presentation to the SEC, and will ask it for "precise information about the transactions of these CDS to investigate if the vulture funds earned a huge benefit from not reaching an agreement [with Argentina], either directly or through third parties."