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Wall Street Feasts on Blue Model Failures

shutterstock_94735546-e1372683447624 Most blue model supporters don’t like to think they’re at all complicit in fattening up the financial sector. But hedge fund managers, investment bankers and Wall Street lawyers are increasingly sharing tips and advice on how to maximize profits off the failure of blue model government. Puerto Rico is just the latest target, as Bloomberg reports:

Bankers and lawyers are trying to boost trading and advisory fees for securities that are increasingly appealing to hedge funds and buyers of speculative-grade corporate and sovereign debt. They’ve been lured after yields on some Puerto Rico obligations, rated one step above junk, soared above 15 percent on a taxable basis, data compiled by Bloomberg show. “All these broker-dealers are trying to raise interest in trading this paper,” said David Tawil, co-founder of Maglan Capital LP, a New York-based distressed-debt hedge fund that’s been buying the U.S. territory’s obligations. Tawil said he attended a presentation, though he declined to specify which one.… Lazard Capital held a meeting Oct. 10 at its New York office with about 75 participants, said Peter Santry, head of fixed-income trading. As more hedge funds buy and sell commonwealth securities, the firm wants to capture that trading revenue, Santry said. “You want to get business out of it,” Santry said.

Puerto Rico’s $70 billion debt and insatiable appetite for borrowing are the perfect complement to Wall Street’s hankering for profits from interest and fees. This Caribbean blue commonwealth is giving Wall Street the gift of muni credit, making some very happy campers of hedge funds and i-banks interested in distressed debt. As we’ve written before, Puerto Rico is not alone. Everywhere the blue model fails, it seems, the vultures are seen circling and feasting.

[Money vortex image courtesy of Shutterstock]

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  • ljgude

    When is a capitalist a ‘vulture capitalist’? Selling riskier investments to over extended governments sounds a lot like when a trader overtrades you account to turn your capital into his commissions. It’s called ‘churn and burn’.

  • Kavanna

    And let’s not forget the role that Wall Street played in creating the problems in the first place, by underwriting and marketing questionable debt to begin with. Wall Street has also been eager to sell desperate municipalities wacky securities to supposedly lower their risks.

    A solid cronyistic relationship of Wall Street and prominent politicians (mainly Democrats) sustains these practices.

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