One morning in July of last year, Lee Buchheit smoothed his mustache, fastened his French cuffs, picked up his briefcase, and made his way uptown from the West Village to catch the Amtrak to Washington, D.C. He’d received a call the day before from Greece’s Public Debt Management Agency asking him if he could meet the Greek minister of finance at his hotel. He had an inkling of what it was about. In 2010, Buchheit, a senior partner at Cleary Gottlieb Steen & Hamilton, and a colleague, Mitu Gulati at Duke’s law school, had posted a widely read paper on an academic site explaining how Greece could dramatically cut the amount of money it owed by restructuring its debt—essentially asking creditors to take less. Now the minister wanted to talk.
Buchheit wasn’t surprised it had taken him so long to call. In his 36 years spent negotiating on behalf of financially challenged countries, patterns have emerged. “The first thing I’ve learned is the period of denial is almost always too long,” he says, sitting in his book-filled corner office on 1 Liberty Plaza, a few days before the Greek elections. “They almost always hope that something will happen that will make this go away, they will discover oil under the presidential palace or something. By the time they get around to admitting that they need to restructure their debt, they have done irremediable damage.”
As he sees it, this is what happened with Greece. In May 2010, eurozone countries and the IMF loaned the country roughly $145 billion so it could pay off its bondholders—financial institutions, pension funds, and hedge funds—in full in order to stave off a restructuring. “Roughly eighteen months later, the Europeans woke up to what was happening,” he says, “which was that people who lent the money were getting repaid in full and some German hausfrau in Stuttgart found herself effectively the proud owner of the liability that they had just paid out.”
This was why the Greek finance minister had wanted to meet. The deal Buchheit and his colleagues devised cut the amount of money Greece owed by about ¤100 billion—but this time the onus would fall on the lenders. Using a legal precedent with roots in nineteenth-century Britain, his team muscled Greece’s creditors into accepting a 75 percent cut on their investment. “It was pretty savage,” he says, with a little pride.
And as went Greece, Buchheit believes, so will go the other sick countries of Europe, if they can bring themselves to accept the inevitable. “The theory is, debt restructuring is a unique affliction of emerging-market countries,” Buchheit says. “And to restructure your debt is to declare yourself similar to … fill in your favorite emerging-market country, Pakistan, Nigeria. It is a major psychological barrier.”
Buchheit has been referred to as a “guru” and “the philosopher king of sovereign debt.” Governments love him for his ability to magically erase their debts: After he helped negotiate a financial dispute involving Iceland, one newspaper named him Man of the Year. “In Iceland, my cabdriver knew who he was,” says Gulati. His adversaries either loathe or grudgingly admire him—sometimes both. “He’s brilliant and brutal,” says Hans Humes of Greylock Capital Management, one of the bondholders who choked down the concessions on the Greek deal.
A tall, slender man with a gentlemanly demeanor and a more than passing resemblance to Inspector Clouseau, Buchheit cuts an unusual figure for a white-shoe Wall Street law firm like Cleary. His bearing is more old-world English barrister than power lawyer. Though he was born in Pittsburgh, he speaks with a mid-Atlantic lilt, in long, eloquent paragraphs liberally sprinkled with quotes from Spinoza, Churchill, and Descartes. “It was pure happenstance,” he says, describing his entrée to the world of sovereign debt. After receiving a diploma from Cambridge, he took a job as an associate in Cleary Gottlieb’s London office and arrived home just in time for the Latin American debt crisis. Mexico’s finance minister hired the firm. “It was only a matter of weeks before other countries began to come along,” he says. He stands up and walks to a shelf near his desk, where he picks up a small, plush globe and rotates it to Latin America. “There it is,” he says, smushing his finger down the coast. “Venezuela, Colombia, Ecuador, Peru, Bolivia, Argentina, Uruguay, Paraguay, Brazil. They all announced their restructuring within a year.”
He found the negotiations fascinating. “It’s only 25 percent law,” he says. “The rest is some combination of finance and theater and politics.” In time, Cleary Gottlieb became the go-to firm for countries seeking debt relief, negotiating on behalf of far-flung governments. Each country, he saw, reacted differently to the specter of default. During the Asian financial crisis in the late nineties, South Koreans were so humiliated by the prospect of restructuring that they donated gold—jewelry, heirlooms, even wedding rings—to banks. “Then you have the other extreme,” Buchheit says, “which are some of the Latin American countries, that I think regard it as a great gain: You restructure every few years, and the gringos will lend you more money.”