15 ms·

Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins

86 points by gaius 9y ago

TorKlingberg 9y ago
It looks like Goldman Sachs is betting that Venezuela will sort it self out by 2022, and getting a good discount. I'm not sure how that is “making a quick buck off the suffering of the Venezuelan people”, or how the people would benefit if nobody buys the bonds.
- DarkKomunalec 9y ago
  As happened in Greece, such purchases result in pressure applied to the country to pay off its debts, rather than help its people. It's good in the short term, but in the long term, government debt ends up as a massive transfer of capital to the lenders.
  - raverbashing 9y ago
    Yeah. But don't bet on the current government doing that. Quite the contrary Or even the next This is pure speculation
    - xbmcuser 9y ago
      Banks control western politicians who will put who ever is in power under pressure to pay of the debt. I used to think people that talk like that are same as the ones that wear tin foil hats. But the last 6-7 years has made me realise that they are not completely bat shit crazy. And the world of power is power is most corrupted and the least in the news.
      - arethuza 9y ago
        "And the Weak Suffer What They Must?" by Yanis Varoufakis (former Greek finance minster) has an interesting view on the mess that Greece (and indeed Europe and the rest of the world) is in. I don't think it's without flaws but it is certainly interesting - particularly his view of EU/ECB bureaucrats: "a clueless, inefficient bureaucracy... working tirelessly for politicians with an infinite capacity to recite unenforceable rules"
        CaptainZapp 9y ago
        On a sidenote (but likely interesting to HN readers): Varoufakis worked as an economist for Valve[1] [1] http://blogs.valvesoftware.com/economics/it-all-began-with-a-strange-email/ http://blogs.valvesoftware.com/economics/it-all-began-with-a...
      - raverbashing 9y ago
        That works if: - The concerned politician has a slight sense of responsibility (even though paying banks first is less responsible to the people but has long-term goals) - The concerned country has a minimal ability to pay Venezuela has neither at this moment
        greeneggs 9y ago
        Venezuela does have a minimal ability to pay. Eventually, default is likely, but they have paid all of their bond obligations so far. (The story you hear is that many of the bonds are held by political allies, so the payments transfer money to them.) https://www.nytimes.com/2017/04/12/business/venezuela-oil-debt-payment.html https://www.nytimes.com/2017/04/12/business/venezuela-oil-de...
      - posterboy 9y ago
        For a second I read that as "western politicians who will put in power whoever ..."
  - bobcostas55 9y ago
    >As happened in Greece Greece had the largest default in history[0], virtually all private debt holders were forced to take a ~70% haircut. [0]: https://en.wikipedia.org/wiki/Private_sector_involvement https://en.wikipedia.org/wiki/Private_sector_involvement
    - Retric 9y ago
      That 'haircut' is based on interest assumptions not actual costs. The actual haircut was only 53.5% of the face value so if you bought it from someone else at a higher discount you made significant profit. Assuming you sold it or there will be no second default.
      - pyvpx 9y ago
        I humbly suggest reading the book "Debt: The First 5000 Years"
      - jessriedel 9y ago
        Sorry, are you saying that if a bond is supposed to pay a certain interest which isn't actually paid, that this isn't a partial default because the interest is only an "assumption"? And we should only count the face value of the bond?
        ant6n 9y ago
        I think the point is more that by the time the default happened, the market already considered the bonds to be worth less then what they ended up being worth.
        jessriedel 9y ago
        The fact that the market priced in the haircut does not mean there was no haircut. It just distributes the loss between different creditors. The bonds are just as much in default, representing a net transfer from creditors to borrowers.
      - 9y ago
  - eeasss 9y ago
    The purchases happened at the secondary market. This means that this bond are already issued... this means that what you say above is not true.
    - DarkKomunalec 9y ago
      Where the bonds were purchased does not affect Goldman's ability or motivation to pressure Venezuela.
      - jevgeni 9y ago
        Or any creditor's motivation for that matter. Debt must be paid back, regardless of who the creditor is.
        DarkKomunalec 9y ago
        Most legal systems disagree. See https://en.wikipedia.org/wiki/Default_(finance) https://en.wikipedia.org/wiki/Default_(finance) Society does not exist to serve contracts - it is the other way around.
        jevgeni 9y ago
        I'm sorry, what? Most legal system recognize default as a breach of contract. Also, contracts are between at least two parties. Which of these parties don't you consider being a part of society?
        DarkKomunalec 9y ago
        Most legal systems have procedures in place for when debt cannot be repaid. That is why I take issue with the statement that it 'must' be repaid. "Which of these parties don't you consider being a part of society?" - This is a strawman. Both are part of society, but the contract between them may do more harm than good in total. And blindly holding contracts sacred quickly leads to bad outcomes (non-competes, EULAs, some NDAs, etc.)
- tyingq 9y ago
  The original letter has more detail as to why Borges believes that. I'm no expert, so I have no idea if it's plausible. On the other hand, if I were a citizen suffering under Maduro's regime, I'd be pissed at any sort of foreign investment that Maduro could spend as he wanted. In short, "provides a financial lifeline to his authoritarian regime" and "desperate desire to gain resources needed to secure weapons and other instruments of oppression..." Page 1: https://pbs.twimg.com/media/DBAqsdZXkAEVKgF.jpg https://pbs.twimg.com/media/DBAqsdZXkAEVKgF.jpg Page 2: https://pbs.twimg.com/media/DBAqtrDXYAABc9H.jpg https://pbs.twimg.com/media/DBAqtrDXYAABc9H.jpg
  - tgb 9y ago
    It's not directly useful for Maduro. They bought the bonds in the secondary market for a seventy percent discount. Maduro made no money off the sale. And at that large of a discount I don't think he'll have an easy time selling new bonds to anyone either.
    - tyingq 9y ago
      Makes sense, but I still see the reason oppressed people would make a stink. If only to broadcast that it will be bad optics for any foreigner to support the current regime...or even appear to. Propaganda is likely going on both sides.
      - whatok 9y ago
        The only reason why this is even made public is because Goldman is a big and easy target. There are mutual funds that I wouldn't be surprised a bunch of people here hold that easily dwarf GS in this space.
        tyingq 9y ago
        Sure, but that seems logical. If you want to make a deterrent, use a big name that will get press coverage, even if they bought on a secondary market. For example, I'd be loath to buy Sudanese investments, even if I could prove it was a secondary market buy. The association just has bad optics.
- deleted 9y ago
  [deleted]
- conanbatt 9y ago
  I agree with you in general economic concepts but begin from argentina, I tell you, that all the money coming in for this will be poached by the current government in its corruption, and the next government will have to deal with that debt.
  - privateprofile 9y ago
    Exactly what happens in Portugal and Greece with most of the money from the EU and the IMF, sadly...
- awkwardtortoise 9y ago
  > It looks like Goldman Sachs is betting that Venezuela will sort it self out by 2022 Or GS thinks they will have more favorable government in power in venezuela who will pay their bonds in full. Looks like GS, CIA, Trump, etc are lining up to overthrow the venezuelan regime in the next few years. > I'm not sure how that is “making a quick buck off the suffering of the Venezuelan people” Forcing a nation to pay 100% on bonds that are worth shit is how you make a quick buck off the suffering of the people.
spearmint 9y ago
This is interesting, and I've read the entire thing (in fact, I have much more to say about this then just "interesting"). But how is this relevant to HN?
devoply 9y ago
Goldman is not betting Venezuela will sort itself out. Goldman is betting it can extort the future government of Venezuela out of money it does not have if it wants funding from IMF or the World Bank. The justification they are giving is that they bought it off a secondary market...
- shaqbert 9y ago
  With the government owned oil co being the issuer, this looks like a pretty smart bet by Goldman. If oilco does not default, great, you get a ridiculous discount and a high coupon. If oilco does default, great, you have ample of collateral in tankers and other tangible assets you might be able to recover, so the recovery rate will be higher than the 30 cents that Goldman paid on the dollar. Also, whatever happens with the venezuelan government, the new government will also want to have a functional oilco.
  - dkrich 9y ago
    > If oilco does default, great, you have ample of collateral in tankers and other tangible assets you might be able to recover, so the recovery rate will be higher than the 30 cents that Goldman paid on the dollar. Also, whatever happens with the venezuelan government, the new government will also want to have a functional oilco. I don't think that's the case simply because if it were that safe a bet the bonds wouldn't be trading at such a huge discount. It's the inherent risk that the government won't pay the bonds that enable them to trade at a discount. The bet is that the government won't default because if they did they would have a very hard time convincing people to buy bonds again in the future.
throwaway43243 9y ago
Does this anyway mean that Goldman will have its hands in the oil can once Venezualan Govt. bites the dust ?
- whatok 9y ago
  Venezuela doesn't exactly have the greatest reputation with foreign business interests; especially oil companies.
- dagw 9y ago
  Basically. Either the govt. uses it's oil money to keep paying Goldman or Goldman can attempt to seize every Venezuelan oil tanker that enters waters where the US has jurisdiction.
bhouston 9y ago
Goldman bought a lot of Greece debt that it knew wasn't great and made tons: https://www.thenation.com/article/goldmans-greek-gambit/ https://www.thenation.com/article/goldmans-greek-gambit/ Goldman Sachs was also very involved in selling subprime mortages to unwitting investors. Goldman Sach has had to deal with lawsuits that it wasn't acting in its clients' best interests: http://articles.latimes.com/2010/may/16/business/la-fi-hiltzik-20100516 http://articles.latimes.com/2010/may/16/business/la-fi-hiltz... If Goldman Sachs is involved, you are likely getting fleeced in some fashion, you probably just do not realise it yet.
- mjfl 9y ago
  Also realize that the biggest factor in buying bonds at a discount is having the ability to force the borrower to pay you back in full (the reason people are selling at discount is because people don't think they will be paid back). Goldman Sachs is one of the few organizations with the political clout to make sure that happens with Venezuela.
  - supernumerary 9y ago
    Been going on for a while - this is from 2007: Vulture funds buy up sovereign debt issued by poor countries at a fraction of its face value, then sue the countries in courts - usually in London, New York or Paris - for their full face value plus interest. https://www.theguardian.com/business/2007/oct/17/debt.law https://www.theguardian.com/business/2007/oct/17/debt.law
    - mjfl 9y ago
      As they have every right to do. Taking out a loan is making a legally enforceable promise to pay back the money, and enforcement actions like that are the only reason that people make the loans in the first place. I sure as hell wouldn't buy a Venezuelan bond.
      - deleted 9y ago
        [deleted]
conanbatt 9y ago
Damn, this is argentina all over again. And this was a HUGE bet also, they must think the government is going to come down any moment.
- jevgeni 9y ago
  No, they are betting for either the government to survive, or the new government to honour its previous debts.
  - conanbatt 9y ago
    I would find it hard to believe that GSachas believes that this government will have an economic recovery. Specially considering the maturity of the debt, its surely a bet that the next government will honor the debt. But that is pretty terrible for the next government, that today would like no new debt to be issues, since it will all be spent today against them, and they will have to pay it in the future.
    - jevgeni 9y ago
      It is a difficult situation, but then again, revolutions are tough. I'm not sure about this debt package, but I'm betting this was issued by the Venezuelan government to fund some real assets, like oil rigs or whatever. If that's the case, then the capital is still there, one just must make sure it generates profits. A worse situation would be if the gov't loaned out the money, put it in suitcases and ef'ed off.
      - conanbatt 9y ago
        The latter is what happens on an unstable government that thinks its going down. Poeple scramble to get the last piece and get out. IT might not happen with this, but it might and being south american, its likely.
        jevgeni 9y ago
        This might happen, if the government can issue the debt immediately. That's highly unlikely in an unstable situation like in Venezuela. I couldn't find anything in the article, but I bet the debt was issued way before the unrest began. If there was any embezlement, it had to be way earlier.
isubkhankulov 9y ago
goldman's asset management arm bought the bonds for client portfolios- not goldman itself. I don't see any controversy here.
- jevgeni 9y ago
  I agree with you, but also your comment made me think about the absurdity of how most people perceive banking. I.e. "if a bank does it to be profitable, it's bad; but if somebody else does it, it's OK".
  - isubkhankulov 9y ago
    if it reads that way, then know also that the bonds already existed. the IOU shifted from one entity to another.
  - isubkhankulov 9y ago
    also, how would GSAM look if they didn't let their clients buy this? they may lose those clients and their own reputation.
kolbe 9y ago
We are approaching the point where helping the Venezuela is akin to helping North Korea. I suppose Goldman was able to squeeze in some business a few days/weeks before we start officially sanctioning support for their corrupt and inept government, but it's 100% fucked up that anyone would offer support for this regime. And every dollar that Maduro gets to help sustain himself is a dollar that will functionally be used to kill another civilian through starvation/malaria/etc. And do not mention the secondary market. The Fed buys off the secondary market, but that doesn't mean it's not the one providing liquidity. https://www.nytimes.com/2017/05/30/opinion/venezuela-needs-international-intervention-now.html https://www.nytimes.com/2017/05/30/opinion/venezuela-needs-i...
mark_l_watson 9y ago
This article and a similar one about India are on the HN front page right now. In addition to simply taking advantage of people in countries with political problems, there is also probably a trend of wanting to divest some investments to alternatives out of the USA, England, etc., to smaller countries with huge natural assets. I don't think it will happen in the short or medium term future in the USA, but someday our economic system will pop due to the debt of government and individuals. I took my assets out of the US stock market in 2007 and avoided some pain, and a few years later when I wanted to start investing again, I diversified a bit more to international funds. I understand the desire to do that now also.
neves 9y ago
They just see that the oil price will go up. Since Venezuela is a monoproduct economy, they will get better and be able to pay their debts. No politics here.
- dkrich 9y ago
  Then why not buy oil?
  - neves 9y ago
    Where would you stock it?
dmix 9y ago
It's interesting to think how the Venezuelans nationalized so much industry and used it to fuel socialist economic experiments under the pretext that it was an affront to "globalist western capitalism". Chavez announced that capitalism was a dying economic system. Yet their own failed economic policies only caused further dependency on it. It's not something that is enjoyable to watch and rub in as the people there are starving and have resorted to mob justice such as lynching in order to have some rule of law. Hopefully they get a proper change in rule soon.
troydavis 9y ago
Matt Levine's take on this is thoughtful and nuanced, as usual: https://www.bloomberg.com/view/articles/2017-05-30/airlines-stock-splits-and-voting https://www.bloomberg.com/view/articles/2017-05-30/airlines-... Scroll to the section titled "Venezuela."
deleted 9y ago
[deleted]
aecorredor 9y ago
I've been reading a lot on the deal (I'm Venezuelan, so yes, I'm pretty concerned) and I am trying to find out how exactly is Dinousaur Group (the original lender) tied to the Venezuelan government. Because the only way that the Maduro regime can actually obtain more money than the 2.8 billion it first got in 2014 is for it to be tied in some way to Dinosaur Group and get the GS deal money from them, correct?

86 points by gaius 9y ago

It looks like Goldman Sachs is betting that Venezuela will sort it self out by 2022, and getting a good discount. I'm not sure how that is “making a quick buck off the suffering of the Venezuelan people”, or how the people would benefit if nobody buys the bonds.

DarkKomunalec 9y ago
As happened in Greece, such purchases result in pressure applied to the country to pay off its debts, rather than help its people. It's good in the short term, but in the long term, government debt ends up as a massive transfer of capital to the lenders.
- raverbashing 9y ago
  Yeah. But don't bet on the current government doing that. Quite the contrary Or even the next This is pure speculation
  - xbmcuser 9y ago
    Banks control western politicians who will put who ever is in power under pressure to pay of the debt. I used to think people that talk like that are same as the ones that wear tin foil hats. But the last 6-7 years has made me realise that they are not completely bat shit crazy. And the world of power is power is most corrupted and the least in the news.
    - arethuza 9y ago
      "And the Weak Suffer What They Must?" by Yanis Varoufakis (former Greek finance minster) has an interesting view on the mess that Greece (and indeed Europe and the rest of the world) is in. I don't think it's without flaws but it is certainly interesting - particularly his view of EU/ECB bureaucrats: "a clueless, inefficient bureaucracy... working tirelessly for politicians with an infinite capacity to recite unenforceable rules"
      - CaptainZapp 9y ago
        On a sidenote (but likely interesting to HN readers): Varoufakis worked as an economist for Valve[1] [1] http://blogs.valvesoftware.com/economics/it-all-began-with-a-strange-email/ http://blogs.valvesoftware.com/economics/it-all-began-with-a...
    - raverbashing 9y ago
      That works if: - The concerned politician has a slight sense of responsibility (even though paying banks first is less responsible to the people but has long-term goals) - The concerned country has a minimal ability to pay Venezuela has neither at this moment
      - greeneggs 9y ago
        Venezuela does have a minimal ability to pay. Eventually, default is likely, but they have paid all of their bond obligations so far. (The story you hear is that many of the bonds are held by political allies, so the payments transfer money to them.) https://www.nytimes.com/2017/04/12/business/venezuela-oil-debt-payment.html https://www.nytimes.com/2017/04/12/business/venezuela-oil-de...
    - posterboy 9y ago
      For a second I read that as "western politicians who will put in power whoever ..."
- bobcostas55 9y ago
  >As happened in Greece Greece had the largest default in history[0], virtually all private debt holders were forced to take a ~70% haircut. [0]: https://en.wikipedia.org/wiki/Private_sector_involvement https://en.wikipedia.org/wiki/Private_sector_involvement
  - Retric 9y ago
    That 'haircut' is based on interest assumptions not actual costs. The actual haircut was only 53.5% of the face value so if you bought it from someone else at a higher discount you made significant profit. Assuming you sold it or there will be no second default.
    - pyvpx 9y ago
      I humbly suggest reading the book "Debt: The First 5000 Years"
    - jessriedel 9y ago
      Sorry, are you saying that if a bond is supposed to pay a certain interest which isn't actually paid, that this isn't a partial default because the interest is only an "assumption"? And we should only count the face value of the bond?
      - ant6n 9y ago
        I think the point is more that by the time the default happened, the market already considered the bonds to be worth less then what they ended up being worth.
        jessriedel 9y ago
        The fact that the market priced in the haircut does not mean there was no haircut. It just distributes the loss between different creditors. The bonds are just as much in default, representing a net transfer from creditors to borrowers.
    - 9y ago
- eeasss 9y ago
  The purchases happened at the secondary market. This means that this bond are already issued... this means that what you say above is not true.
  - DarkKomunalec 9y ago
    Where the bonds were purchased does not affect Goldman's ability or motivation to pressure Venezuela.
    - jevgeni 9y ago
      Or any creditor's motivation for that matter. Debt must be paid back, regardless of who the creditor is.
      - DarkKomunalec 9y ago
        Most legal systems disagree. See https://en.wikipedia.org/wiki/Default_(finance) https://en.wikipedia.org/wiki/Default_(finance) Society does not exist to serve contracts - it is the other way around.
        jevgeni 9y ago
        I'm sorry, what? Most legal system recognize default as a breach of contract. Also, contracts are between at least two parties. Which of these parties don't you consider being a part of society?
        DarkKomunalec 9y ago
        Most legal systems have procedures in place for when debt cannot be repaid. That is why I take issue with the statement that it 'must' be repaid. "Which of these parties don't you consider being a part of society?" - This is a strawman. Both are part of society, but the contract between them may do more harm than good in total. And blindly holding contracts sacred quickly leads to bad outcomes (non-competes, EULAs, some NDAs, etc.)
tyingq 9y ago
The original letter has more detail as to why Borges believes that. I'm no expert, so I have no idea if it's plausible. On the other hand, if I were a citizen suffering under Maduro's regime, I'd be pissed at any sort of foreign investment that Maduro could spend as he wanted. In short, "provides a financial lifeline to his authoritarian regime" and "desperate desire to gain resources needed to secure weapons and other instruments of oppression..." Page 1: https://pbs.twimg.com/media/DBAqsdZXkAEVKgF.jpg https://pbs.twimg.com/media/DBAqsdZXkAEVKgF.jpg Page 2: https://pbs.twimg.com/media/DBAqtrDXYAABc9H.jpg https://pbs.twimg.com/media/DBAqtrDXYAABc9H.jpg
- tgb 9y ago
  It's not directly useful for Maduro. They bought the bonds in the secondary market for a seventy percent discount. Maduro made no money off the sale. And at that large of a discount I don't think he'll have an easy time selling new bonds to anyone either.
  - tyingq 9y ago
    Makes sense, but I still see the reason oppressed people would make a stink. If only to broadcast that it will be bad optics for any foreigner to support the current regime...or even appear to. Propaganda is likely going on both sides.
    - whatok 9y ago
      The only reason why this is even made public is because Goldman is a big and easy target. There are mutual funds that I wouldn't be surprised a bunch of people here hold that easily dwarf GS in this space.
      - tyingq 9y ago
        Sure, but that seems logical. If you want to make a deterrent, use a big name that will get press coverage, even if they bought on a secondary market. For example, I'd be loath to buy Sudanese investments, even if I could prove it was a secondary market buy. The association just has bad optics.
deleted 9y ago
[deleted]
conanbatt 9y ago
I agree with you in general economic concepts but begin from argentina, I tell you, that all the money coming in for this will be poached by the current government in its corruption, and the next government will have to deal with that debt.
- privateprofile 9y ago
  Exactly what happens in Portugal and Greece with most of the money from the EU and the IMF, sadly...
awkwardtortoise 9y ago
> It looks like Goldman Sachs is betting that Venezuela will sort it self out by 2022 Or GS thinks they will have more favorable government in power in venezuela who will pay their bonds in full. Looks like GS, CIA, Trump, etc are lining up to overthrow the venezuelan regime in the next few years. > I'm not sure how that is “making a quick buck off the suffering of the Venezuelan people” Forcing a nation to pay 100% on bonds that are worth shit is how you make a quick buck off the suffering of the people.

spearmint 9y ago

This is interesting, and I've read the entire thing (in fact, I have much more to say about this then just "interesting"). But how is this relevant to HN?

devoply 9y ago

Goldman is not betting Venezuela will sort itself out. Goldman is betting it can extort the future government of Venezuela out of money it does not have if it wants funding from IMF or the World Bank. The justification they are giving is that they bought it off a secondary market...

shaqbert 9y ago
With the government owned oil co being the issuer, this looks like a pretty smart bet by Goldman. If oilco does not default, great, you get a ridiculous discount and a high coupon. If oilco does default, great, you have ample of collateral in tankers and other tangible assets you might be able to recover, so the recovery rate will be higher than the 30 cents that Goldman paid on the dollar. Also, whatever happens with the venezuelan government, the new government will also want to have a functional oilco.
- dkrich 9y ago
  > If oilco does default, great, you have ample of collateral in tankers and other tangible assets you might be able to recover, so the recovery rate will be higher than the 30 cents that Goldman paid on the dollar. Also, whatever happens with the venezuelan government, the new government will also want to have a functional oilco. I don't think that's the case simply because if it were that safe a bet the bonds wouldn't be trading at such a huge discount. It's the inherent risk that the government won't pay the bonds that enable them to trade at a discount. The bet is that the government won't default because if they did they would have a very hard time convincing people to buy bonds again in the future.

throwaway43243 9y ago

Does this anyway mean that Goldman will have its hands in the oil can once Venezualan Govt. bites the dust ?

whatok 9y ago
Venezuela doesn't exactly have the greatest reputation with foreign business interests; especially oil companies.
dagw 9y ago
Basically. Either the govt. uses it's oil money to keep paying Goldman or Goldman can attempt to seize every Venezuelan oil tanker that enters waters where the US has jurisdiction.

bhouston 9y ago

Goldman bought a lot of Greece debt that it knew wasn't great and made tons: https://www.thenation.com/article/goldmans-greek-gambit/ https://www.thenation.com/article/goldmans-greek-gambit/ Goldman Sachs was also very involved in selling subprime mortages to unwitting investors. Goldman Sach has had to deal with lawsuits that it wasn't acting in its clients' best interests: http://articles.latimes.com/2010/may/16/business/la-fi-hiltzik-20100516 http://articles.latimes.com/2010/may/16/business/la-fi-hiltz... If Goldman Sachs is involved, you are likely getting fleeced in some fashion, you probably just do not realise it yet.

mjfl 9y ago
Also realize that the biggest factor in buying bonds at a discount is having the ability to force the borrower to pay you back in full (the reason people are selling at discount is because people don't think they will be paid back). Goldman Sachs is one of the few organizations with the political clout to make sure that happens with Venezuela.
- supernumerary 9y ago
  Been going on for a while - this is from 2007: Vulture funds buy up sovereign debt issued by poor countries at a fraction of its face value, then sue the countries in courts - usually in London, New York or Paris - for their full face value plus interest. https://www.theguardian.com/business/2007/oct/17/debt.law https://www.theguardian.com/business/2007/oct/17/debt.law
  - mjfl 9y ago
    As they have every right to do. Taking out a loan is making a legally enforceable promise to pay back the money, and enforcement actions like that are the only reason that people make the loans in the first place. I sure as hell wouldn't buy a Venezuelan bond.
    - deleted 9y ago
      [deleted]

conanbatt 9y ago

Damn, this is argentina all over again. And this was a HUGE bet also, they must think the government is going to come down any moment.

jevgeni 9y ago
No, they are betting for either the government to survive, or the new government to honour its previous debts.
- conanbatt 9y ago
  I would find it hard to believe that GSachas believes that this government will have an economic recovery. Specially considering the maturity of the debt, its surely a bet that the next government will honor the debt. But that is pretty terrible for the next government, that today would like no new debt to be issues, since it will all be spent today against them, and they will have to pay it in the future.
  - jevgeni 9y ago
    It is a difficult situation, but then again, revolutions are tough. I'm not sure about this debt package, but I'm betting this was issued by the Venezuelan government to fund some real assets, like oil rigs or whatever. If that's the case, then the capital is still there, one just must make sure it generates profits. A worse situation would be if the gov't loaned out the money, put it in suitcases and ef'ed off.
    - conanbatt 9y ago
      The latter is what happens on an unstable government that thinks its going down. Poeple scramble to get the last piece and get out. IT might not happen with this, but it might and being south american, its likely.
      - jevgeni 9y ago
        This might happen, if the government can issue the debt immediately. That's highly unlikely in an unstable situation like in Venezuela. I couldn't find anything in the article, but I bet the debt was issued way before the unrest began. If there was any embezlement, it had to be way earlier.

isubkhankulov 9y ago

goldman's asset management arm bought the bonds for client portfolios- not goldman itself. I don't see any controversy here.

jevgeni 9y ago
I agree with you, but also your comment made me think about the absurdity of how most people perceive banking. I.e. "if a bank does it to be profitable, it's bad; but if somebody else does it, it's OK".
- isubkhankulov 9y ago
  if it reads that way, then know also that the bonds already existed. the IOU shifted from one entity to another.
- isubkhankulov 9y ago
  also, how would GSAM look if they didn't let their clients buy this? they may lose those clients and their own reputation.

kolbe 9y ago

We are approaching the point where helping the Venezuela is akin to helping North Korea. I suppose Goldman was able to squeeze in some business a few days/weeks before we start officially sanctioning support for their corrupt and inept government, but it's 100% fucked up that anyone would offer support for this regime. And every dollar that Maduro gets to help sustain himself is a dollar that will functionally be used to kill another civilian through starvation/malaria/etc. And do not mention the secondary market. The Fed buys off the secondary market, but that doesn't mean it's not the one providing liquidity. https://www.nytimes.com/2017/05/30/opinion/venezuela-needs-international-intervention-now.html https://www.nytimes.com/2017/05/30/opinion/venezuela-needs-i...

mark_l_watson 9y ago

This article and a similar one about India are on the HN front page right now. In addition to simply taking advantage of people in countries with political problems, there is also probably a trend of wanting to divest some investments to alternatives out of the USA, England, etc., to smaller countries with huge natural assets. I don't think it will happen in the short or medium term future in the USA, but someday our economic system will pop due to the debt of government and individuals. I took my assets out of the US stock market in 2007 and avoided some pain, and a few years later when I wanted to start investing again, I diversified a bit more to international funds. I understand the desire to do that now also.

neves 9y ago

They just see that the oil price will go up. Since Venezuela is a monoproduct economy, they will get better and be able to pay their debts. No politics here.

dkrich 9y ago
Then why not buy oil?
- neves 9y ago
  Where would you stock it?

dmix 9y ago

It's interesting to think how the Venezuelans nationalized so much industry and used it to fuel socialist economic experiments under the pretext that it was an affront to "globalist western capitalism". Chavez announced that capitalism was a dying economic system. Yet their own failed economic policies only caused further dependency on it. It's not something that is enjoyable to watch and rub in as the people there are starving and have resorted to mob justice such as lynching in order to have some rule of law. Hopefully they get a proper change in rule soon.

troydavis 9y ago

Matt Levine's take on this is thoughtful and nuanced, as usual: https://www.bloomberg.com/view/articles/2017-05-30/airlines-stock-splits-and-voting https://www.bloomberg.com/view/articles/2017-05-30/airlines-... Scroll to the section titled "Venezuela."

deleted 9y ago

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aecorredor 9y ago

I've been reading a lot on the deal (I'm Venezuelan, so yes, I'm pretty concerned) and I am trying to find out how exactly is Dinousaur Group (the original lender) tied to the Venezuelan government. Because the only way that the Maduro regime can actually obtain more money than the 2.8 billion it first got in 2014 is for it to be tied in some way to Dinosaur Group and get the GS deal money from them, correct?