11 ms·

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,

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.)

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.)