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

Post by mhuffman » Wed, May 31, 2017, 2:10 PM UTC

eonwe wrote: post #66

mhuffman wrote: post #63

Earlier quoted context omitted.

>> and enforcement actions like that are the only reason that people make the loans in the first place. And also that delicious interest. You forget that the lenders already intend on getting something out of it. The reason they are getting interest at all is that there is a risk. If there was zero risk, there would be no need to pay interest.

Only a part of the interest comes from risk. One important part is that if I were to give you 10$ in 10 years, it has less value to you than me giving you 10$ now (which is the difference between lending you lending to me and you not lending to me if you were 100% sure I would pay back).

Post by [deleted] » Wed, May 31, 2017, 2:21 PM UTC

cm2187 wrote: post #61

bhouston wrote: post #22

Goldman bought a lot of Greece debt that it knew wasn't great and made tons: 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-hiltz... If Goldman Sachs is involved, you a…

If they go long these bonds they are nasty speculators who are betting on the fact that Venezuelans will bleed themselves to repay. If they go short the bonds they are nasty speculators who are trying to make money on a country going bust. At this game it doesn't matter what they do, they will get this sort of reaction.

Post by Retric » Wed, May 31, 2017, 2:23 PM UTC

Spooky23 wrote: post #64

Retric wrote: post #9

Earlier quoted context omitted.

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.

I'm all for knocking on predatory bankers, but that's not a very compelling argument. The borrower sold a bond at par -- so they got their $1. As the entity who bought that bond, you're fucked... the borrower isn't making interest payments and the debt is looking like a bad debt. So you sell it at a distressed value, in your example $0.53, losing half your principal investment + interest, to cut your losses. The enti…

Post by 1zq » Wed, May 31, 2017, 2:40 PM UTC

jevgeni wrote: post #42

1zq wrote: post #26

Earlier quoted context omitted.

From the article: > While Goldman Sachs defended its trade by saying that it bought the bonds on the open market from a broker, bankers and traders say the money ultimately ended up in Venezuela’s treasury because the seller was an institution with ties to the government.

Which still doesn't matter, if it's the secondary market. You can't borrow $100 and get more than that.

Post by jevgeni » Wed, May 31, 2017, 2:46 PM UTC

1zq wrote: post #77

jevgeni wrote: post #42

Earlier quoted context omitted.

Which still doesn't matter, if it's the secondary market. You can't borrow $100 and get more than that.

But you can be the Venezuelan central bank and buy $2.8 billion in PDVSA-issued bonds and later sell those bonds at a 70 percent discount (i.e. around 840$ million) to Goldman Sachs. Until the moment of the sale to GS the money had only been transferred between two entities associated with the government.