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The bond indenture kinda disagrees with your whole premise here.
Suppose, I buy a bond at 5% interest over 1 year and it defaults after making most of the payments. If I effectively only get 1% interest the IRS says I still owe taxes on that 1% as profit.
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Most legal systems disagree. See https://en.wikipedia.org/wiki/Default_(finance) Society does not exist to serve contracts - it is the other way around.
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?
"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.)
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Suppose, I buy a bond at 5% interest over 1 year and it defaults after making most of the payments. If I effectively only get 1% interest the IRS says I still owe taxes on that 1% as profit.
I don't understand what that has to do with your original premise.
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It doesn't generate free money. On the contrary, it generates very expensive money. For this operation, the central bank received about $840 million in cash from GS, and PDVSA must now pay back $2.8 billion plus interest to GS. Whereas before this operation, PDVSA (owned by the Venezuelan state) had to pay back $2.8 billion plus interest to the central bank (also owned by the Venezuelan state).
But where did the central bank get the 2.8 billion USD? Venezuelan central bank can't print USD. So, net the country owes 2.8 billion USD + interest either way. It's just that the ultimate creditors have changed.
> So, net the country owes 2.8 billion USD + interest either way.
Venezuelas right hand owes money to Venezuelas left hand, both are Venezuela so Venezuela owes nobody. Now we have Goldman buying that dept from Venezuelas left hand and some more ( it can print as much as it wants of that ) for $5, Venezuela now owes 2.8 billion to someone else it has to pay back in the future in exchange for having $5 now. Those $5 benefit the current government and will affect any future government negatively.
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But where did the central bank get the 2.8 billion USD? Venezuelan central bank can't print USD. So, net the country owes 2.8 billion USD + interest either way. It's just that the ultimate creditors have changed.
The 2.8 billion are PDVSA-issued bonds not USD, they only exist on paper and aren't worth a cent unless Venezuela can pay. Afaik Venezuela can print as many of those as it wants. > So, net the country owes 2.8 billion USD + interest either way. Venezuelas right hand owes money to Venezuelas left hand, both are Venezuela so Venezuela owes nobody. Now we have Goldman buying that dept from Venezuelas left hand and some…
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I don't understand what that has to do with your original premise.
Profit and loss should be calculated from the actual investment not what you should get on paper.
goldman's asset management arm bought the bonds for client portfolios- not goldman itself. I don't see any controversy here.
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".
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The 2.8 billion are PDVSA-issued bonds not USD, they only exist on paper and aren't worth a cent unless Venezuela can pay. Afaik Venezuela can print as many of those as it wants. > So, net the country owes 2.8 billion USD + interest either way. Venezuelas right hand owes money to Venezuelas left hand, both are Venezuela so Venezuela owes nobody. Now we have Goldman buying that dept from Venezuelas left hand and some…
Venezuela cannot print USD and needs USD to pay coupons/principal.
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Profit and loss should be calculated from the actual investment not what you should get on paper.
Just because Goldman Sachs would make an amazing profit if Venezuela actually made good on their debt doesn't mean they don't own Venezuela debt, right? "Goldman Sachs has not and is not lending Venezuela any money" is patently false.
Critically if GS did not buy the debt Venezuela would have exactly the same money and exactly the same obligations so the fact GS 'owns' the debt or bob the accountant owns the debt is only important in so far as GS can apply more pressure.
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Goldman Sachs has not and is not lending Venezuela any money. So, if they buy a bond from someone else at less than face value they have zero room to complain about an agreement that was not made with them. At best they are trying to make a quick buck off the person that sold them the bond and again have no room to talk with the issuer.
That's not really accurate. Goldman bought the bond from the original owner and is now a creditor. They can and will talk to the issuer about payment and have every right to demand full payment -- the obligation to pay is not diminished by the secondary market value. In my personal case, I had an opportunity to buy tax exempt New York General Obligation bonds at a discount during the 2008 financial crisis. I did so,…
I am not saying the second system is universally better, but there is a reasonable argument for and against it.