Matt Levine's take on this is thoughtful and nuanced, as usual: https://www.bloomberg.com/view/articles/2017-05-30/airlines-...
Scroll to the section titled "Venezuela."
Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
81–90 of 119 posts
Re: Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
#82Earlier quoted context omitted.
Where the bonds were purchased does not affect Goldman's ability or motivation to pressure Venezuela.
Or any creditor's motivation for that matter. Debt must be paid back, regardless of who the creditor is.
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.
Re: Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
#83Earlier quoted context omitted.
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.
It isn't much of a deterrent, if you know that only a single competitotor of yours or just a few companies will be singled out for the outrage. Time and time again. There are fund managers, pharma companiess, and industrial conglomerates that acted way more shitty than most banks, but people tend to ignore that or forget that very quickly.
"but people tend to ignore that"
You mean it doesn't get much media attention.
Re: Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
#84Earlier quoted context omitted.
Isn't it shocking that people dare ask for their money back? Surely, this is some kind of scam. /s
The interesting bit is that the debt buyers are making money from some advantage they seem to have in enforcing repayment relative to the original lenders. Under proper rule of law, the original lenders would have exactly the same chance of getting money back as Goldman, eliminating all need to sell the debt at a massive discount.
There is nothing illegal in this, if that's what you are suggesting.
There are different reasons why somebody might decide to sell debt at a discount. One reason, for example, is that bankruptcy proceedings, especially international ones are super messy and expensive. If you are not dealing with these things on a regular basis, it might be better to book a small loss now and get and immediate cash flow instead of waiting for decades.
Re: Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
#85Earlier quoted context omitted.
Isn't it shocking that people dare ask for their money back? Surely, this is some kind of scam. /s
The interesting bit is that the debt buyers are making money from some advantage they seem to have in enforcing repayment relative to the original lenders. Under proper rule of law, the original lenders would have exactly the same chance of getting money back as Goldman, eliminating all need to sell the debt at a massive discount.
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Re: Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
#86Earlier quoted context omitted.
It isn't much of a deterrent, if you know that only a single competitotor of yours or just a few companies will be singled out for the outrage. Time and time again. There are fund managers, pharma companiess, and industrial conglomerates that acted way more shitty than most banks, but people tend to ignore that or forget that very quickly.
"but people tend to ignore that" You mean it doesn't get much media attention.
Yes. :)
Re: Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
#87Earlier quoted context omitted.
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…
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, although New York isn't Venezuela and the discount wasn't 50%, the interest payments are based on the originally issued amount and if I hold the bond to maturity I will get the full principal.
As an individual with 1 bond I don't have the leverage of an investment bank, but I'm still a creditor and will be get paid in the event of some serious financial crisis.
Re: Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
#88Earlier quoted context omitted.
Or any creditor's motivation for that matter. Debt must be paid back, regardless of who the creditor is.
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?
Re: Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
#89Earlier quoted context omitted.
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.
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.
Re: Goldman Buys $2.8B Worth of Venezuelan Bonds, and an Uproar Begins
#90Earlier quoted context omitted.
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.
Yeah, but how does that generate free money for the Venezuelan state?
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).