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..."
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.
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.
You mean it doesn't get much media attention.
> 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.
Until the moment of the sale to GS the money had only been transferred between two entities associated with the government.
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).
> 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.
When we say "Venezuela issues a 2.8 billion USD bond" that means that the central bank sells new bonds denominated in USD on the international market (most likely an auction among bank players in London or NY).
What had happened here is that they did that and then unbeknownst to them one banker sold their bonds to another banker. The act of reselling that debt on the secondary market does not magically increase that debt. It just changes whom you have to repay it to.
Or even the next
This is pure speculation
"a clueless, inefficient bureaucracy... working tirelessly for politicians with an infinite capacity to recite unenforceable rules"
Varoufakis worked as an economist for Valve[1]
[1] http://blogs.valvesoftware.com/economics/it-all-began-with-a...
- 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
https://www.nytimes.com/2017/04/12/business/venezuela-oil-de...
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
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 entity buying the distressed asset knows it's junk, which is why they buy it at a steep discount. The fact that they may make a significant profit if the borrower starts making payments is irrelevant.
At this point people start whining about predatory Goldman Sachs, etc. Notice that there was no outcry when places like Greece and Venezuela were happily borrowing and squandering money based on German credit (Greece) or temporarily inflated oil revenues (Venezuela). In the case of Venezuela, they managed to also kill the golden goose by deferring critical investments in oil infrastructure and making dumb political decisions.
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.
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.
I am not saying the second system is universally better, but there is a reasonable argument for and against it.
Society does not exist to serve contracts - it is the other way around.
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.)
Man, the straw man fallacy on HN is like the proverbial hammer... You are talking about externalities of private contracts. Thing is, this also is subject to specific legal regulations in most Western countries. It is not subject to whichever moral judgement you are trying to fit in here.
Construction, industrial emissions, things like that are when the state can limit the civil rights of contract parties. Buying and selling bonds is generally considered not to have externalities that endanger the common good.