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Comment by tyingq | Hacker News Reader

The original letter has more detail as to why Borges believes that. I'm no expert, so I have no idea if it's plausible. On the other hand, if I were a citizen suffering under Maduro's regime, I'd be pissed at any sort of foreign investment that Maduro could spend as he wanted.

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..."

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It's not directly useful for Maduro. They bought the bonds in the secondary market for a seventy percent discount. Maduro made no money off the sale. And at that large of a discount I don't think he'll have an easy time selling new bonds to anyone either.

Makes sense, but I still see the reason oppressed people would make a stink.

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.

The only reason why this is even made public is because Goldman is a big and easy target. There are mutual funds that I wouldn't be surprised a bunch of people here hold that easily dwarf GS in this space.

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.

I agree, but GS appears to be resilient against bad optics so far. Some negative stories are written about them, some people on the internet call them 'criminal banksters', but no matter what happens they continue to make vast amounts of money and ex- (and likely future) employees seem to reliably find their way into top offices of government, central banks and other powerful institutions.

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.

Well, it did give the opposition a podium that they didn't otherwise have. I would guess many of us wouldn't have thought about Venezuela today otherwise.

I like this idea. Although the economic arguments aren't particularly strong, they give the opposition an opportunity to be noticed.

"but people tend to ignore that"

You mean it doesn't get much media attention.

Yes. :)

70% of par, 30%~ from where they were trading throughout the month.

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.

Good point.

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

What stops Maduro from issuing a bond for $1000 and selling it for $100? After all he knows he'll be dead or in Switzerland when the bond matures. He just cares about the $100 now.

What's the difference between issuing a bond by Maduro and selling it?

When he issues a bond, he takes a piece of paper (perhaps not literally...) and stamps "Venezuela will pay bearer $1000 on 1 January 2025" (or whatever) on it. When he sells it, he gives the piece of paper to someone else and in return they give him money, theoretically the present value of the bond. The discount between the two amounts is mostly an indication of Venezuela's creditworthiness, but of course a portion of the difference is just a reflection of the discount rate for assets to be delivered in future. This is exactly the same as when any other entity issues a bond.

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).

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 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.

Venezuela cannot print USD and needs USD to pay coupons/principal.

I may be missing something. They make USD by selling bonds, as long as they make more USD then the scheme has running cost they can increase the amount of USD they have right now by selling more bonds below value, leaving any future government in dept.

Venezuela cannot produce USD dollars out of thin air. If their monetary regime allows it, they may print Venezuelan bolivar at the cost of raising inflation in the country.

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.

The first one would be just like a transfer between accounts while what op suggest is that now they're receiving the money from Goldman.

Yeah, but they are not. If I sell you a car for $5000, I get the $5000 and you get the car. When you then resell the car to someone else, I am not involved in the deal in any way.

According to the article the bonds where bought from a group with ties to the government.

At that quantity, I expect they just set a new price for them.

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