Are those who lend to a morally bankrupt government not just as morally bankrupt themselves

Sir, FastFT reports “Venezuela bonds yields are shooting higher” September 11.

It refers to a recent article by Ricardo Haussman’s and Miguel Angel Santos’ that said: “The fact that [the government] has chosen to default on 30 m Venezuelans, rather than on Wall Street, is not a sign of its moral rectitude. It is a signal of moral bankruptcy”.

And FastFT states “Investors are clearly little concerned”… something which is quite ok with me.

Most investors in Venezuelan debt, perhaps all, have for a very long time been perfectly aware that things in Venezuela were not as they should be, but they have decided to look away, because of the high risk premiums offered. And so as I see it, they are just as moral bankrupt.

And I repeat questions I have often made: Would it be right to buy bonds to finance the building of concentration camps... if the price, the risk premium, is right? Where do you draw the line on what is morally admissive lending? Where do you draw the line on what kind of intermediation fine reputable investment banks can do before they become morally repulsive?

The way I see it, the world, at least us citizens, need good governance ratings and ethic-ratings, much more than what it needs credit ratings

If Venezuela defaults, two have tangoed, an incompetent government and highly irresponsible lenders.

Sir, I refer to John Paul Rathbone’s “Call for default underscores Venezuelan incompetence” September 8.

In it Rathbone analyses Ricardo Hausmann’s and Miguel Angel Santos’ recent “Should Venezuela default?” where they so correctly argue that Venezuela’s government, though being current on its debt service, has already de facto defaulted in so many ways on “its people”, something which signals a “moral bankruptcy”.

Venezuela’s government has clearly shown absolute incompetence, the highest disdain for Venezuela’s constitution and for instance, according to Human Right Watch, has also committed crimes against humanity. And facts like gasoline-petrol being given away at US$ 1 cent per gallon, 278 times less than the price of milk… makes all of the above as evident as can be.

But, let it us be very clear, all equally points to highly irresponsible lenders who do not care one iota, as long as the price, the risk-premiums, are right.

Rathbone reminds us that “Venezuelan bond yield on average 12.3 percentage points more than US treasury”. Let us then suppose a bond issue yielding 20% that is going to finance the building of some concentration camps. Where do you draw the line on what is morally admissive lending? Where do you draw the line on what kind of intermediation fine reputable investment banks can do before they become morally repulsive?

As I have been arguing for some time, anyone investing in a bond that (when rates are as low as the current) pay for instance 4% more than the risk free rate, should know he is buying morally questionable pre-defaulted bonds… and that he must renounce to the possibility of having the cake and eat it too, meaning aspiring to get 100% of risk premiums and 100% of principal.

As a Venezuelan citizen let me also remind all that currently the government receives directly 97 percent of all the nation’s exports and, while so, as I see it, has no right to take on any debt whatsoever.

PS. During the Venezuelan default in the 80s I asked a foreign banker “How come you lent especially much to this entity that is emblematic of all non-transparency, corruption and mismanagement in Venezuela?” His answer was: “At the end of the day it is all going to be government debt, and this entity pays the highest interest rates”. I felt like slapping his face, I wish I had!