The Bolivarian Revolution in Venezuela is generating great opportunities… for speculators and Vulture Funds.

I refer to Kadhim Shubber’s and Andres Schipani’s “Future of debt repayments in doubt as oil slide precipitates surge in five-year CDS”, August 19.

It says “No big oil-producing country has felt the pain of the price crash as acutely as Venezuela, where crude sales account for 96 per cent of exports.”

Sir, it is much worse than that, because that 96 percent of exports goes directly into the coffers of a very centralized government, which de facto dooms Venezuela to become, sooner or later, a failed-state.

And we then read “Francisco Rodríguez, a Venezuelan economist at the bank [of America], reckons Caracas still has some fuel and estimates some $61bn in state-owned assets could be sold to plug the holes. “Venezuela could continue paying bondholders for longer than it keeps paying Mr Maduro’s salary,” he says, alluding to parliamentary elections in December”

I wonder how would you feel if you lived in an absolutely disastrously governed country, and an investment advisor, from a reputable bank, was advising your government on how to scrape the bottom of the barrel in order for it to survive as long as possible? This advisor has placed himself completely in an après-nous et vous-le-deluge mode. Would a private citizen of such country, or of any country, look with sympathy at this adviser and his employer? I think not… I sure hope not!

What is Venezuela to do when its utterly inept government has used up that $61bn to plug the holes, which includes serving creditors/speculators… and perhaps therefore a bank economist earning a bonus?

@PerKurowski

Europe must hold the Basel Committee responsible for doing Greece in, by allowing banks to lend to it against almost no capital at all.

Sir, Wolfgang Münchau favors Greece would default on all official creditors — the IMF, the ECB, the ESM and on the bilateral loans from its European creditors. But it would service all private loans with the strategic objective to regain market access a few years later” “Greece has nothing to lose by saying no to creditors” June 15.

That translates into Greece favoring some investors/speculators, while making the European and some other taxpayers take the hit. I don’t think this is a strategically correct and intelligent way for Greece to behave… and it also fosters further inequality. The sacrifices must occur, but these have to be perceived as being shared as fair as possible.

And reading the three reasons Münchau puts forward for defending the default/Grexit alternative, I must remind you that while Greece remains committed to risk adverse bank regulations, which discriminates against the fair access to bank credit of its SMEs and entrepreneurs, it will fail, no matter what it does... and Europe will be following the same route in due course.

And talking about bad regulations, it is of utmost importance for Greece an others, to make sure the responsibility for all this tragedy, is shared by those who allowed banks to lend to Greece’s government against basically no capital at all… and thereby fueled its over indebtedness. At the end of the day, in my view, it was the Basel Committee who did Greece in.

@PerKurowski

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!

If there is no great improvement on the youth unemployment front, Greece has no choice but to default.

Sir, Wolfgang Münchau writes that “This could be the moment for Greece to default” April 14. But when reading that “the rate of its youth unemployment in 2013 stood at 60.4 percent”, unless there has been much true progress on this front lately, the question would seem to be whether Greece has any other option.

When Münchau asks “who in their right mind is going to make a long term investment in a country with unsustainable long term debt?”, let us not forget that the most important long term investors in Greece are and should always be, the Greek youth.

By the way, as Münchau mentions “a new currency”, if I was a young unemployed Greek debating about staying or not staying in my country, I would run if what they come up with is for Greece to institute a new Drachma.

The debt-ceiling is just as much the debt-roof from which the US will need to climb down from.

Sir, Sir Samuel Brittan should really be commended for reminding us of what is also at stake when stating “The recent fiscal policy deadlocks we have seen in Washington are a price worth paying for proper checks and balances”, “A moderate outlook with the chance of a new crisis” October 18.

In many languages there is just one word for the ceiling and the roof, in Spanish “techo”. And that is why it might be so difficult to translate the nuances of a debate about the goodies of increasing a debt-ceiling, which is able to leave so much aside of the badies of raising a debt-roof, that from which the US, someday, sooner or later, will need to come down from.

And Edward Luce, in “It is stupid to believe that the Tea Party has no brain”, October 21 asks: “Can there be anything more idiotic than flirting with a voluntary sovereign default?” As a Latin American I would have to answer “Yes!” to that. And that would be flirting with an involuntary sovereign default.

But the thumbscrews will still be used.

Sir in reference to your “Sovereign defaults”, July 14, let me remind you that whether in a torture chamber or on a conference table, the purpose is still to turn the screws on someone.

Now if both sides suffer a share of that thumb-screwing instead of all falling on either creditor or debtor… that sounds fair enough… supposing of course that half a torture plus half a torture is less than one torture.

The odious and arbitrary regulatory discrimination of risks must stop… now!

Sir Jeffrey Sachs in “It is time to plan for the post-Keynesian era” June 8, in his list of proposals, ignores the fundamental change that must occur in our financial regulations.

It just cannot be that our regulators allow banks to lend to fancy AAA rated sovereigns with zero capital requirements, or to sovereigns rated like Greece the last five years with only 1.6 percent of capital, while requiring the banks to hold 8 percent in capital when lending to the small businesses and entrepreneurs.

That odious and arbitrary regulatory discrimination must end now; the coward market discriminates more than enough when pricing for risks; and our financial regulators should immediately be removed as they seem absolutely incapable to understand that there are other risks in life than “the risk of default”.

Societies and human development thrives on risk taking and not on risk-avoidance.

Sir finally, at long last, you have reached the conclusion that we need to “end the pseudo official status of a select group of CRA’s elevated by law and accounting rules into arbiter’s of our banking systems’ risk management”, Rating Credit June 4. Good for you!

Having said that though, you arrive at this conclusion mostly because you feel that the credit rating agencies cannot really perform their rating job correctly, and which is why you find it hard “to do away with risk-weighting altogether” and with that you do your utmost to hang on to some kind of myth of safety.

Sadly, the real life hard truth is that there is absolutely nothing that justifies that a credit, deemed as having less risk to default, should be favored more than it already is by the market. Actually, since the nature of capital nature is and has always been very risk-averse, one could more easily build a case to the contrary since societies and human development thrives on risk taking and not risk-avoidance.

What U.S. risk is FT exactly referring to?

Yesterday, September 10 FT had on its first page a report signed by Krishna Guha Michael Mackenzie and Nicole Bullock that spoke about “the cost of insuring against a US default crept higher” and referencing a price for insuring that “implied that the US was more likely to default on its obligation than” several other countries.

Today, September 11, John Gapper in “Take this weekend off, Hank” apparently also finds a need to mention “that credit rating agencies had to declare to the investors that the Fannie and Freddie bail-out would not affect the country’s triple A sovereign rating.”

Given that US debt is issued in dollars, what exactly does this U.S credit risk insurance that you are talking of cover? The risk that they will run out of paper and ink at the US Bureau of Engraving and Printing?