Should one want to have anything to do with an investment bank like Goldman Sachs that finances odious regimes?

Sir, I have no idea about what Robert Smith describes in “Goldman questioned on Verisure debt sale”, November 10; and, though it sure sounds a bit shady, I have not enough interest in pursuing the understanding of it.

That said, I would have to add though: Do you really want to have anything to do with an investment bank that finances odious regimes, like that of Venezuela?

If yes, where do you draw the line? North Korea?

PS. The vultures out there should not forget that between the case of Argentina and that of Venezuela there are some fundamental qualitative ethical differences.

And all this suffering while gas (petrol) is sold at less than US$ 1 cent per gallon

https://teawithft.blogspot.com/search?q=Goldman+Sachs+Venezuela

@PerKurowski

If I were Puerto Rican I would be on my knees thanking President Trump. I wish he did the same for Venezuela.

Sir, with respect to President Trump informing the markets they should wave “goodbye” to Puerto Rico’s outstanding $74bn bonds, Gillian Tett writes: “it is hard to argue that the foreign investors deserve much sympathy: they bought Puerto Rico debt precisely because this offered sky-high yields to compensate for equally high risks.” "Puerto Rico’s recovery depends on debt forgiveness” October 6.

Precisely, the creditors should not be able to eat the cake and have it too.

I have often argued that in any restructuring process one would not want lenders who lent to the sovereign at low rates, or acquired sovereign debt when no repayment problems were envisaged, bona fide lenders, to receive the same treatment as those lenders who lending at high speculative rates, perhaps even helped to create the crisis that demands a debt resolution.

And, nothing discloses the frontiers between bona fide and speculative debts better than the expected risk premiums when debts are negotiated. Perhaps any sovereign debt that reflects a risk premium that exceeds for instance by 4 percent the lowest interest rate paid for similar debt to other sovereigns, the speculative threshold rate, STR, should be classified as speculative sovereign debt, SSD.

And in the case of a restructuring of a sovereign debt, any creditor who entered in possession of his credit in conditions that would deem it to be a SSD, should have all interest received in excess of the allowed STR, automatically deducted from the principal.”

Would that work? I have no idea but at least it could help restrain creditors from financing sovereigns that have not earned the right to be financed.

PS. I wish President Trump would send a similar “goodbye” message to Goldman Sachs for financing the Venezuelan regime.

@PerKurowski

Should bonds that finance violations of human rights have to be repaid?

Sir, I find it hard to comprehend the big raucous one can often hear about financing what endangers the environment, or companies that employ children; and then reading “Venezuela’s hospitals do not have medicine, the stores do not have food or toilet paper, but there is an almost surreal confidence that bondholders will do quite well out of the coming restructuring, even with the damage done by governmental incompetence and corruption” “Chaos reigns as Caracas makes every effort to please foreign bondholders” John Dizard, September 3.

Sir, what if the International Court of Justice decided, as it should, those bonds should not be paid, on account they were financing the violation of human rights?

I have been for many years, soon many decades, been voicing support for the need of a Sovereign Debts Restructuring Mechanism, but that SDRM must begin by defining very clearly what is to be considered as odious credits and odious borrowings. If not, We the People, will get screwed.

Is Venezuela violating human rights? There’s food and medicine scarcity, and people are dying because of it, but petrol (gas) is being given away at US$ 1cent per liter (US$ 4cents per gallon). So you tell me!

@PerKurowski ©

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

When discussing sovereign debt restructuring, let us begin with the beguine

Sir I refer to Martin Wolf’s “Holdouts give vultures a bad name” September 3.

Without opining on the sovereign debt problems of any particular country (like in this case Argentina’s) I have often said we need more clarity in the terms we use.

For instance any sovereign debt holder who acquired the debt at moments when it paid low risk premiums, and the debtor country seemed to be going in the right direction with sustainable debt, should be classified as a bona fide sovereign creditor.

On the opposite side, any debt holder who acquired the debt at moments when it was paying high-risk premiums, because the debtor country was deemed to be going in the wrong direction, towards unsustainable debt, should be classified as a speculative sovereign creditor.

And there are no clearer frontiers between those two categories, than the implicit risk premiums at the moment of investing in that debt… for example 400 basis points over the lowest rate paid by sovereigns for similar debt.

And I believe that, if a country needs to renegotiate its debts, the speculative holders should not expect to have the cake and eat it too, meaning collecting high risk premiums and full capital. For instance, any interests collected over a certain base risk premium defined, should first be deducted from principal owed, in order to allow for some justice with respect to the bona-fide creditors.

The above is not intended as a fully thought out solution, especially when we know that many speculative debt holders could dress up their positions as bona-fide, but at least it also helps to remind us that, both among hold-outs and restructured there could be good and not so good creditors.

But I say all this because just as important, or even more important than any restructuring of sovereign debt, is to send the right signal about when these debts were originated… as so much of renegotiated sovereign debts should never have really come into existence.

I believe us citizens who suffer bad governments, can always benefit from new tools that put some dampers on their possibilities to contract debt, usually only to benefit some few, and to be paid by future generations. Where would for instance the debt-squandered-away levels be for many countries where it not for holdouts?

And so, when discussing sovereign debt restructuring mechanism, we should begin with the beguine. 

For example any debt restructuring for a sovereign debtor who is in problems for causes mostly of his own making, should include clear mechanisms which at least shows an intention of that not happening again. By the way, that is most often an integral part of any private sector debt rescheduling, for instance maximum debt levels, minimum cash reserves and so on. 

A sovereign creditor who just plays out the card of “take your hit and leave me alone” might very well merit some bad vulture holdouts, I mean for the benefit of us tax paying citizens.

PS. Beside sovereign credit risk ratings, should we not also have sovereign governability and ethic ratings?

PS. And, in all these matters, let us never forget that what might appear as a benefit to some, might very well reappear somewhere down the line as a cost to another.

Do the financial rights of creditors come before the sustainability vultures' rights of Mother Earth?

Sir, Tim Smedley writes “The UK has a legal obligation to meet 15 percent of its energy demand from renewable resources by 2020” “Sustainable jobs surge fades as wind farms face”, July 17.

What does that mean? Can you bank on it? If duly servicing UK public debt requires subsidies to wind farms to be cut and as a consequence you will not be able to meet targets… could there be a renegotiation? Could sustainable energy vultures hold out… and force a cut in all other energy supplies?

It would be really interesting if FT explains how this kind of legal obligation would rank with respect to other legal obligations.

Very soon the vultures will descend on some European sovereign bond markets

Sir Gillian Tett writes about future haircuts on Greek and other sovereign debt that “will continue to poison the bond markets, “Bondholders jittery over who will bear Greek losses” May 28.

Yes, there will surely be a lot more of it in line but let me assure her that already many bondholders are de-facto taking their share of hair cutting by way of the markets, as interest rates for these borrowers is shooting up, and, if nothing is done, sooner or later the vultures, those who have been preying on other lesser markets might descend in full force on Europe.

There is little anyone can actually do against a market that has discovered something as being unsustainable, and so the decision the European governments have to make now is more about who they wish to encounter on the other side of the negotiation table... the traditional bondholders or the vultures?

When is real Armageddon more likely to occur, when we are impacted or when we discover that we are going to be impacted?

You should not give debt relief to “odious” debt.

Sir Alan Beattie in “Vultures unlikely allies in anti-graft cause” July 18 quotes Stephen Rand of the Jubilee Debt Campaign saying “Debt relief should never be used as a weapon of economic coercion by creditors” as implying that debt relief should be awarded even when governments are still corrupt.

What is this? As a citizen of a country with a government that I consider quite corrupt, I do not like anyone giving it loans, debt relief or anything whatsoever. Frankly, before corruption is ended most of any debt relief given would just end up allowing these countries and governments addicted to debt, to hit the bars again.

If the concept of odious debt is applicable in the sense that some debts should not have to be repaid if contracted in an illegitimate way, castigating the creditor, then the same concept should clearly also apply to the granting of any debt relief, punishing the debtor.

Vulture funds

Sir, I write to you with respect to Alan Beattie´s “'Vulture fund' in Zambia debt case gain”, February 16.

I might not like it too much if a vulture-fund-manager invited any of my daughters out to celebrate a killing in Zambia debt but, having said that, neither am I so sure that the world would be a better place without the vulture funds.

That some can find opportunities in buying uncollectible loans and squeeze fortunes out of them when others have decided to clean up their books, is just part of the circle of life, and part of the same market mechanism which signals how much, or how little, the loans are worth, since the price of a loan indicates the expectations of collecting on the loan and not the expectations of collecting on a “pardoned” loan. Yes, the vulture funds are into an ugly business, cleaning up among corpses, but, by their sheer presence, they might perhaps even help to reduce the number of corpses.

Most, or perhaps all of the scholar papers on the restructuring of sovereign debt, state as the explicit purpose of the whole exercise, that of enabling the countries to regain access to the international capital markets again (something like the torturer waking up his fainted victim) and so, if you really need to pick on one, you might also choose to do so at that moment in the circle when the new born debt-overhang-ridden countries gets thrown out to start defending itself again from the many dogs-of-finance out there.

There is so much written about freeing up the countries in order for them to access the markets while comparatively so little about how they should go about to avoid repeating the same mistakes that perhaps I should even frown when it is a regular investment banker who knocks on my door and asks for my daughter. I mean what is some hundred of percents on some few millions when compared to some basis point on a couple of billions.

PS. Nonetheless we should not allow vulture funds to be able to collect on really rotten odious credits