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Goldman Sachs Wants Starving Venezuelans To Know It's Financing Their Dictatorial Government For Their Own Good

What fun is bond buying you can't profit off the odd South American strongman?
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Bond markets know all sorts of complexity, but not moral kind. The likes of Paul Singer succeed in part because their computations rely on ethical concerns about as much as they do the color of the paper the bonds come printed on.


Which is all to say that when Goldman Sachs bought $2.8 billion in state-issued Venezuelan bonds on the secondary market last week, the bank's calculations rested on facts, not feelings. Venezuela may suffering an epochal political cataclysm, marked by daily street protests and widespread immiseration, but yields are fat and profits would be huge should opposition forces manage to oust president Nicolás Maduro and restore stability.

But in such a febrile political climate, feelings have a way of becoming facts pretty quickly:

“It is apparent Goldman Sachs decided to make a quick buck off the suffering of the Venezuelan people,” Julio Borges, head of Venezuela’s opposition-controlled congress, said in a public letter to the New York bank’s chief executive, Lloyd Blankfein. “I also intend to recommend to any future democratic government of Venezuela not to recognize or pay on these bonds.”

It shouldn't come as a surprise that anti-Maduro forces might resent a bank stepping in to prop up the market for Venezuelan bonds at such a moment. As people literally starve in the street, the nominally socialist government has taken pains to guarantee future bond payments, hoping to maintain some shred of dignity in credit markets. Accordingly, opposition leaders have labeled government debt “hunger bonds” and penned letters to global bank heads indicating that should they buy the bonds they ought to expect, well, more angry letters.

Which angry letters Goldman has now received. But Lloyd and co. don't seem too concerned:

In a statement, Goldman said it bought the securities, which are held in funds and accounts it manages on behalf of clients, from a broker and did not interact with the Venezuelan government. “We recognize that the situation is complex and evolving and that Venezuela is in crisis,” the bank said. “We agree that life there has to get better, and we made the investment in part because we believe it will.”

Goldman's it's-not-us-it's-you message makes sense from the lofty vantage point of the bond investor. After all, no one would buy Venezuelan debt if they didn't (a) aim to sell it again quickly or (b) hope for a nice resolution. But it's hard to imagine an insulin-deprived Venezuelan diabetic receiving these words kindly as his government scrounges for change under the national sofa-cushion in order to send a novelty-sized check to 200 West St.

The irony here is that Goldman has managed to cheese off the very same forces it hopes will one day take power and restore order. Borges, the opposition leader, is supposed to be the guy who will one day justify Goldman's multibillion-dollar bet on the future of Venezuela. Now he's pledging to deprive Goldman of its rightful bond payments should he ever take charge, leading inevitably to some Singeresque international legal imbroglio in which Goldman once again comes off as the rapacious capitalist.

Likely the most frustrating aspect for Goldman is the fact that they didn't even buy the bonds from the government. Instead, the WSJ reports, they purchased the debt from a London brokerage called Dinosaur Group. But it's no mystery why a politician would rather aim his righteous protest at Goldman Sachs, vampire squid etc etc, than “Dinosaur Group.”

Goldman Sachs Under Fire for Venezuela Bond Deal [WSJ]



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