Goldman Sachs’ Lloyd Blankfein should perhaps go to jail, for violating the FCPA, or be fired, for being too dumb

1. For years (decades) I've argued that any sovereign (and I really mean any sovereign) that has to pay something like 100-200% more in interest rates than that sovereign who at that time pays the least, in order to obtain finance, has not earned the right to take on public debt, and with that to mortgage its future generations of citizens. 

The current rate the US has to pay for 5-year money is about 2%.

2. There are plenty of persons currently in jail in the US because of acts committed against the Foreign Corrupt Practices Act (FCPA).

3. Goldman Sachs, has just handed over about US$800 million to the notoriously corrupt, criminal and human rights violating government of Venezuela, in order to obtain $2.8billion Venezuelan bonds paying a 12.75% interest rate, which if repaid would provide GS with about a 42% yearly return, 2.000% more than what US pays. Has it in fact not committed the mother of all corruptions acts punishable under the FCPA?

4. Of course, if Lloyd Blankfein, the chairman of Goldman Sachs, can see a 42% return for lending to a sovereign, and not conclude that something extremely corrupt and fishy is going on, then he should, as a minimum minimorum, instead be fired for being too dumb.

Many people have been arguing for decades for the need of a Sovereign Debt Rescheduling Mechanism (SDRM). I agree with that, but that must begin with classifying credits as bona-fide, doubtful, or outright odious. This specific Venezuela debt referred to here, clearly belongs to the latter, and should not be repaid.

PS. Venezuela, a nation with tremendous food and medicine shortages sells gas at less than US$ 2 cents a gallon. What else can I say?

PS. If the elites do not socially sanction those they should sanction, there will be no society left to sanction.

PS. Today June 27, 2017, Maduro, he who was financed by Goldman Sachs stated "If we don't win with votes we will win with our weapons".

PS. https://www.hrw.org/world-report/2017/country-chapters/venezuela

PS. Still, November 2018, and not the slightest sign of a "Sorry" from Lloyd Blankfein. Did he earn a big bonus for mistreating Venezuela? Are all those working in Goldman Sachs really proud of this?

A SDRM must begin by defining “odious” credits and borrowings. Also, when should capital receive anonymous asylum?

The world no doubt needs a Sovereign Debt Restructuring Mechanism but, if that is going to help the citizens of the world, which it primarily should do, that must begin by making very clear the difference between bona-fide normal credits and borrowings, and odious credits and borrowings.

And at what moment should somebody's capital classify to receive anonymous asylum? For instance would someone escaping from North Korea be able to do so?

On an odious bond issue to finance an odious government

Ricardo Hausmann and Miguel Angel Santos, in their “Should Venezuela default?” refer to a “$5 billion private placement of ten-year bonds with a 6% coupon, it effectively had to give a 40% discount, leaving it with barely $3 billion” 

That in cost represents approximately the same as a $3 billion ten-year bond issue with a 13.5% coupon. 

That type of financing of a sovereign should be prohibited for two reasons: 

First, that is, as you can understand, especially when the exact placement price of the issue is rarely reported, a completely non-transparent way of financing. 

Second, in the 2nd alternative, any new government who could obtain access to better credit terms, could much easier offer to repay the $3 billion issue, and thereby free the nation from those usury rates. As is, unless it enters into a default, it has to repay the full usury interests that are hidden away in the repayment of the $ 2bn in principal not received. 

And I would also like to know… who arranged that private placement and who bought it… so that I could express my contempt for it. Do they not know that Human Right’s Watch has clearly established that in Venezuela human rights are being violated? I mean where does the limit go? Would it be right to buy bonds to finance the building of concentration camps... if the price, the risk premium, is right? 

If financiers need credit ratings to base their decisions on, we citizens need governance ratings and ethic ratings to base the permission for our sovereigns to take on debt. 

Also… speculative investors should not have the right in any restructuring to have the cake and eat it too, meaning collecting their high-risk premiums and the full principal.

If you define clearly and effectively what needs to be considered as odious credits you solve about 90 percent of the problems with odious debts.

Risk premiums and ethic ratings

And again, for the convenience of those who do not have sufficient political leadership, the government of Venezuela, and PDVSA, announced new bond issues, in order to pay for social "investments" today ... leaving the bill to the Venezuelan youth of tomorrow.

And all this while the Financial Times of London described that soaring interest rates paid, for example by Venezuela, "tempts investors to ignore the fears of civil war, crippling inflation and legal battles."

And indeed Venezuela ( PDVSA and ) pay for ten year credit interest rates that are about 10% higher rate about 10 % than the U.S.. 8% more than Mexico ! That means in essence that already after the first year we have paid the creditor an additional 10 % ... and still owe him 100% of the loan. And that means in essence that at end of the tenth year, when we have already paid the creditor additional 100% ... our children still owe 100% of the principal. This is simply something abominable.

In fact, when a sovereign country is required to pay an interest rate that exceeds by more than 4% the rate of those who pay less, the risk premium, I consider we are in the presence of an economic crime against humanity being committed, fragrantly, against future generations.

And we citizens of the world should do something about it ... for example:

All stock exchanges of the world should suspend trading of all sovereign debt that show a risk premium higher than 4%... (as that would indicate a basic incapacity of the government)

Besides credit ratings, we should develop and use a system of ethic ratings.

All those who purchase sovereign bonds carrying a risk premium of more than 4% risk, and which do not meet minimum ethic ratings, should be exposed publicly as financiers of Sovereign Evils.

We the people should refuse to pay taxes while our sovereign bonds pay a risk premium higher than 4% and do not possess some minimum ethic ratings... and that should be a clause explicitly included in all bond issues.

PS . Whoever believes that China treats us Venezuela as accommodating as we treat Petrocaribe, is a dreamer.

Translated from El Universal

You, who are about to finance Pdvsa, are you sure crimes against human rights are not committed in Venezuela? Ask your children!

Creditors of Venezuela, read our Constitution!

Odious credit

Odious debt

Creditors of Venezuela, read our Constitution!

In the same way there are international conventions that help foreign investors to collect what governments duly owe them, there should be agreements that help citizens not to be saddled with the payment of debts incurred by governments who violate their constitutions.

If the articles of incorporation of a company stated that it was not allowed to borrow more than 50 % of its assets, but its president is asking for loans that would take its debt to 100% ... it should be difficult to get a reputable law firm to issue a legal opinion stating that there will be no problem.

And, if constitutions are the statutes by which citizens defend themselves from the excesses of their governments; and if creditors expect citizens to sacrifice themselves honoring the debts of their country to which their governments have subscribed... I think citizens should be able to expect from potential creditors, to at least throw a glimpse at their constitutions, to see if these are met.

And it does not matter where the creditors come from, whether Wall Street, San Cristóbal or Cochinchina.

And it is not that I expect creditors to be aware of everything in our Constitution, such as if the expressed rights of indigenous people are complied with but, as a minimum minimorum, sophisticated financiers should be able to tell, detail, whether there is compliance of an Article 320 which states:

"The State shall promote and defend economic stability, prevent the vulnerability of the economy and ensure monetary and price stability, to ensure social welfare. The Ministry of Finance, and the Central Bank of Venezuela, will contribute to the harmonization of fiscal policy and monetary policy, facilitating the achievement of macroeconomic objectives. In exercising its functions, the Central Bank of Venezuela will not be subject to directives of the Executive and may not endorse or finance fiscal deficits."

and so! Can anyone who knows anything about finance, argue that our Constitution has been complied with? Of course not! And so, as a citizen, I here inform our creditors they better not come crying to me tomorrow looking for my support to get paid.

And all citizens of the world, messed up by their bad governments, should all take the same attitude ... and we should all show solidarity amongst us all.

And I'm not throwing out warnings after the fact... like would a bad payer. In "Odious Debt", March 2004, and "OdiousCredit", April 2004, I begged creditors to collaborate with citizens ...and nothing! And as salt in the wound Venezuela has paid them exorbitant interests. Well guess what? You can begin applying those high risk premiums to the principal owed... in order for us to at least confirm you your risk assessment.

And what fault of mine is it that the creditors did not read it? They should follow me on Twitter!

Having us Venezuela citizens recently been mocked by the OAS, that clubhouse of governments where constitutions are not even read, it is clear that we need the OCA, the Organization of American Citizens.

PS. There are many polls, but the one I would most like to see, is one that asks the participants of the 4F-1992 Hugo Chavez coup, whether what we now have in Venezuela is what they dreamed about.

PS. I am seeking a democratic dictator who would be willing to rip our oil revenues out of the hands of our Petro-state, and hand these over to the citizens. That would earn him a place in history, as the one who achieved the true independence of Venezuela.

Translated from El Universal

PS.When reading in the Financial Times an article by Michael Holman titled “Investors incorrupt ‘new Africa’ repeat old errors”, April 9 2014, I immediately sent FT aletter which concluded: “More than sovereign credit ratings we might need sovereign ethic ratings … and to make these count”

PS. 2017. A bank, like Goldman Sachs, that finances a notoriously human rights violating regime, like Venezuela’s Maduro’s, does it really deserve the citizen’s trust? The world is in more need than ever of ethic ratings.

Odious debt should not be granted relief while odious conditions remain.

I am a citizen from a country that I consider corrupt and that needs to change a lot before any new debt could do it any good.

In this respect I urge you not to give debt relief to corrupt governments as that will only allow those addicted to debt to be able to hit the bars again, in the same shameful ways as before.

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.

What is the financial world to do with Venezuela?

A letter to the Financial Times

Sir, In Venezuela, as in most other countries, Congress is supposed to exercise control over the executive branch. For instance, its Constitution establishes that ‘No contract in the municipal, state or national public interest shall be entered into with foreign states or official entities, or with companies not domiciled in Venezuela, or transferred to any of the same, without the approval of the National Assembly.’

Now, even though Venezuela is currently known as a very polarized nation, the fact is that after the elections of December 4, 2005, its Congress includes 167 members who are in favor of and obedient to him who wishes to be called ‘Commander’, and 0 representation for those many who are not in the least in agreement with chávez´s confused ramblings of his vision of a twenty-first-century socialism. This indeed poses some serious questions about its legitimacy and therefore some serious challenges for those who issue opinions.

For instance, what are legal counselors or credit-rating agencies to do after they might receive a letter from a Venezuelan citizen (or perhaps even read this letter in FT) informing them that sooner or later the debts now contracted by Venezuela might be questioned as ‘odious debt’, as they are not duly approved by a legitimate congress (167-0), nor are they needed, as can be evidenced by the many donations Venezuela, with its own so many very poor, has recently made, among them, to the relatively few somewhat poor of Massachusetts.

Sir, if a company like Nike has to worry about the labor conditions in the factories to which they outsource their production, why should the financial world be allowed to ignore civil representation issues in those countries it helps to finance?


This is an extract from Voice and Noise, 2006, a book that I wrote after my experience as an Executive Director of the World Bank (2002-2004) and that now, after having duly marked the extract above, I give freely to any lawyer who might have to prepare a due diligence on Venezuela and to anyone from the credit rating agencies who has to rate Venezuela with the words... “and do not forget that a citizen from Venezuela, who has all the intentions of tomorrow, when given a chance, to protest all the odious debts and gifts told you so… I have not the faintest idea if I have a legal case… but are you really sure I don´t?”

Odious Credit

I recently wrote about odious foreign public debt, that debt about which there is a current debate in the world as to whether it can be legally repudiated if it is taken on by illegitimate governments or for illegitimate ends.

The other side of the coin is odious credit. Please don’t think I’m against banks—quite the opposite. But I respect the role of the financial middlemen too highly to keep quiet when they are not doing their job right. In 1981, the representative of a foreign bank in Venezuela showed me a letter in which his boss instructed him to “give credit to the INAVI, Venezuela’s National Housing Institute. It’s the worst public institution, which means that it pays us the highest rate and, as you know, in the end it’s just as public as the best of them and Venezuela will have to pay up just the same.” Odious credit, isn’t it?

The first thing a good banker should ask a client applying for a loan is what is it for and if the answer is not satisfactory he should reject the application, regardless of the guarantees offered. Simple plain-vanilla fraud of the Parmalat kind will always exist, but the asinine way all their creditors fell into the trap makes one suspect that this is only the first case of systemic risk in the banking system: tempted by the regulators in Basel, banks subordinate their own criteria to those dictated by auditors and credit raters. This development, bad in itself, is even more serious in the case of public credit, where the what it’s for is being replaced by how much can be carried, perversely derived by calculating the level of sustainable public debt.

When I call for the total elimination of foreign public debt (which is feasible and would not require huge sacrifices in an oil rich land like Venezuela) my colleagues often argue that a certain level of debt is good and necessary for the country. This does not convince me, since it makes debt sound like electricity that must be kept at a certain voltage. Because public debt must always be paid back, regardless of whether anybody ever knew what or whom it was for, I’m fighting for the day when the private sector in Venezuela can return to the markets, freely, without having to carry that huge monkey—foreign public debt—on its back.

In my opinion, the Benemérito (the dictator Juan Vicente Gómez (1864–1935) who ruled the country between 1908 and 1935) deserved great credit for ridding Venezuela of her foreign debts He certainly knew that to shake off that vice more than patches or pieces of chewing gum are needed.

From El Universal, Caracas, April 22, 2004

Odious Debt

One of my recent articles, which focused on the need to protect the environment, concluded by recalling the ancient proverb, “We have not inherited the world from our parents; we have borrowed it from our children.” On that occasion, as always, I thought about Venezuela and I knew that, as borrowers from our children, we have acted like veritable pigs. Not only have we extracted our country’s oil without putting it to much good use, we have even mortgaged its future in the process.

Some countries may be in need of foreign loans to get on their feet, but here in Venezuela we ought to know by now that our foreign public debt, be it the debt of yesterday, today, or tomorrow, only serves to fasten us all the more securely to a sinking ship. Foreign public debt is a monstrous obstacle. It keeps our citizens from getting loans (or at least makes loans much more expensive) that could indeed lead to growth in the country and allow the government to satisfy social needs through taxation.

Our only salvation is to learn how to resist the lure of the eternal sirens’ song, which goes “foreign debt taken on by the previous administrations is evil and good for nothing, but rest assured, with us, everything’s going to be different.” How do we—like the ancient Odysseus—tie ourselves to the mast?

There are those, in similar desperation, who argue that since our creditors were accomplices of those administrations, we shouldn’t pay our debts to them. I accept the theory of complicity, at least on the part of the intermediaries, but I think we should punish them much more harshly, by canceling the entire debt and never again taking out another loan.

What can ordinary citizens do who want to and have to go about their daily lives and can’t be continually overseeing the government? The same as any company: they can refuse to provide their management with authorization for contracting debts. Along these lines, a doctrine is now being discussed in the world according to which, if the debt was contracted by an illegitimate government, or for uses that were clearly of no benefit to the country said debt could be declared odious and, as such, its collection would not be legally enforceable.

Dear friends, if we are going to do right by our children, our grandchildren, and our great grandchildren, and return the country we borrowed from them in good shape, maybe we should take advantage of such a possibility and declare our foreign public debt eternally odious. Given that threat: Would creditors dare provide us with loans? What would the credit-rating agencies say? 

Or let us be even more clear about the message and amend our constitution to say that the government of Venezuela has no authority to borrow from foreign sources, that any attempt to do so is illegal, and hence that all such illegal debts will not be repaid. That should stop foreigners from lending us money!

Translated from El Universal, Caracas, March 25, 2004

Recadi rises from the dead

In a country in which the Government proudly announces in 1997 the completion of a highway on which work was initiated back in 1973, the belated results of administrative and legal initiatives should not be surprising. Nevertheless, we have indeed been surprised once again upon hearing rumors about the summons being issued, applications for reimbursement being submitted, fines being imposed, appeals being declared null and void and other such fine aromatic herbs. The clincher is that all of these are related to Recadi. Yes, ladies and gentlemen, Recadi - not OTAC - Recadi!

I remind my younger readers, who could be under the false impression that the follies of exchange control systems originated exclusively during this Government’s tenure, that in the early eighties a system of controls was implemented as an answer to new exchange rate realities during which the devaluation of the Bolívar was discovered. This system was known by the initials Recadi.

The Recadi system sent the wrong economic signals, stimulated unnecessary imports and allowed for blatant corruption though the misuse of the exchange benefits it offered. It was the most costly economic experiment in Venezuelan history. All of the accumulated losses racked up during the recent financial crisis don’t even come close to the cost incurred during the Recadi years. Only the fact that the Recadi debacle was spread out over several years diluted its effect and made it less visible as a disaster than the bank crisis.

Even though there was some opposition, the Recadi system so totally enveloped the national economy that it resulted in the creation of a kind of society of accomplices or accessories which then made it extremely difficult to correct as well as to punish the abuses that were committed under the system’s umbrella. We can still remember the comments relative to the infamous Chinaman of Recadi, the only person who, as an exception that validates the law, underwent judicial punishment.

Recadi, as does all official bureaucratic process, implied the elaboration and use of an incredible amount of documentation. This put to task the internal administrative capabilities of industry and commerce in Venezuela not used to working with government entities at certain levels. Local banks were brought into the game by the government, and against their best judgment were forced to dedicate several years and immense resources to documentation and issuing of bonds to cover incomprehensible obligations.

When Recadi finally disappeared, there was general relief all around. As a natural reaction, all parties actually involved in this involuntary process immediately began filing, stashing, hiding and losing all types of documents which could possibly remind them of their participation in this horrid chapter in economic history. New actors also surfaced to help purge filing cabinets of this damning material. New upcoming generations which never had to live through Recadi (50% of the country’s population), foreign investors and bankers. All, however, have something in common. When they see a file labeled “Recadi”, they rifle through it, define it as the product of a historic comedy and then send it to the trash bin with the efficiency, energy and arrogance of a newcomer.

Once this happened, however, official entities of all types and colors began spewing forth their edicts; the Central Bank of Venezuela, the Ministry of Finance, the banks and the different Administrative Courts.

“The Court XXX, in relation to the recourse ........... declares null and void the administrative appeal submitted by YYY against the decision issued by the External Private Debt Registration Commission in its resolution of February 1985”

“We are pleased to notify you that the Central Bank of Venezuela has requested the reimbursement of US$ XXX in advance payments for the following imports due to the fact that the corresponding documentation required to justify said advance payments was apparently not submitted on time.”

The questions that still remain to be answered are several. What strange power can manage to reactivate, almost fantasmagorically, files that up to now have been classified as “dead”? Is this the new Venezuela in which justice arrives late but does finally arrive? Could this merely be an example of “I’ll get you sooner or later”? Or could this simply be the result of the privatization of official business?

At least some conclusions seem clear: Save even your toll receipt! Watch out, OTAC is coming, maybe not this century, but certainly the next!

Daily Journal, Caracas, November, 1998