Tuesday, 30 May 2017

Goldman Sachs and Venezuela: A Representation of an Innate Philosophy

Today’s very short post looks at the news that Goldman Sachs, having recently bought $2.8 billion’s worth of bonds issued by the Venezuelan state-owned oil company Petróleos de Venezuela (PDVSA), is being heavily criticised for doing so by opposition leaders in the country. For this short post, the actual details of this sale will be scrutinised because it reveals an understanding of the philosophy of big financial institutions like Goldman Sachs, as if that were needed at this point, which is important to consistently repeat – the acceptance of such a philosophy can never be allowed to become the ‘norm’.

The obvious criticism stemming from the opposition in the economically-ravaged country that is swaying from one crisis to the next, is that the bond sale represents the Bank as ‘aiding and abetting the country’s dictatorial regime’ and that, ultimately, ‘Goldman Sachs decided to make a quick buck off the suffering of the Venezuelan people’. Now, before we continue, it is important to get one thing straight – it is systemically important that financial institutions like Goldman contribute to the flow of credit in the global capital marketplace, and in that sense there should not be any criticism. So, on what grounds are the Venezuelan opposition basing their criticisms? The actual details reveal the source of the criticism when we see that the Bank only purchased $2.8 billion’s worth of bonds – they actually paid just $865 million for the bonds, or 31 cents on the dollar. The ‘fire-sale’ nature of the bond sale signifies the ‘blood in the water’ that is required for the feeding frenzy to begin, with the opposition suggesting that the cut-price sale demonstrates that Venezuelan President, Nicolás Maduro, ‘did not have the country’s best interests in mind when he agreed to the transaction’; if that is the case, then Maduro is in excellent company with Goldman Sachs.

Goldman Sachs do not owe any responsibilities to the Venezuelan people, unfortunately. Technically, the leading management at Goldman have acted in their best interests, and the interests of their shareholders, as every piece of Company Law legislation dictates that they must. However, the bank have made a ‘quick buck’ off of the Venezuelan people, and it will be fascinating to see the reaction of the bank if the oppositions pledge to not honour the bonds ever materialises – but, Goldman will profit from this transaction. Large financial institutions like Goldman operate on returns, and must consistently seek to provide returns for those depending on them by any means necessary – unfortunately, dispersed shareholders can accumulate to create an incredible effect upon the culture of an institution so that ethical manoeuvers, considered business practices, or even just a reduced rate of return are viewed with severe hostility. Investors and Shareholders must take a lot of the blame for this parasitic culture that is a blight upon modern society, because as Goldman have recently demonstrated, they will have no concerns with the effect of their actions as long as their targets are met. Those who force through their targets should watch the news of the deterioration of Venezuelan society and ask themselves ‘how much is that extra percentage point on the return on the Goldman shareholding really worth?’

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