Shielding Wall Street from the debacle

Are you comfortable financing this?
Would you be comfortable financing this?

This Reuters article on a Boston forum of Wall Street-type investors is very illuminating. Obviously, the markets are jittery about what is undoubtedly “the worst-managed economy in the world.” But the highlight of the article is a quote by our old foe Mark Weisbrot:

So I rang up Mark Weisbrot, the co-director of the liberal-leaning Center for Economic and Policy Research, based in Washington, D.C. He’s not shy about criticizing media coverage of Venezuela, including how Reuters covers the nation. He believes there will be no default on Venezuelan debt because the nation doesn’t have a balance of payments problem.

“When you get past the ideology and you look at why would they default, it doesn’t seem there would be a reason for it. It is not like they cannot make their debt service payments,” Weisbrot said from Washington.

Of course, Weisbrot is right. As long as Venezuela is exporting enough oil to make their payments on foreign debt, then there is no need to worry. And clearly, we are still in a position to keep our payments.

Yes, the government is still exporting enough to cover our dollar obligations – with some left over for Barbie. Yes, they have also made clear that servicing Wall Street is their top priority, just like any high-priced hooker would say. And still, bondholders are not at peace.

The price for this “commitment” is being paid in the streets of Venezuela, with ever-increasing scarcity, chaos, and social conflict. Just take a look at the latest graph from Datanálisis, shown above (more on that in later posts). The message from Caracas is clear.

“Money for Wall Street? You bet, and it’s going to keep flowing. We’ll just cut imports. We’ll cut every damn import if we have to. But we’ll always have cash for you. Don’t worry about the Venezuelan people, we’ve got that covered – they will never know the reason they have no medicine on the shelves is to keep our commitments to you. To paraphrase Prof. Jonathan Gruber, never underestimate the stupidity of voters.”

This leaves Wall Street traders bewildered and depressed. Back to the Reuters piece:

“I’ll believe it when I see it,” Cem Karacadag, portfolio manager at Babson Capital, said in summing up what the other panelists felt about fundamental economic reforms being implemented by the Maduro administration.

“Some of the fixes we talked about… exchange rate devaluation, for example. They can do that with a stroke of a pen. It is so easy to do. Why is it not happening? That’s the depressing part of all of this, is it is not happening because clearly the vested interests are not making it happen, which means the system has to break,” Karacadag said.

Nobody likes getting paid by a government that deliberately inflicts tragedy on its people. Even Wall Street traders are uncomfortable with this level of wickedness – no offense guys, wink wink. Hence, the mood seems to be – “yes, we’re getting paid, and we’re probably going to continue getting paid, but this is nuts, and we want no part of it.”

It would appear that part of what’s driving the huge sell-off of Venezuelan debt is horror – sheer disgust at what Venezuela’s government is doing to us. They may be getting paid, but they really want no part in this.