So, the leading theory of why Chavez decided to apply his now famous praying mantis strategy and eat his banking buddies goes as follow:
The bolibourgeois bankers were annoyed that the Superintendent of Banks had not approved most of the transfers of property of their banks. Thus, they decided to get rid of Hernandez Behrens and replace him with the Head of the Comision Nacional de Valores. Everywhere you rea, it said that Hernandez Behrens was out.
Except that Hernandez Behrens is married to the sister of the wife of Ronald Blanco La Cruz, a former Governor who is not only loyal to Chavez and related to Hernandez Behrens, but belongs to the same evangelical church. Blanco la Cruz had a report on the banks written by Cuba’s intelligence services the infamous G2 and asks to see Fidel and carries the report with him to show to the bearded Dictator.
Fidel sees him and calls Chavez and tells him that these bankers are a cancer and he has to get rid of them
And the rest is supposedly history.
Is this true? If it is, then Chavez will announce in the next few days the intervention of even more groups and he is going by size, from the largest to the smallest. First Fernandez Barrueco, the big enchilada, second Perucho Torres and Arne Chacon and there are two or three more groups, which while much smaller, are part of the same Mafia, even if they may be independent of each other.
Because it is impossible for Chavez not to know what was going on. Chavistas want to forget that it was Chavez that made Fernandez barrueco a billionaire and a banker and he even defended him publicly. In November 2005, Arne Chacon said that he was pro-Chavez, had a right to become rich and make money and it was “normal” that if he was pro-Chavez that Government institutions would deposit money in his bank, except his brother. Chavez had to know about these non-revolutionary statements, but seemed to have done nothing to stop him.
Which shows how unethical the robolution is that this is considered “normal”. What Arne may not know, is that in 1998 when his leader Hugo Chavez became President, only 4% of the deposits in the private commercial banking system were Government deposits. These reached as high a percentage as 32% and have gone down, but remain high, near 20%, as they have become one of the biggest scams in the country: Government official deposits money in bank x at 12%, he gets paid 4-5% in cash for the “favor”. That is how all of these little banks have managed to increase deposits. I think it was Banco Confederado that at one point had 70% of its deposits be Government ones. This is one of the biggest multi-billion dollars scams of the Chavez robolution.
So, strictly speaking, if Chavez wanted to “clean up” the system, he should next intervene the other banks in the hands of the bolibourgeois and later those banks whose official deposits are too large as a percentage of its size. There are many of them. Look it up!
By now, everyday we hear a different story and the description of a different strategy.
First Canarias and Banpro were going to be liquidated and Bolivar and Confederado would be refloated. Today, Chief Economist Chavez said that some of these banks would be merged to become one, but failed to mention Bolivar.
And then, of course, on Friday Ali Rodriguez announced that the Government was intervening Banco Real, Central Banco Universal and Baninvest, all belonging to Pedro Torres and Arne Chacon. Additionally, the Government would also take over Seguros la Previsora, bought by Chacon and Torres, as part of their US$ 500 million buying spree earlier this year. Apparently a piece of change for the robolution, remember that a judge in Andorra had “billions’ of dollars belonging to robolutionaries frozen in that country. We still don’t know who they were and neither Chavez nor the Comptroller has said anything about this official decision by the Andorran Court.
The problem is that this is going too slow. While I welcomed the intervention of the new banks, as I have stated before, it should have been done with open doors. And I don’t see the point of creating new Government institutions, if Banco Industrial has gone broke twice and Banco de Venezuela has lost almost 3% of its market share since it was nationalized, it is clear the Government does not have the people to run more banks well.
And so far, except for U21,the Government has done little about the brokers involved in helping out banks buy themselves. There are many problems there. First, the loss is over US$ 200 million and all brokers put together have equity of about US$ 360 million. But nobody knows which brokers were involved. Then, there is the problem of custody. Custodian Caja de Valores said it clearly on Friday: They guarantee the ownership of the bonds in the name of the clients at the Caja de Valores, except that the Government never made it obligatory for brokers to transfer custody to Caja de valores, while it sold some US$ 37 billion in bonds. And while only a small fraction of the people buying the bonds kept them, a small fraction of US$ 37 billion is still a large number.
But nothing was ever done by the Government “of the people” to protect the small investor. Cemex was taken over by the Government and the law was ignored. Same with Fabrica Nacional de Cementos and Banco de Venezuela. At least in the last case in the end Bandes bought small investors out, but while Banco Santander was paid in US dollars, second class Venezuelans citizen were paid the same but in Bolivars at the official rate of exchange.
And in two ironic twists, the man that presided over most of this as President of the Comision Nacional de Valores (Our SEC equivalent), Fernando Candia, was President of Banco Confederado when it was intervened, and the current President, who was clearly at fault for not supervising U21 closely enough, was named to be in charge of the intervention committee. I guess the fox was put in charge of taking care of the hens.
What else is new?
And to add insult to injury all of the “work” done in intervening the swap market to lower it to Bs. 5 by selling over US$ 8 billion in bonds was wasted with the whole bank crisis and the way it has been mishandled. Not that these bond offerings really lower the rate, it is more that people believe it does. So now, the rate is near 6 (Oh my God, I said it!) and the pressure is high.
Because as Bolivar liquidity got tight in the last few days, banks and brokers sold lots of dollar bonds, to generate dollars to generate Bolivars, which were sold in the swap market. Despite this, the rate was up almost all days but Monday and Friday, so, imagine what will happen when this “supply” disappears.
And I see more jitters down the line as people worry about other banks and we don’t know the impact on the brokers and its clients.
So, the crisis may be pushed into 2010 by the ignorance and incompetence of the Government.
And it did not have to be this way. But the more banks that are shutdown, the more people and companies who will find their money stuck in the banks shut down and the more the flight to quality to other banks or other currencies will intensify. Hopefully it will eventually stopped, but the cost to the country, in money lost and its impact on future inflation is already too high.
The Devil's Excrement 
December 9, 2009 at 12:07 pm
De, you are right. With all the other countries, numbers were listed. With Venezuela, they may have just as well have said Chavez is a narcissistic meathead.
Rick Rule, who is a somewhat famous international investor, said people tend to overestimate political risk and underestimate financial risk. Looking at the numbers, there is no way Venezuela should be selling at the price it is compared to other South American countries which have far more financial risk.
Miguel, I read your post on the GDP:debt ratio, and I agree with what you wrote. I was reacting to an El Universal which tripled Ven’s GDP:debt ratio from 20% to 60% using the parallel market conversion. The El Universal article not your post was disingenuous.
As for buying back the bonds, I don’t get why you say they have to pay 100%. Yes, they do if the bonds are not bought back, but the asking price for the 2014 bonds this morning is $770 and that is an effective yield of 16%. I am not sure where Venezuela has its cash stashed at the moment, but buying back their bonds for 77 cents on the dollar has to be one of the safest and best returns the country can make. And I say that not owning any of these 2014 bonds.
As for bankers and the government, of course, government should be held to the highest standard both here and in Venezuela. Maybe the problems are different in the U.S. than with Venezuela, but I think that a comment element has to involve banking balance sheets which are very difficult to understand.
December 8, 2009 at 7:45 pm
jz, I believe that the reason that Venezuela is number one one on that list has more to do with his political belligerence towards capitalism and the western world and less to do with Venezuela’s economy.
And I’d like to add something I forgot to mention earlier. Mark my words, Chavez isn’t leaving power via the ballot box.
Never. Gonna. Happen.
So while I support Victor’s idea, I realize that people are going to have to do more than simply vote to rid themselves of Chavez and his narcissistic comrades.
December 8, 2009 at 7:40 pm
By “my post” I meant the post I wrote on Dubai, Greece and Venezuela.
December 8, 2009 at 7:27 pm
I you read my post, you can see that I said the GDP was something in between, not one end nor the other, but no matter what the price, Venezuela still has to pay 100%. I also said that Venezuela’s position was comfortable, financially it is, I own Venezuela’s bonds, Venezuela could default for political reasons, but not financial ones. Por ahora…
As to the higher standard, sorry, I disagree with that. Fernandez and his buddies have been ripping off the country with Chavez’ backing, they got rich with Chavez’ help, I dont think the US Central bankers used the supbrime crisis for political gain. But in any case, yes, I would like to have my Government officials held to the highest standards, why not? I would like to have the best country in the world, no malnutrition, everyone wealthy and with the rule of the law, instead we have the worst.
The crisis here was allowed to be continued not by negligent officials, but for political reasons, Chavez thought his new class of bankers would replace the old one until they started ripping the country off and even then he did nothing.
And now things are “complicated” this is not over, the cross connections and currents are there and the Government has no clue as to what to do.
And while I dont feel sorry for them, I do feel sorry for Venezuelans, who will pay for this with more inflation and poverty. Thanks to the robolution.
December 8, 2009 at 7:07 pm
moctavio, thanks for the blog. I have been reading you for years. I own the Venezuelan 2027 and 2034 bonds, and when they started to tumble, I wanted to see what was going on, so I came here. Thanks for the excellent explanation.
To be sure, seeing bankers use depositor’s money in inappropriate ways is disgusting, but the truth is that I am not so sure it is that much worse than what we have in the U.S. And I would have been much more in favor of the Swedish (and now Venezuelan) plan of nationalizing troublesome banks instead of bailout them out which was the case in Japan and now the U.S.
As for whether Chavez knew or should have known, all I can say moctavio is that you are holding Chavez to a higher standard than I would. So Venezuela got ripped off by bankers? Welcome to the club. If Bernanke and Greenspan were fooled, I don’t see how you could hold expect Chavez to know.
Besides the move to nationalize, I sure wish our government had the balls to throw some of these crooked bankers in jail.
With regards to the debt, moctavio, you and others have used the parallel market as a means to discredit the debt to GDP ratio Venezuela has. The flaw with doing so is that much of Venezuela’s revenue comes from oil exports, and those dollars are converted not at the now almost 6:1 Bolivar to dollar rate but at the official 2.15:1 rate. The point is the parallel market conversion is a two way street.
In addition, the debt is not being market to market. Thanks to Chavez’s threats to nationalize banks, the 2014, 2027, and 2034 bonds have tumbled and are selling at an average of around 70 cents on the dollar and yielding close to 16%. If Venezuela can access the debt market for a lower rate like it has already or use some of its cash on hand to buy back said debt, the ratio would be reduced even further. Cheap debt reduction may be the silver lining in this fiasco.
When you apply the concepts of a two way street with regards to the parallel market and mark Venezuela’s debt to market, things are far more pleasant with Venezuela’s economy than at first glance.
It is unbelievable to me that some of the world’s specialists on debt have concluded Venezuela is the country most likely to default. See the link: http://www.businessinsider.com/the-worlds-greatest-sovereign-risks-2009-12
December 8, 2009 at 1:48 pm
En USA sacaron la foto de Robert Stanford vestido de anaranjado con las grillas en los pies, al igual de todos los ayudantes entrando a la corte.
Sera uqe veremos a los banqueros y los directivos al menos entrando al palacio de justicia? sera verdad que los tienen?? sera verdad que estan en la DISIP? Como lo creemos si no hay fotos ni evidencia, ahora estan en la audiencia, no hay ni un telefono que pueda tomar una foto???
December 8, 2009 at 9:32 am
Victor is on the right track. Something along the lines of “es su dinero”, only stronger.
Perhaps “es nuestro dinero”…give it to us!
The only way to beat a populist among an uneducated electoriate is to promise MORE. Or spend the time educating them. With this single platform, you can accomplish BOTH.
Because no matter how Chavez responds, the government as middleman not only consumes, but is most often corrupt (power corrupts us all).
December 8, 2009 at 6:47 am
Chavez needs to go after more than just the bankers (at the moment, there seem to be about 20 of them to be arrested/indicted); he needs to go after the highest officials of his government (including deputies in the National Assembly) who have gotten just as filthy rich. How much money do you think Chavez family, los Cabellos, Maduro, Flores, Varela, etc. have accumulated these 11 years and people have known about it for the same amount of time?
December 7, 2009 at 9:15 pm
Someone should send Thugo a short course in macro/micro economics 101.
I know high school kids here in the U.S that could do a better job of managing the economy….it’s disgraceful and unfortunately the people of Venezuela will pay the price of his ignorance. Such a beautiful country but it will take years to undo his misdeeds.
December 7, 2009 at 4:46 pm
[…] As the Venezuelan Government intervenes more banks, its strategy remains unclear and uncertain […]
December 7, 2009 at 3:41 pm
The more you read, the more it seems business as usual in our poor country… nepotism, militarism and corruption. Remember Blanca I…
How could we avoid this from happening again?
“Sembrar el petroleo” and “Moral y luces” remain urgent priorities.
What do you think about the ideas of distributing the oil income directly to the population the Alaskan or Norwegian style? It may be a simple banner for the next elections?
Found this:
http://www.entornointeligente.com/resumen/imprimir.php?items=976138
Esposa de Edgar Hernández Behrens también trabaja en SUDEBAN y gana Bs 10.000, diez millones de los viejos
Reporte /
Especial.- .
December 7, 2009 at 1:03 pm
The reason for the takeovers is simple. Chavez wants to own or control every aspect of Venezuelan life. Chavez wants to enslave all Venezuela and beyond.
December 7, 2009 at 8:26 am
what are the other banks that may be involved? One hundred percent? active? wich other small bank are out there?
December 6, 2009 at 11:15 pm
Thanks for the picture, Miguel. Just unbelievable.
You should cover more about the “evangelical” connection.
Pardon my language, but what a clusterfuck we’re getting ourselves into.