The Devil's Excrement

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.

(Not a great picture of Arne Chacon with one of his horses, Il Divo, when it won an important race)

Over four years ago, in a post called “Onward the pretty robolution” I reported on the meteoric rise of Arne Chacon, the brother of the omni-Minister Jesse Chacon in the financial world. My questions were simple, how could a lowly employee of SENIAT the tax office, who had no known employment before 2002, according to Venezuela’s social security administration, all of a sudden own a large stake in bank Baninvest and offer US$ 10 million for milk producer Indulac? (sadly Poleo’s post with a copy of his offer is no loner online)

Chacon’s rise continued, even if the Superintendent of Banks said he would look in 2006 into the origin of the funds in 2006, nothing was really done. While Arne grew his Empire, his brother went from Ministry to Minister, including twice the Ministry of Justice.

I then wrote a post about my research into Arne’s social security record, showing that he had never paid social security taxes between 1995 and 1997 and then again between 1999 and 2001, and again between 2003 and 2005 and magically in 2006 he was paying way more than me. This was the first post I ever removed from blog as a friend I respect quite a bit suggested I was getting into dangerous territory and my personal safety was at stake.  Fortunately the folks at infovenezuela.org were nice to publish it anonymously after I removed it from my blog.

Arne’s rise continued as he and Pedro Torres purchased Banco Real, Central Banco Universal, Helm Bank (they kept the deposits and cerdits and resold the license), Seguros La Previsora and Mi Banco. By then he was even coming out in public boasting that obviously his relation to the Government attracted deposits to his banks. He never explained how he purchased the banks. He reportedly owned close to 15% of the race horses at the Caracas racetrack.

And then the Government shuts down Fernandez Barruecos’ banks and yesterday Arne’s and Pedro Torres’ empire was taken over by the Government. Nationalized.

Today, he was arrested.

Why did it take so long? Why was it allowed to happen? Why the change of tune? I will write about that later, but clearly there was complacency, collaboration and ineffectiveness on the part of the regulators.

Chavez will once again play the “Yo no fui” (Who me?) role, blame the oligarchy, the wealthy and the opposition. But if there is someone to blame, it was Hugo Chavez, the President of Venezuela, this corruption by the brother of his omni-Minister, Jesse Chacon, was denounced repeatedly and nothing was done for at least four years.

Yeap, robolution indeed, the name is today more true than ever!

(In Spanish here)

This fairly lengthy document

contains a report written in February of 2009, documenting how the Fernandez group and other related companies ran a “money centrifuge” around Banco Confederado, Banpro and bolivar Banco, whose “victims” were the “Savers” of the banks (i.e. The much beloved “People”)

This scam at the time was being run from a parallel office to the banks that was raided by the DISIP (Intelligence Police) and which concludes:

“We can infer that there exists a “money centrifuge”  among the banking entities and through a series of companies created via a parallel office of Banco Confederado…It was clearly evident the deviation of resources from these institutions approved via loans approved by the three financial institutions, which were given a use different than to that which they were approved for, this carries a very high risk as most of these resources can not be recovered, which would have as a consequence damage to the depositors and thus to the State.

From the revision made of the reports of the Superintendency of Banks, of Bancos Confederado, Bolivar and Banpro, it is evident that this institution had full knowledge of the irregularities detected at those financial institutions….

…According to what we observed, we can infer that the members of the Boards of the three banks were self-financing themselves with the objective of profiting themselves…”

Need I say more. This was February of 2009, both the Superintendency of Banks and the intelligence police knew of the fraud.

But nothing happened, damaging even more depositors and the country. Who protected them? Who has the power to stop the Superintendence of Banks and the Intelligence Police at the same time?

You be the judge, but to me, this clearly went all the way to the top.

Even worse, these people were emboldened (guapos y apoyados) to go even further and acquire Banco Canarias and Digitel, using the same methods.

This has been going on for at least two years, that is how these people bought the banks to begin with. They used depositors money. As simple as that.

It is the raping of the country by the robolution with the approval and consent of the Autocrat, Hugo Chavez, himself.

(The documents are long and detailed, I will look at them and report on the details if there is something of interest)

While I did derive some satisfaction yesterday listening to the press conference led by Henry Ramos Allup about corruption in the robolution, I could not help but wonder if this could have been stopped earlier. Most of what Ramos Allup said, from structured notes, to buying banks with no money (and raping them), to PDVSA bonds, to insurance commissions, to scams, have all been chronicled in this blog in one way or another. (Only newspaper Tal Cual has covered this in detail, even infamous Globovision never touched most of these issues for fear of being shut down)

While sometimes I have had to limit names, the stories are here in detail, but its depressing to think that a Government that considers itself to be revolutionary has allowed this cancer to grow under its protection and allowed the biggest corruption scams not only in the country’s history, but likely in the Western world´s recent history to fluorish. We are talking billions, not millions as I have tried to explain many times, even if the cheerleaders of the robolution refused to admit it, calling me biased, hateful and out of touch with reality. Where are you now?

Ramos was clearly supplied with the information, but he had the outlines right and made mostly good use of it, not only citing names, the part mostly feared by those that denounce, but also mentioning amounts. And for each scam, there was usually a billion of commissions for those involved, under the not so watchful eye of the Comptroller and the General Prosecutor. And I knew most of the names mentioned but not all, some I do not know for sure if they should be there, many were missing, but many have known in detail the scams set up, while Chavez claimed to be fighting corruption and the Comptroller said he had investigated all cases brought to him.

I will not bore you repeating all of the details in this post, but would like to note a few aspects that are worth emphasizing at this time:

Government deposits in the banking system are (were?) huge: As of Sept. 29th. Government deposits in the commercial banking system reached Bs. 42 billion (US$ 21.55 billion) or 19% of monetary liquidity (M2). Despite this, the Government issued US$ 5 billion in debt in October. Even worse, of the Bs. 42 billion, Bs. 4.1 billion or US$ 2.155 were deposited in the four recently intervened banks in August and September. (Thanks to Jose Guerra for this information). This makes absolutely no sense! Who allowed it? Why? Recall that the Banco del Tesoro was created precisely to optimize the Government’s Treasury. But clearly these official deposits do not follow rationality, but graft and commissions and thus the problem. Venezuela incurs into more debt, as the money needed sits unused in banks which are bankrupt under the supervision and cooperation of the robolution.

Government officials cooperated with the failed banks: These people perpetrated their felonies not only under the eyes of Chavez and his Ministers and supervisors, but many made money out of it by allowing things to happen, by selling structured notes and bonds to these banks in opaque processes, transferring official deposits in exchange for commissions and bypassing the laws and regulations.

And Ramos named most of them, not all correct, but most are there, including the fact that the brother of Über-Minister Jesse Chacón, Arné, has gone from living in a “rancho” in 1997 to being wildly rich in 2009. And he admits that he did not put up a dime for buying his first bank and he said it is obvious that being Jesse’s brother helped him get deposits into “his” banks. Those are the new morals and ethics that the robolution is trying to instill in its supporters. Or how about the former President of the Comisión Nacional de Valores Francisco Candia, an unknown Lt. when he was named to that post, he just happened to be President of none other than Banco Confederado last week now at the services of Fernandez Barrueco. Was he being paid for favors in this manner? Or how about the fact that Banfoandes itself, a Government bank, had 25% of its deposits in private commercial banks?

And the Chávez praying mantiss effect is at its maximum: Poor Fernandez Barrueco has already been swallowed and convicted and former Minister of Finance Cabezas denies that “he even has a connection to the revolution” The bankers charged have no links to us”. Well Rodrigo, the only “banker” charged so far is Fernandez Barruecos, who only happened to be the largest supplier of Chávez’ Misión Mercal, a man that went from almost rags (He managed a parking lot when Chávez came to power) to riches (Worth US$ 1.6 billion according to his personally audited financial statements as of Dec. 2005, before he became a banker) To say nothing of the former cops, Captains, intelligence and military officers who are “bankers” in at least three of the four intervened banks.

And then the biggest Pinocchio has to be the Minister of Interior and Justice(??) Tarak Al Assiami who spoke to the gallery saying that he ” has asked Interpol for the capture of the Directors of the intervened banks who are outside the country”.

Funny, there is no order to capture them here and he has already ordered Interpol to do it? And Interpol will obey? That is not how Justice works Mr. Minister, youneed the Prosecutor to order the local capture first. All the Government has done is to issue a preventive order not to allow the Directors to leave the country. But if they are outside, until they are formally charged there is no way in Hell that Interpol will do anything but throw away Tarek’s request to the waste basket.

But lying like this, cheating the “people”, is now the rule of the day for these people who claim to feel sorry for the poor as they are killed daily under the same supervision and enforcement on criminals that seem to supervise and enforce banking laws.

These simple facts illustrate what a sham poor Venezuela is living. The Mafia has taken over under the guise of political ideals. Frankly, while anything should and could be better than this, the depth of corruption and unethical behavior, accompanied by the billions accumulated by the bolibouergois make me very pessimistic that Venezuelan can get out of this curse any time soon. We have become a country where lying, stealing and lawlessness are the rule of the day.

But can we get out of it or will the new rules and absence of ethics of the bolibouergois rule Venezuela for decades to come?