Opportunism, or socialist cronyism?

Loving the revolution

Loving the revolution

Bloomberg’s Alex Cuadros has a thoughtful profile of Venezuelan banks. While it lays down the facts without sounding shrill, the facts are alarming enough in themselves. In the end the article can’t help but be a brutal indictment of a corrupt industry.

His basic point? Banks make money for nothing. In telling the story, he makes billionaire banker Juan Carlos Escotet the focus.

Venezuelan banks’ average return on equity is an astonishing 53 percent as of October, according to the government. How do they do this in the midst of a “socialist revolution”? Lending to Chávez, of course.

The money quote:

Investing in government bonds is profitable for banks because of Venezuela’s high borrowing costs — the second- highest among major developing nations, according to JPMorgan Chase & Co. Banks charge even higher rates to consumers, who are motivated by 18 percent annual inflation to buy goods such as washing machines and cars on credit. That more than compensates for the subsidized lending Chavez mandates for areas such as agriculture and housing.

The public spending boom also has generated a flood of Venezuelans bolivars that are mostly trapped in the country due to currency controls. Because of that, banks can offer near-zero interest rates on deposits, according to Ricardo Villasmil, an economist at the Universidad Catolica Andres Bello in Caracas who advised the opposition in the October elections.

Venezuelan banks are not making this amount of money because they are efficient, as any Venezuelan customer would know. They don’t make it because they aggregate value. Hell, their main job right now is to make ordinary Venezuelans’ lives miserable.

They make their money by providing the rapacious Chávez government with the money it needs to take over the country.

There is a name for an industry where there are high returns, retail outlets are crowded, where service is the pits, where prices for everything are fixed and nobody really competes, and where close ties to a corrupt government are the norm.

It’s called a cartel.

The piece reads to me like a fair assessment. Read it, it’s terrific.

15 thoughts on “Opportunism, or socialist cronyism?

    • Yup, the currency controls allow bankers to extract rents from the rest of the Venezuelan economy. Chinese banks capture the same benefit, but at least there the profit is mostly directed to allowing cheap loans for infrastructure and business development.

  1. i had an uncle who would explain all of Venezuela’s history through bankers and the killings they made. I wish I had recorded one of those monologues…………..

  2. >> They make their money by providing the rapacious Chávez government with the money it needs to take over the country.

    Back to basics -
    “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”
    ― Adam Smith, An Inquiry into the Nature & Causes of the Wealth of Nations, Vol 1
    Banks are supreme reflections of society, socialist or otherwise. Socialist revolutions and banks work hand in hand [witness the huge long-term debts that hcf incurred].]

  3. Banks don’t want to open savings accounts before they don’t make much money doing so. Go figure. I’ve been in Venezuela for 2 years and haven’t been able to open a savings account yet.

  4. Let´s not put all bankers in the same bag. There is a HUGE difference between:
    The somewhat decent bankers:
    -Oscar Garcia Mendoza, the Marturet/Vollmer group (Mercantil) plus a few others.

    And the thieves:
    The likes of Escotet, Vargas, the Gill brothers and the infamous Julito Herrera “Velutini” that lead the worst of the Venezuelan Oligarchy, those are the ones that should be put behind bars ASAP.

  5. Actually, all in all the review was positive since it skips over Escotet’s involvement with yet another cuban Castro (Orlando in this case) who I think was later indicted in Puerto Rico for money laundering…….and that, would have been negative

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