Wolf Richter Rails Against Mexican Companies that Borrow in Dollars and then Get Bailed Out When it Blows Up, Which is Now

“I want these f**kers to collapse and their CEOs thrown into a Mexican jail for having borrowed in dollars. I want shareholders and bondholders to pay the price, not the people. Let them eat their dollar-bonds.”

Mexico’s economy, like just about every national economy on the planet, is going through the grinder. Its currency has lost 26% of its value against the dollar in little over two months. In the past week alone, it tumbled 5.7%. One of its most important exports, oil, is trading at historic lows. Its state-owned oil company Pemex has been slashed to junk. Other key commodities are also plunging in value. Most of its car assembly plants are closed and remittance payments from migrant workers in the U.S., another major source of income, are falling as many of those workers lose their jobs.

Yet as the economy grinds to a halt and Covid-19 cases rise, something strange is happening. Mexico’s president, Andrés Manuel Lopez Obrador (AMLO for short), refuses to use Mexico’s limited fiscal firepower to bail out the country’s biggest companies, banks and investors, many of which have only themselves to blame for the predicament they’re in. And that is a definite no-no.

So the Bank of Mexico, known locally as Banxico, stepped into the breech last week, unleashing a $31 billion bailout package — $31 billion in USD of Banxico’s scarce dollar exchange reserves. In addition, it slashed the benchmark interest rate by 50 points to 6.0%. The interest rate had been kept high to keep the peso from plunging further.

One of the pretexts Banxico’s governor, Alejandro Díaz de Léon, cited to justify the bailout package was that foreign investors had pulled some €10 billion worth of funds out of Mexico’s debt markets since the virus crisis began. In other words, foreign investors that had bought the bonds, largely U.S.-denominated, of Mexican companies that earn most of their money in pesos were now getting cold feet after those bonds had plunged in value. Once again, capital is fleeing northward.

Last night, I proposed this unfolding saga as a possible article topic to Wolf. The response I got was an expletive-riddled, heavily capitalized tirade that took even me by surprise, and I’ve been working with Wolf for seven years. Here’s the sublime rant in all its glory:

“Why the heck did these Mexican companies borrow in dollars if they sell most of their product in pesos? Every single company that borrows in dollars and sells in pesos should be allowed to go bankrupt. They borrowed in dollars because it was a lot cheaper than borrowing in pesos, and they all know they take a HUGE risk every time they do it, and it’s the same frigging thing at every crisis. They can’t service and roll over their dollar debts. WHEN WILL COMPANIES THAT DO THIS FINALLY BE ALLOWED TO GO BANKRUPT?

“I’m sick of this. It’s always the same. And shareholders and bondholders always get bailed out. I want these f**kers to collapse and their CEOs thrown into a Mexican jail for having borrowed in dollars. I want the bondholders to pay the price, not the people. WHY THE F**K DID THEY LEND DOLLARS TO THESE MEXICAN COMPANIES THAT SELL IN PESOS???? GREED!! Let them eat their dollar-bonds.”

Continue reading the article on Wolf Street

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