give out big loans - Let them take the hits when the loans fail.

Puerto Rico was given the power by Congress to issue tax free bonds. The people that will be hurt are the people that invested in those bonds - something tells me it was not the big banks.

Facts

the powers borrowed more than can be paid

the lenders were stupid

I think most of the world is in the same boat...

There will be hell to pay

We all need to have a robust sustainable food and water system.

...then there would probably be a bailout.

The ex-employees would be tripping over themselves to get the cash to the banks.
If only they would have bribed congress...

because of investments in municipal bonds, which are generally considered pretty safe.

Let their creditors take a hit

Why are they they bad guys here?

Now, in a bankruptcy declaration, the interests of creditors are considered. But unless PR has money tree seeds, someone is gonna a hit. Now PR will find it tougher to issue bonds. That's the way it works.

Puerto Rico's constitution has something in it that makes its debt obligations come before all other liabilities. The bond holders will get theirs and everyone else will get the scraps.

I would think the basic needs of running the territory and meeting the basic needs of the people would take precedence. I'm not a fan of privileging capital above all else.

If the choice is "bondholders vs poor people" well, there are always going to be poor people.

And, while people generally don't shed tears for creditors not getting paid, if creditors don't get paid, loans don't get made, which means austerity. And a lot more poor people.

Ergo debt holders will need to absorb some of the losses.

When one acts as a lender, one of the risks is credit risk.

If the law is changed, would it allow states to declare bankruptcy?

to General Motors.

There's a guy who's had loads of practice in declaring bankruptcy

Viva Puerto Rico!

only 3.2% of the people chose independence, and another 18% chose a "free association agreement." 46% chose the option to maintain the current relationship, and 33% chose statehood.

Seems to me your plan wouldn't be giving PR her independence, but really kicking them out the door.

With Independence the option to inflate the debt away opens up. Thus a lot of people who want to stay in the US will give up that option in exchange for lower domestic taxes.

Remember it is NOT the Federal tax rate that will be the problem, but Puerto Rico's domestic tax rate that has to increase drastically. Are the people of Puerto Rico willing to stay in the Union when it means high domestic taxes? That is an open question.

As to extending Federal Bankruptcy to cover Puerto Rico, Chapter 9 of the Bankruptcy Code does NOT include any discharge of any debt, just a process to spread out payments on those debts. Given Puerto Rico has no money to pay those debts, Federal Bankruptcy will NOT do them any good. There best option would be independence and inflation.

I can't imagine they would be thrilled about that.

Plus, many PR citizens maintain an American identity. It's why even most of those wanting some independence want to maintain some sort of commonwealth relationship. You think they would want to give up U.S. passports and freedom of movement? I don;t think so.

PR needs the authority to declare bankruptcy and to write off some debt.

medicare, social security, no federal income tax (only certain cases) etc. its beginning to look like all their schemes to run the place aren't working. Once they default on the municipal bonds they are in the tank big time. Perhaps its time to see how their unwise investments will cost them. It has been reported each citizen on the island would owe 20k in taxes to guarantee their debt. They run on a fairly low local sales tax on things so perhaps they must raise it.



Maybe Trump can show them how to go bankrupt and become billionares....

Austerity for the masses.

Welfare for the Banksters.

if Puerto Rico was a state with a typical constitution requiring a balanced budget, they wouldn't dig as big a hole.

Meanwhile, I think it's a beautiful place.

Remember Adam Smith is the considered the founding father of economics. There is a tendency on three right to consider him infallible thus why I am quoting him.

The alternative is much higher taxes something the present Government is unwilling to consider. As to personal savings that was sent to the mainland years ago thus relatively safe. As to domestic savings that will be spent while before inflation eats it away. Sorry when government look at inflation to solve it's debt problem most people have long abandon money as a savings and invested in something real like land, homes, factories etc.

loss.

Last edited Sun Jul 5, 2015, 04:57 PM - Edit history (1)

The issue in a chapter nine is WHEN creditors are paid not if. Governments have the power to tax so always have access to money. The issue will be who gets what when. Employees may be screwed but not other creditors.