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Puerto Rico files for biggest ever U.S. local government bankruptcy

reuters.com

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Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#21

Post by conanbatt »

knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

As an argentinian, i can tell you without a shadow of a doubt, you can default. Frequently and periodically if you wish so :).

I can imagine a large write-off that will come with some fiscal reform.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#22

Post by jcranmer »

djsumdog wrote: post #2

Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?

Yes, being a state would solve some of these fiscal issues. It's even been discussed for the past few years that this debt situation might be the thing that pushes Puerto Rico to actually become a state.

The major problem is that Puerto Ricans don't actually want to become a state. In the various referendums, the majority generally goes for status quo, followed by statehood, followed by independence. In 2012, the referendum was more or less connived to produce a vote for statehood (it was structured as two questions, the first "status quo or not" and the second "state, free association, or complete independence"). There's apparently another referendum scheduled in a month, but I've not found any polling on what the likelihood of success for statehood is in that referendum.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#23

Post by savanaly »

vkou wrote: post #10
knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

That's true in any individual case. But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly, won't it change the equilibrium for future generations of lenders and borrowers such that an inefficiently low amount of lending goes on? If everyone has the expectation that the lenders and borrowers will try their best to live up to the contract they made in good faith, wouldn't it be a better equlibrium? And we can work towards such a world bit by bit in how we respond to crises like the Puerto Rico one.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#24

Post by fiatjaf »

vkou wrote: post #10
knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

Absolutely.

Governments are stupid to borrow money and waste it, but banks were supposed to be even more stupid to lend money to these reckless institutions called governments, and it's not wrong if these banks pay the price of their stupidity.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#25

Post by Animats »

djsumdog wrote: post #2

Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?

There's a statehood faction, an independence faction, and a big "don't upset the gravy train" faction that likes the status quo. If Puerto Rico became a state, US Federal personal income taxes would be imposed. If Puerto Rico became an independent country, immigration to the US would be stopped.

There have been referendums on this. The next one is June 11, 2017.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#26

Post by vkou »

knob wrote: post #20
vkou wrote: post #10

Earlier quoted context omitted.

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

I will admit that you are right on that. It's a tough spot to be in. I bought, and yet to fully read, "Debt - The first 5000 years". One of the things the book states at the start is what you are saying: Not every debt has to be paid off. One of the risks creditors take is the possibility of having a debt not paid back. I also remember how Haiti was, to this day, punished via monetary means. Haiti wanted freedom? Fin…

> Another example from the book: Madagascar. The French invaded, and took out their Queen. Then imposed taxes on the population as to get back the money they invested in the invasion/war. wtf

We currently charge imprisoned people for room and board for their jail stays.

http://www.bbc.com/news/magazine-34705968

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#27

Post by fiatjaf »

savanaly wrote: post #23
vkou wrote: post #10

Earlier quoted context omitted.

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

That's true in any individual case. But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly, won't it change the equilibrium for future generations of lenders and borrowers such that an inefficiently low amount of lending goes on? If everyone has the expectation that the lenders and borrowers will try their best to live up to the contract they made in good faith, wouldn't…

If someone has already defaulted on a loan, that will make you not want to lend to him anymore, perfect.

If the Puerto Rico government defaults now, no banks should lend money to it again ever. Perfect.

This outcome doesn't affect other lender-borrower relationships.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#28

Post by ythn »

savanaly wrote: post #23
vkou wrote: post #10

Earlier quoted context omitted.

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

That's true in any individual case. But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly, won't it change the equilibrium for future generations of lenders and borrowers such that an inefficiently low amount of lending goes on? If everyone has the expectation that the lenders and borrowers will try their best to live up to the contract they made in good faith, wouldn't…

Exactly. Do we really want to create a society where the lenders have to do an inordinate amount of background research to determine whether you are a default risk? Bad for everyone in that case.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#29

Post by wyager »

vkou wrote: post #10
knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

> If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money.

This only works if lenders are private groups and if they have the ability to set the terms of the loan (or deny it altogether). Neither of these generally apply at the government level.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#30

Post by emodendroket »

creaghpatr wrote: post #11

A few months ago I discussed this with friends and suggested the government subsidize cheap flights to Puerto Rico, say $30 for a round trip flight from Atlanta, scaled up depending on domestic distance. This would cost taxpayer money but would drive a ton of tourism to Puerto Rico (albeit temporarily) and pump a bunch of money into their economy, defibrillator style. I've never been there but given a cheap round tri…

Probably recreating the tax climate that attracted pharmaceutical manufacturers and was allowed to lapse would be more effective than trying to gin up tourism (although in my opinion probably that wouldn't be all that helpful either).
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