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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

#41

Post by yequalsx »

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…

I think bankruptcy is nothing to be ashamed of. The only people who tend to think bankruptcy is something to be ashamed of are middle class and poor people. Rich people and corporations have no issue with bankruptcy. The President of the United States has no issue with bankruptcy either. He's used it to his advantage.

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

#42

Post by rrggrr »

mirekrusin wrote: post #9

Should I cash my USD now or should it be safe for few more months?

Money isn't a mechanism for the exchange of sovereign assets anymore. That role has been supplanted by debt.

You wouldn't cash in your USD anymore than you would trade in your car because petrol prices have fallen.

You might cash in your US Treasury bonds. I say might because there is no flight to safety from US bonds at nation-state scale. Treasuries are the only game in town.

If all this is confusing then here's another way of looking at it... it doesn't matter how precarious the US financial situation becomes until such time as there is a scaleable, stable and transparent alternative means of storing, buying, selling, lending, investing value.

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

#43

Post by nsp »

enraged_camel wrote: post #34
fiatjaf wrote: post #27

Earlier quoted context omitted.

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.

>>If someone has already defaulted on a loan, that will make you not want to lend to him anymore, perfect. Yep, for example this is why no American bank will give loans to Donald Trump anymore. Too many bankruptcies. So he isn't worth the risk.

All but one of the big banks stopped loaning him or his ventures money after the first few bankruptcies

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

#44

Post by vkou »

ythn wrote: post #28
savanaly wrote: post #23

Earlier quoted context omitted.

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.

We already live in that society. What do you think the millions of people working in finance do, if not try to quantify risk?

Do you want to live in a society where you and your family can be sold into slavery if you fail to pay off your debts? Because that's the logical consequence of not allowing debts to be discharged from bankruptcy, regardless of your ability to pay.

Being a money-lender shouldn't be a license to print risk-free money.

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

#46

Post by rrggrr »

> 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 have.

Every time every one of us votes for any politician who favors any deficit spending - and this is most of us - we give aid and comfort to this outcome. We all want fiscal responsibility until its a cause that touches us emotionally.

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

#47

Post by vkou »

wyager wrote: post #29
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…

> 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.

Nobody forces lenders to buy up PR bonds, or accept the terms at which they are issued.

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

#48

Post by maxerickson »

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…

Some people argue for jubilees.

Which has the effect of limiting the sorts of loans people are willing to write.

I think some limit is a good idea. The idea that a city can borrow from the people living there in 20 years is sort of dangerous. Maybe not for durable infrastructure that will still have much value, but for present day services? That's a horrible deal.

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

#49

Post by [deleted] »

wyager wrote: post #29
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…

> 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.

[deleted]

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

#50

Post by fiatjaf »

myrryr wrote: post #40
fiatjaf wrote: post #27

Earlier quoted context omitted.

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.

That isn't how it works. It is never how it worked. Plenty of countries have defaulted, and they can still borrow money. And yeah, it does effect other lender-borrower relationships. It's all people, and people get nervous.

Because in case of governments something spurious always happen. That's a special case, and it doesn't have to be that way.
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