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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

#61

Post by bradleysmith »

I spent several months in Puerto Rico working on operations with Google's Project Loon, launching balloons out of Cieba.

Seeing the island during September 2016 power outage was eye-opening. It was admittedly a pretty bad event that spurred it, but portions of the island were without power for several days. Infrastructure development is definitely necessary, particularly considering the possibility of storm hits there.

It is a lovely island, I hope this manages to nudge along solutions from what seemed to be a stagnating problem.

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

#62

Post by JBReefer »

toomuchtodo wrote: post #39
DamnYuppie wrote: post #33

Earlier quoted context omitted.

My biggest concern and issue with the federal government backstopping pensions is that the vast majority of people would now be paying for benefits for people who rendered services in areas they didn't live. Because the populace of one city voted to give certain benefits to public sector employees why should I be held accountable for that decision? I neither had a vote nor partook of their services. I am sure I am be…

The EPA is going to spend millions of dollars to clean up Flint, Michigan's water supply lines; you don't get a say in that either. "Representation" is a bit of a vague concept in US governance.

To me, there's a difference between something you need to live that was made poisonous by the government requireing aid and former managers pulling pensions of $200k+ a year. If I lived in Michigan, I'd have a big problem bailing out the FDNY pension fund when I heard that. It's endemic too, look up "LIRR Disability abuse".

http://nypost.com/2015/10/21/more-than-2-dozen-ex-fdny-colle...

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

#63

Post by andys627 »

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…

Things like shame and "taking lightly" aren secondary to interest rates - a quantitative pricing of the risk. If a gov't sucks at borrowing then their rates will be higher in the future.

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

#64

Post by leesalminen »

jcranmer wrote: post #22
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 ref…

I was in San Juan last month and spoke with ~12 people on the topic. It was roughly an even split between statehood and status quo. Many anticipated a declaration of insolvency and figured statehood was the best fix for the problem.

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

#65

Post by SEJeff »

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…

What are your thoughts on Puerto Rico becoming the 51st State of the USA? I ask this as a native (mainland) born American who always thought this would be an interesting approach to solve the problem of finances in PR. Is it even well supported or is it a crazy idea?

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

#66

Post by vkou »

rrggrr wrote: post #46

> 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.

The United States will always be in some amount debt, and that's perfectly fine. Going into debt, in order to invest into something with a good RoI is a non-brainer.

It stops being fine when the debt exceeds its ability to pay - which, given that it is in control of its own currency, never has to happen.

What you should be concerned is investments into things with poor RoI. Corporate crony handouts, tax cuts to the rich, building bombs and dropping them out of airplanes, and then rebuilding whatever they blew up, digging ditches and filling them... All of these have incredibly poor RoI.

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

#67

Post by nihonde »

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…

Yes, and the outcome is that you can't borrow again, in theory. Also, if a region is productive, it should be able to renegotiate, but it sounds like PR isn't up to the challenge.

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

#68

Post by roywiggins »

nopinsight wrote: post #51
toomuchtodo wrote: post #16

Earlier quoted context omitted.

> I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift. Agreed. That shift is going to happen though. Seniors are not a cohort you can ignore. They vote like clockwork. > I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medic…

Unless the brinks of defaults will happen in close successions in > 20-30% of the country, what are the incentives for MPs to vote yes on the backstopping for jurisdictions far from their own? > Reform will not happen. That's code for "cutting benefits". The benefits to be cut will happen in a few small areas given the size of the US, thus will not affect the majority of lawmakers. If the GOP controls the Congress, t…

> what are the incentives for MPs to vote yes on the backstopping to jurisdictions far from their own?

Stick it in an omnibus bill with stuff they do like?

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

#69

Post by cjalmeida »

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.

Brazil in late 80s and Argentina in early 2000s default. Both spent a decade with no access to foreign debt whatsoever and prompted a massive crisis. In Argentina it let to the populist Kirschner govt.

Brazil is once again facing mounting debt due continuous budget deficit. This time the govt is pushing for austerity reforms that, if not approved, will lead once again to default. The govt approved ratings are abismal and populist candidates are expected to win next year's general election.

So, defaulting sucks.

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

#70

Post by mjevans »

EternalData wrote: post #3

I feel like local governments are going to be the first to really be affected by significant pension overlays that are not properly accounted for -- a lot of pension funds assume rates of return that are historically farcical. I think the industry average used to be about 8%. "During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually." htt…

The answer to pension problems is real socialism. Produce in bulk, provide in bulk, eliminate the waste and middle-person profit by providing as much of the pension as possible directly so that the allowance for other items can be of a much smaller serviceable size.
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