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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

#91

Post by skrymsli »

fiatjaf wrote: post #24
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…

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.

Is it stupid though, if the government then bails them out? In the end it's always the poor people that get screwed.

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

#92

Post by kbenson »

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…

This is exactly why different people/companies/governments pay different rates. The rate you pay has your risk factored in.

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

#93

Post by Pxtl »

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…

Bankruptcy is perfectly normal for business institutions. Limited liability is the foundation of the entire stock market. It's a basic economic tool used for navigating choppy waters. We only attach a moral value to it when individuals and governments use the tool.

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

#94

Post by klipt »

maxerickson wrote: post #81
maxerickson wrote: post #48

Earlier quoted context omitted.

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.

(And of course, bankruptcy has much in common with jubilees; not everything, but it implements the idea that debt shouldn't be forever)

The other end of the spectrum is debtors' prisons, which are such a terrible idea for multiple reasons that we've mostly gotten rid of them (except for situations like child support debt where self righteous indignation overrides good policy).

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

#95

Post by cnnsucks »

toomuchtodo wrote: post #7
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…

I think the concern is overblown. States will need to backstop local governments, and the federal government will backstop the states. Benefits will get (mostly paid); taxes will go up (they have to, they're at unsustainable historic lows). This is not the end of the world.

Well that's not the precedent. When these mismanaged governments finally throw in the towel and hand the reins over to grownups what happens is the pensions and retiree benefits get cut. Detroit just had this happen after the state stepped in and dealt with that mess. Cleveland is in the process of cutting benefits before it goes bankrupt. CalPERS cut pensions last December for retirees from Loyalton. Same thing in the private sector; GM cut retiree benefits with the help of the Federal Government. Last year the Iron Workers union saw huge pension cuts. USPS is going to have this happen as well, probably very soon; you can be very, very sure Trump and the Republicans aren't going to bail out that hot mess.

We're actually getting pretty handy at cutting retiree pensions and benefits. The deals negotiated decades ago predicated on fantastic rates of growth aren't really plausible and they eventually have to be reworked. That means cuts. That's reality and reality has, at long last, arrived for Puerto Rico.

So expect cuts. Don't believe there is some pot of gold out there filled with untaxed entities that just need to be tapped to fix everything. Its fiction and it won't happen like that.

The big reckoning after Puerto Rico is going to be Illinois. Producers are straight up evacuating IL while the state government just keeps digging itself deeper into the hole. That situation is going to set all sorts of precedents for how this nonsense gets resolved.

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

#96

Post by justforFranz »

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.

Haha I hope this is sarcasm.

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

#97

Post by jchmbrln »

hkmurakami wrote: post #38
6stringmerc wrote: post #35

All that text about Puerto Rico's financial difficulties and not one mention of the rampant fraud that spun up the debt from a reasonable amount to the $XB that is likely to default is the result of graft, corruption, and fraud enabled by many US and international actors. Want to take a guess how many of those responsible for the transactions, debt issues, and back-office fund transfers are in jail and all their asse…

Would love to read more on the subject if you have links to both the PR and Dallas situations handy.

Not the OP, but I read this one recently about Puerto Rico: https://www.thenation.com/article/after-a-century-of-america...

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

#98

Post by altstar »

mjevans wrote: post #70
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.

They have tried in Venezuela. Did not work.

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

#99

Post by whatnotests »

ericd wrote: post #85
CJefferson wrote: post #32

Earlier quoted context omitted.

Limited companies go bankrupt all the time. Do we consider it an "ethical failure" when some VC funded company folds, leaving a whole bunch of people they owe money to with nothing?

A little bit, yeah. The leaders of those businesses made promises to people, and they failed to uphold them.

Define "promise" in this context though.

VCs invest in opportunity, not promises.

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

#100

Post by mtempm »

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…

Unless you have your own currency and a central bank and presumably some control over it. Then you can inflate away your debt.
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