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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

#161

Post by dragonwriter »

EpicEng wrote: post #128
ue_ wrote: post #114

Earlier quoted context omitted.

>If they can't produce enough value to justify minimum wages There are alternative views on this. Marx's theory for example says that workers are not paid according to the value they create, or what their labour creates, rather they are paid at the rate which is required to sustain them. The commodity which the worker produces and sells is termed 'labour power', requiring among other things food, enough to support a…

Yet Puerto Ricans don't live in a Marxist society, so I'm not sure how his ideas apply here.

What was cited was Marx's views on how things work in a capitalist society, not his ideal of how they should work in a Communist one, so the fact that PR isn't Marxist is irrelevant to it applicability.

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

#162

Post by vkou »

lf275 wrote: post #123
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?

It's not an ethical failure because most of the participants understand that it is high risk/reward. That is why most start-up firms offer equity to their employees, and it is almost impossible for a new startup to borrow debt from banks (unless its personally guaranteed, or extremely expensive) before it has gained traction with its business model. On the other hand, governments are perceived to be reliable borrower…

> this could aggravate the financial distress of many high indebted public entities that are already struggling to pay the bills.

Governments don't make payments at adjustable-interest rates. If sovereign borrowing rates rise, because the financial markets decide that sovereigns have a higher rate of default then they thought before, this doesn't affect outstanding debt - only the ability to get more.

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

#163

Post by lf275 »

azernik wrote: post #129
lf275 wrote: post #123

Earlier quoted context omitted.

It's not an ethical failure because most of the participants understand that it is high risk/reward. That is why most start-up firms offer equity to their employees, and it is almost impossible for a new startup to borrow debt from banks (unless its personally guaranteed, or extremely expensive) before it has gained traction with its business model. On the other hand, governments are perceived to be reliable borrower…

It's understood to be low-risk, but not zero risk.

True, I don't look at it as an ethical failure either way. I am saying, however, that the public/federal government have an interest in maintaining the perception that that is a one-off and state/local governments are reliable borrowers. If a string of bankruptcies happen in a short time window, this could quickly erode the perception that state governments are reliable, and negatively impact many other states that are struggling and need low-interest financing just to pay the bills.

For anybody who has taken a look at the balance sheets of public entities, it is shocking how poorly capitalized many of these local governments actually are, and how aggressive some of their financial assumptions are (with low interest rates and 50% of their capital held in debt, a 8% assumed rate of return is extremely aggressive, and they would need financial rock-stars to achieve this at their scale). If investors are spooked, then interest rates could spike for many other government loans, and cause contagion among local government entities that would eventually require the federal government to intervene.

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

#164

Post by anigbrowl »

Animats wrote: post #25
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.

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

I did not realize there was a vote that close. I'm sure I read about it but forgot. I bet you could learn some very interesting things by studying the costs and reach of advertising via Facebook or whatever social networking platform predominates in PR, since vast sums of money could be gained or lost based on the outcome of the referendum.

I don't really have the time or expertise to research this, but I would be extremely interested to know who is spending money on trying to influence the outcome. It seems like it would have significant consequences for the USA in general as well as PR in particular, and election manipulation seems to be a hot growth industry lately.

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

#165

Post by dragonwriter »

ue_ wrote: post #142
EpicEng wrote: post #128

Earlier quoted context omitted.

Yet Puerto Ricans don't live in a Marxist society, so I'm not sure how his ideas apply here.

Marx was describing capitalism in his critique of political economy, Capital. Puerto Ricans definitely live in capitalism. A Marxist society (or, Communist) does not have wage labour at all.

> Puerto Ricans definitely live in capitalism.

Puerto Ricans definitely live in a mixed economy, not the system that Marx described as capitalism, but it arguably shares the salient features of capitalism that Marx was addressing in the excerpt under discussion.

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

#166

Post by vkou »

cjalmeida wrote: post #69
myrryr wrote: post #40

Earlier quoted context omitted.

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…

Defaulting worked pretty well for Iceland. It worked poorly for Brazil and Argentina.

Not defaulting worked extremely poorly for Greece.

It all depends on the particular circumstances of a country. If you're going to be building massive amounts of infrastructure, then yeah, you may want to consider not defaulting. On the other hand, if the foundations of your economy are sound, you may do well to default, and live with the credit rating hit.

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

#167

Post by thaumasiotes »

anigbrowl wrote: post #157
thaumasiotes wrote: post #137

Earlier quoted context omitted.

> I know a very wealthy hedge fund manager who just moved to PR in order to minimize (read: eliminate) his Federal tax burden. Based on a couple of minutes of reading from wikipedia ( https://en.wikipedia.org/wiki/Taxation_in_Puerto_Rico ), it sounds like the federal income tax is only eliminated as to income from sources in Puerto Rico. If your income is mostly capital gains from your vast stockholdings, what's the…

Shell companies are your friend. You can move a lot of money around faster than the authorities can follow the paper trail in many cases. That's why some people refer to delaware as the world's biggest tax haven - Delaware is extremely friendly to corporations and it's trivially easy to set one up. So if you are skilled in the technicalities of company formation and business administration, you can make your audit tr…

OK, but a shell company in Delaware sounds pretty useless as a means of sourcing your income from Puerto Rico.

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

#168

Post by SEJeff »

anigbrowl wrote: post #152
eagletusk wrote: post #111

Earlier quoted context omitted.

Why would USA want PR as 51? What benefit is there? PR has more debt that California, and zero industry except for Bacardi rum. Name one thing made in PR?

We own you but we don't want to give you more rights because we can't figure out how to profit enough of you. Ha! Ha! Ha! Assuming you were born in the USA, why were you born there rather than in Puerto Rico? Was this a matter of skill and judgment on your part, or just luck? If so, what basis do you have for denying the rights you enjoy to others who live in a territory rather than a state?

Bingo!

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

#169

Post by Nelson69 »

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…

Aren't the interest rates and credit ratings supposed to factor that in?

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

#170

Post by vkou »

eagletusk wrote: post #111
SEJeff wrote: post #65

Earlier quoted context omitted.

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?

Why would USA want PR as 51? What benefit is there? PR has more debt that California, and zero industry except for Bacardi rum. Name one thing made in PR?

> Why would USA want PR as 51? What benefit is there?

Wasn't the USA founded on the principle of no taxation without representation? On a principle of enfranchisement? On a principle of self-determination?

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