Puerto Rico files for biggest ever U.S. local government bankruptcy • Hacker News Board

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

#261

Post by eli_gottlieb » Thu, May 04, 2017, 1:31 AM UTC

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…

>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?

"Inefficient" is whatever the heck the market decides it is, subject to supply, demand, and risks. If we make it a social norm to take bankruptcy lightly, oh well, the efficient thing to do for markets is to factor that in.

It has to be considered on moral grounds rather than economic ones.

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

#262

Post by moduspol » Thu, May 04, 2017, 1:33 AM UTC

InitialLastName wrote: post #107

altstar wrote: post #98

Earlier quoted context omitted.

They have tried in Venezuela. Did not work.

Venezuela tried petro-socialism, backing their welfare state with a single resource that they happened to be swimming in. Price of that resource false -> no more monetary value -> money is worthless and welfare state fails.

Indeed. Yet the price of oil going down at some point is hardly an unforeseeable scenario, right? They're not stupid people. They were led to believe that it would never end, or that basic economic principles didn't apply to them.

Socialism works great until you run out of other people's money. Whether it's because the price of oil dropped, your most productive tax payers moved out, or your currency hyperinflates until it's worthless: somehow it's never socialism's fault. Reality eventually does set in, though.

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

#263

Post by cinquemb » Thu, May 04, 2017, 1:40 AM UTC

koolba wrote: post #251

rburhum wrote: post #247

For the Spanish speakers of HNs, NPR's Radio Ambulante has an excellent episode (called "deuda") that they did last year explaining the complexity of the situation. The short version is that a lot of the debt is held by the people of PR themselves in form of bonds that were sold when the economy was good. The reason it was artificially good is that for a long period it had great US tax benefits when compared with oth…

What percentage of the debt is held by private individuals and what percentage is bets by traders?

I was wondering this too, who is exposed, by how much, and are those entities publicly traded now?

In the Detroit one, bond holders were able to get back .75c on the dollar[0], and I suspect the haircut here will be worse for bond holders.

[0] http://www.barrons.com/articles/seven-lessons-from-detroits-...

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

#264

Post by BatFastard » Thu, May 04, 2017, 1:43 AM UTC

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…

How far does the graft and corruption have to take from us before we start publicly hanging them by their genitals?

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

#265

Post by state_less » Thu, May 04, 2017, 1:47 AM UTC

cmdrfred wrote: post #236

saimiam wrote: post #212

Earlier quoted context omitted.

While I agree with everything you said, I feel your argument should stand on its own merit. Just because a corporations screw people isn't a good enough reason for people to screw them back. Your point that the risk premium you pay while taking a loan implies that the lender is willing to take some pain from your failure is sufficient in itself.

I think there a "tragedy of the commons" sort of moral responsibility here to only take out loans you have a good chance of paying off as you theoretically raise interest rates for everyone else.

But everyone is definitely not lumped together into a commons. If their is information to delineate people, it will be used. That is what credit scores are used for. Also, of some interest, it was when banks sullied the information, that the housing market really went off the rails.

BTW: We've got to watch out for these financial guys, they'll try it again if they have the chance.

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

#266

Post by debacle » Thu, May 04, 2017, 1:52 AM UTC

pryelluw wrote: post #231

bluetwo wrote: post #122

Earlier quoted context omitted.

So the (selfish) question is: Is now a good or bad time to take a vacation in PR?

Same as always. If you do visit make sure to email me. Ill take you out to a nice dinner.

Do you have any recommendations for first-time visitors? Apart from Culebra we have no idea what we want to see.

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

#267

Post by Consultant32452 » Thu, May 04, 2017, 1:55 AM UTC

selectodude wrote: post #254

Consultant32452 wrote: post #242

Earlier quoted context omitted.

I'm sure it matters, but not as much as a surface analysis would lead you to believe. If we had to hoard a bunch of gold to back up the size of our economy, and further demanded our trade counterparts do the same, then the price of gold would've risen and our ownership proportion of the total sum of gold would've matched our proportional global wealth. I don't have a strong opinion on asset backed currencies, but mos…

There's more people in the country, so there's proportionally more dollars + a little more as an incentive to spend your money. If dollars gained value faster than economic growth (which you just effectiveally capped at the amount of gold your country possesses) nobody would ever spend it. I know I wouldn't.

I'm not sure the current system which actively discourages thrift while enslaving our entire population to life-long debt is objectively better.

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

#268

Post by myrryr » Thu, May 04, 2017, 1:59 AM UTC

tormeh wrote: post #180

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.

>Plenty of countries have defaulted, and they can still borrow money. That's the lenders' fault. Bleed the suckers dry. Lenders like that shouldn't get to manage money.

The question is "what are the chances they will default (again?) within the time period of the loan?". That determines the interest rate and the change you will loan it to them.

If after the default, they are in a reasonable state, then yeah, people will lend them money, because there is a good chance they will make a big enough profit.

You WANT to be a lender which balances the risk with the rewards. You don't want one which just blanketly says no to something which has a low risk, which will make a lot of money because you are arse hurt about it.

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

#269

Post by vacri » Thu, May 04, 2017, 1:59 AM UTC

ryandrake wrote: post #108

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…

> But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly I don't know about "taken lightly" but bankruptcy and defaulting on a debt should not be something to be "ashamed" of, for an individual, a company, or a government. Default is an option specifically written into every debt contract out there. There should be no more shame in choosing to default as there would be f…

> There should be no more shame in choosing to default as there would be for choosing to exercise a stock option that causes your counterparty lose all his money.

Defaulting on a debt is not about shame. Governments don't feel shame. The ramifications are that future credit becomes much more expensive, as the next contract's debt provisions will be harsher.

> No surprise that it's mainly bankers pushing the "it's immoral to default" line.

Plenty of honest, hard-working individuals pride themselves on always paying their debts. Similarly there are those who think that you shouldn't extend yourself beyond your means. It's not just bankers who consider not paying dues to be immoral.

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

#270

Post by rwallace » Thu, May 04, 2017, 1:59 AM UTC

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…

> 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?

Is there any reason to favor that hypothesis over the competing one that if debt is made onerous, an inefficiently and damagingly high amount of lending goes on? Seems to me the evidence favors the latter hypothesis. It's worth bearing in mind that debt as a social instrument has so easily and often turned toxic that some societies have gone so far as to outlaw it altogether. If you agree with me that this would be an overreaction, would you agree that we therefore need to take steps to tame it and mitigate the damage before that sort of overreaction repeats?