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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

#301

Post by jpttsn »

furyofantares wrote: post #286
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…

> won't it change the equilibrium for future generations of lenders and borrowers such that an inefficiently low amount of lending goes on Yes, at one extreme, nobody ever pays anything back and no lending ever happens. But at the other extreme, everybody always pays their debts and the bankers asymptotically approach ownership of 100% of the money. I think we are closer to the second extreme than we should be.

Banks lend out of their clients' holdings, so they wouldn't approach 100%.

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

#302

Post by prostoalex »

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…

> If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money.

While a reasonable idea in abstract, it's of little value to Puerto Rico and its residents.

For the next few decades no one will lend money to them unless backed by some kind of collateral like government land or revenue proceeds from tolls, and their ability to raise money via other means is highly questionable, as servicing current debt has likely exhausted all of the obvious venues.

Every borrower in the municipal market will pay a higher price for this, as funds and other institutional investors will deal with write-offs and potential fund outflows.

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

#303

Post by jpttsn »

sandworm101 wrote: post #101
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…

This isn't about a social norm. This isn't about non-payment of debts generally. This is about a very specific and narrow type of loan. The creditors here chose a risk. They could have insisted on security. They could have asked for collateral (ie the deeding over of a property right for a mortgage). They did not. They extended credit on nothing more than a promise and in full knowledge of bankruptcy laws. They also…

> If someone has no hope...bother trying

Could it about setting an example?

Showing the lost case a hard time might scare others into good behavior.

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

#304

Post by prostoalex »

Pxtl wrote: post #93
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…

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.

With a company bankruptcy, the suffering is limited to employees and creditors, who eventually move on to other companies. With government bankruptcy, one can't exactly shrug it off and entrust local affairs to another more competent and better-run government.

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

#305

Post by erikpukinskis »

prostoalex wrote: post #302
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. While a reasonable idea in abstract, it's of little value to Puerto Rico and its residents. For the next few decades no one will lend money to them unless backed by some kind of collateral like government land or revenue proceeds from tolls, and their ability to raise money via other means is highly questionable, as servic…

> For the next few decades no one will lend money to them unless backed by some kind of collateral like government land or revenue proceeds from tolls

Sounds like normal debt raising. No one will give you money unless you have a plausible story of how it gets paid off.

Why do you consider it a good thing to be able to borrow money you have no plan to pay off?

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

#307

Post by givinguflac »

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…

|Default is an option specifically written into every debt contract out there.

Except student loans :(.

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

#308

Post by prostoalex »

CJefferson wrote: post #32
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…

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?

Those people are not stuck with the bankrupt startup for the rest of their lives. The same cannot be said about Puerto Ricans.

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

#309

Post by clarkmoody »

natermer wrote: post #287
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…

It's a lot easier when you are allowed to make your own money.

...or have people pay taxes to you.

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

#310

Post by oneguynick »

As you hear about Puerto Rico the next few days, take some time to get smart on the history and dynamic. Highly recommend Congressional Dish Podcast that came out a few weeks ago. Very good - http://www.congressionaldish.com/cd147-controlling-puerto-ri...
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