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

#411

Post by tertius » Thu, May 04, 2017, 12:14 PM 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…

Bankruptcy is the norm in the U.S. That's one of the reasons for the immense economic growth the U.S. has seen.

Appetite for risk is good in the aggregate. PR will get downgraded for sure though.

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

#412

Post by gnode » Thu, May 04, 2017, 12:25 PM UTC

bnolsen wrote: post #332

vacri wrote: post #269

Earlier quoted context omitted.

> 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 imm…

And the politicians who make the decisions to run up the debt have zero skin in the game. They just get to spend other people's money. In many cases it goes out the door as political payoffs for getting votes.

Yet the people elected them instead of someone pledging austerity and higher taxes.

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

#413

Post by unprepare » Thu, May 04, 2017, 12:29 PM UTC

myrandomcomment wrote: post #295

njovin wrote: post #194

Earlier quoted context omitted.

That sounds more like fraud. What if I take out a loan, am perfectly capable of paying it off, but the asset backing the loan has lost sufficient value so as not to be worth the continued investment? Is there any shame in defaulting and letting the lender suffer some of the consequences? In my personal opinion, no. Especially with secured or collateral-backed loans, the lender knew there was risk going in and there's…

Sorry but what you are saying is since people are too stupid to understand the contract they signed and to do some math it is the companies fault? My wife and I at one point were in the hole nearly 1m. The crash put my house way under and the job money fun time went away. It sucked. You know what we did. We canceled the cable TV, we stopped eating out. We watched every penny. I work jobs I hated, hated, hated. We got…

>were in the hole nearly 1m

>We canceled the cable TV, we stopped eating out

cable is what 200/month max? 2400 /year? How the hell much were you eating out that changing your habits allowed you to pay off a million dollars worth of debt? You sound more financially irresponsible than people whose mortgages were underwater by orders of magnitude

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

#414

Post by YesThatTom2 » Thu, May 04, 2017, 12:55 PM 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…

Whoa whoa whoa! If people default, then bankers might actually have to work for a living and actually evaluate potential customers instead of just cargo-curling their way through forms and praying that everything will be ok.

The C- students that became bankers can't be expected to actually work for a living!

(Sarcasm)

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

#415

Post by rburhum » Thu, May 04, 2017, 12:58 PM UTC

cinquemb wrote: post #263

koolba wrote: post #251

Earlier quoted context omitted.

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-...

See my response above for links :)

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

#416

Post by neekburm » Thu, May 04, 2017, 1:03 PM UTC

saimiam wrote: post #212

njovin wrote: post #194

Earlier quoted context omitted.

That sounds more like fraud. What if I take out a loan, am perfectly capable of paying it off, but the asset backing the loan has lost sufficient value so as not to be worth the continued investment? Is there any shame in defaulting and letting the lender suffer some of the consequences? In my personal opinion, no. Especially with secured or collateral-backed loans, the lender knew there was risk going in and there's…

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.

In a world of hawks, it is foolish to be a dove.

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

#417

Post by malnourish » Thu, May 04, 2017, 1:08 PM UTC

myrandomcomment wrote: post #362

wonderwonder wrote: post #313

Earlier quoted context omitted.

The companies are more than capable of doing the math as they are signatories on the same contract. They interest rate they charge on the loaned money is based on their own internal algorithm that determines the risk of default on a particular borrower. Risk is priced into the loan. I am glad you and your family were able to work your way out of the debt you found yourself and I commend you for it. Many others are no…

I agree but that is not the case for most of this. People spend to much and run up to much debt because they are trying to keep up with the Jones. My wife was property manager for a large company. One of the properties in Orange County, New Port Beach area, had the highest rate of late payments and evictions. This is a A+ complex and has some of the highest rents for the units in the area. Guess what, those people th…

Do you have sources for your statement?

If a bad borrower keeps getting loans then it's the fault of the lender. We have nothing to gain by putting such moral weight on bankruptcy.

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

#418

Post by malnourish » Thu, May 04, 2017, 1:10 PM UTC

cbr wrote: post #139

ryandrake wrote: post #108

Earlier quoted context omitted.

> 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…

I'm pretty sure taking out a loan that you intend to default on is fraud, but making a contract with someone that you expect to be very profitable to you is not.

Intent to default sure, but realizing that defaulting is the best option after your circumstances have changes is not fraud.

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

#419

Post by mcjiggerlog » Thu, May 04, 2017, 1:13 PM UTC

eagletusk wrote: post #396

anigbrowl wrote: post #152

Earlier quoted context omitted.

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?

Welcome to Earth? U.S.A was also once owned by another country and it managed to figure something out. I lived in PR for a few months in 2014, every week I would learn more and more about how much of a disaster that island is. I wish them luck cause it's going to be hard to get things going again.

So you're suggesting they go to war for independence?

This is the 21st century - any self-respecting democracy should respect the right to self-determination.

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

#420

Post by jameshart » Thu, May 04, 2017, 1:18 PM UTC

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…

There are other options too: borrow money from other creditors (preferably on better terms) and use it to pay off the original creditors; negotiate with the creditors to pay back part of the sum, rather than the whole sum; arrange for the creditor to forgive the debt; buy out the creditor (after all, if all they own are bad loans, they might be willing to sell out for cheap)...

In particular municipal/state/government borrowers tend to prefer the first approach - usually by issuing bonds. In theory they are secured by the government's ability to levy taxes in its territory in perpetuity, so its ability to pay the bonds should be secure so long as there's likely to be future economic activity in the territory.