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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

#421

Post by basseq »

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's a difference in perception between personal, corporate, and government bankruptcy. Personal bankruptcy is seen as a black mark of either poor personal discipline or a string of bad luck. Corporate bankruptcy is largely ignored, held up in rare cases as a source of embarrassment (but little else), or more often in startup-land, a signal of "experience". Government bankruptcy is something else entirely, and generally unforgivable without significant outside catastrophes. You can blame the politicians, but in a Democratically-elected government, these are your representatives.

Interesting to note on the corporate angle, bankruptcy laws are a fairly-recent invention. (Where by "fairly recent" I mean "several centuries".) The US's laws, in particular, are credited with fostering some of the innovation in this country, as they reduce the impacts of failure.

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

#422

Post by Brockenstein »

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…

People are debt for all sorts of reasons, regardless of how you want to characterize it. Let's say your claims are generally right. But lenders are still willing to lend to people they probably shouldn't. And as long as they come out ahead overall they will continue to do so.

Regardless of what anyone says to the contrary, we all want the world this way. When we need credit or a loan, we want it to be easy to get because "we'll be responsible about it" and we don't want to be burdened with everyone elses irresponsible debt baggage.

If this was really a problem for lenders they would adopt different practices to avoid this sort of outcome. So instead they are happy to persist it and use whatever tactics they can to maximize their benefit. Lenders lend. They know the risks. They've been doing it for a long time. And they're smarter than you. I'm sure they appreciate your help in fighting their version of the good fight.

Most people aren't consciously running up debt with plans to declare bankruptcy. It happens, but they're not any sort of population to fall back on for an argument about a worldwide system of debt and lending. Using them is really an argument for your own ego and how you're a better person. Maybe you are. But it really has nothing to do with the other 7 billion primates on the planet.

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

#423

Post by frgtpsswrdlame »

jpttsn wrote: post #311
zeteo wrote: post #80

Earlier quoted context omitted.

Minimum wage only causes unemployment if the labor market is competitive. This is not currently the case in the US as a few big companies (Walmart, McDonald's) have disproportionate market power, and most economic sectors are becoming even more concentrated. Under such oligopsony conditions, increases in minimum wage will generally come out of profits (which are at historically high levels of the GDP [1]). Since wage…

> Minimum wage only causes unemployment if the labor market is competitive. Where did you hear that?

Probably someplace like this:

The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.

http://cepr.net/documents/publications/min-wage-2013-02.pdf

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

#424

Post by frgtpsswrdlame »

ThrustVectoring wrote: post #102
dragonwriter wrote: post #59

Earlier quoted context omitted.

> Since it's illegal for large portions of the population to receive pay commensurate to the value they're able to produce, and it is legal to move to the US, guess what folks do? If they can't produce enough value to justify minimum wages, why would they move to places with a higher cost of living? They move to the States because the States are better able to attract businesses that will pay them what they are capab…

>If they can't produce enough value to justify minimum wages, why would they move to places with a higher cost of living? Mopping a floor produces economic value because there's a difference in how much a dirty store sells versus a clean one. If all you can do is mop floors for this thought experiment, this difference in how much the store sells directly effects the economic value of your labor. In Puerto Rico, this…

It sounds real nice which is why this idea is so pervasive but it just doesn't hold up to reality.

The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.

http://cepr.net/documents/publications/min-wage-2013-02.pdf

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

#426

Post by Brockenstein »

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.

Not quite. You make the mistake of adding significance to individual each loan. The reality is a lender might loan to 100,000 people and they know some of those loans are going to fail. If they had a process to only lend to people who would never default, well, impossible.

The interest rates you're being charged aren't tailored specifically to you. But they look at everyone else with similar income and credit and look a the default rate and figure out what they need to charge to make a profit.

It's the sum of the whole lending business, not individual loans, that matter. They'll do as much as they can to mitigate the loss on loans that do default. It's just throwing money away not to. But they've got it all figured out to loan money, have some of it default, and still make plenty of profit. The idea that the minority of people who do default and declare bankruptcy causes them any pain is really quaint and naive.

But boy is that an image their PR would love to get everyone to buy into. If you can convince people to feel bad. If you can convince society as a whole to shame and pressure people into doing something that's the most advantageous for lenders, that is just a lending vision of utopia.

(Disclaimer: I've never been in serious debt or declared bankruptcy. There's no morality that should be implied or assumed by that.)

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

#427

Post by setrofim_ »

danschumann wrote: post #425

Their governor looks like Michael Scott. I've never understood why governments go into debt. It's just stupid.

It's misalignment of incentives rather than stupidity (well, in some cases, maybe also stupidity). Governments make decisions from one election cycle to the next. So taking on debt that will be some future administration's problem in order to finance public projects now, and increase the current administration's popularity makes perfect sense.

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

#428

Post by baloneyman »

basseq wrote: post #421
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…

There's a difference in perception between personal, corporate, and government bankruptcy. Personal bankruptcy is seen as a black mark of either poor personal discipline or a string of bad luck. Corporate bankruptcy is largely ignored, held up in rare cases as a source of embarrassment (but little else), or more often in startup-land, a signal of "experience". Government bankruptcy is something else entirely, and gen…

At the end of the day, they're all just humans making bad decisions

But it seems like it would honestly be the opposite (i.e., government bankruptcy being bad). The more people that are involved, the higher chance there is of a tragedy of the commons

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

#429

Post by peter303 »

fiatjaf wrote: post #27
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…

If someone has already defaulted on a loan, that will make you not want to lend to him anymore, perfect. If the Puerto Rico government defaults now, no banks should lend money to it again ever. Perfect. This outcome doesn't affect other lender-borrower relationships.

Wrong. A borrower who defauls is more attractive than a tightwad who never borrows. There is a chance of making money on the former. People going into foreclosure get innudated with loan offers.

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

#430

Post by taway_1212 »

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…

It's close to saying that, as a shopkeeper, sometimes you get robbed, which is the cost of doing business you charge your customers for - and hence the robbery is ok.
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