Monday, December 2, 2013

Puerto Rico's Financial Condition is Much Worse Than Detroit's; Is a Bailout Coming?

I have been warning about Puerto Rico's financial condition in the EPJ Daily Alert all year long.

WaPo is now catching up on the story:
The [Puerto Rican] economy has been in recession for nearly eight years, crimping tax revenue and pushing the jobless rate to nearly 15 percent. Meanwhile, the government is burdened by staggering debt, spawning comparisons to bankrupt Detroit and forcing lawmakers to severely slash pensions, cut government jobs and raise taxes in a furious effort to avert default.

The implications are serious for Americans outside Puerto Rico both because a taxpayer bailout would be expensive and a default would be far more disruptive than Detroit’s record bankruptcy filing in July. Officials in San Juan and Washington are adamant that a federal bailout is not on the table, but the situation is being closely monitored by the White House, which recently named an advisory team to help Puerto Rican officials navigate the crisis[...]

Because of their high yields and exemption from federal, state and local taxes, Puerto Rican bonds are held by three out of four municipal bond mutual funds, according to Morningstar, a market research firm.

“Some people might say, ‘This is their problem.’ But Puerto Rico is part of the United States, you own this problem,” said Pedro Pierluisi (D), Puerto Rico’s nonvoting representative to Congress. “It is not like you can ignore it.”[...]

 Earlier this month, the rating agency Fitch warned that Puerto Rico’s general obligation bonds could be downgraded to junk status next summer because of concerns that the commonwealth would be unable to return to the market anytime soon to borrow more at a reasonable cost.

Another downgrade would be a severe blow for Puerto Rico, effectively cutting it off from the market and paralyzing its efforts to dig out from under its mountain of debt.

If that happens, Lamba-Nieves, the director of the Center for a New Economy, said the federal government could feel pressure to step in with some type of bailout. “Puerto Rico might be a little too big to fail,” he said.

The large number of US mutual bond funds that own Puerto Rican bonds will mean huge Wall Street pressure on Washington D.C. to bailout Puerto Rico, if it nears default. Bottom line: Your tax payer funds (along with newly printed Fed money) will be used for yet another crony bailout.


  1. I think WaPo just needs to give up and make you Editor. When will they learn? It's not just EPJ, but there's so much information that can be seen before hand or earlier if they just hired some (true) libertarians and put them in leading positions.
    - JS

  2. Yeah, right. They'll bail out Puerto Rico with all the money they have saved up in a bank somewhere. How do you bail someone out when you have zero money of your own and are in debt up to your eyeballs?

  3. No way will they get a bailout. I'm sure most Americans are not even aware that Puerto Rico is part of U.S. in any form. They are too stupid and quietly racist. They would immediately consider it some kind of betrayal or waste of taxpayer dollars. When banks needed a bailout they were silent and dumb, but now they will cry about "wasted resources that could be better used elsewhere" or something. "Where was our bailout?" I am American, so I know the dumb shit they will come up with.

    1. the point is that the PR bondholders will probably be bailed out. What will happen to Puerto Rico is another question.

    2. Sir, they said it very clear, they're not going to bailout us. We have big problems here on this Island financially but the bigest problem here is the legal corruption. They give contracts to broke a sidewalk and restore it when the sidewalk was ok... this is my goverment...