Thursday, July 30, 2015

Jack Lew: Puerto Rico Needs to Go Bankrupt

"Drop dead Puerto Rico bond holders."

That essentially is the message Treasury Secretary Jack Lew is delivering.

In a letter to Senator Orrin Hatch (R-UT), Lew called for Congress to amend bankruptcy laws to help smooth the way to a restructuring of Pureto Rico's debts.

“A central element of any federal response should include a tested legal bankruptcy regime that enables Puerto Rico to manage its financial challenges in an orderly way,” Lew wrote  to Hatch, in response to a letter from Hatch. " An untested and potentially disruptive process with numerous creditor lawsuits and years of litigation would depress the local economy, increase costs and make long-term recovery harder to achieve.”

Lew also noted in the letter that a bankruptcy would cause problems for some US retirees:
The continued deterioration of Puerto Rico’s economic and financial conditions has the potential to further harm retiree investment portfolios across the country. A significant portion of Puerto Rico’s debt is still held directly by individual retail investors or indirectly through the municipal bond funds they own.
But, Lew made clear that there would be no bailout for Puerto Rico, the way Goldman Sachs, Morgan Stanley etc. were bailed out. When it comes to individual retirees, they will have to fend for themselves is the Lew implication. The focus is all on bankruptcy in the Lew letter:
 Allowing Puerto Rico to resolve its liabilities under the supervision of a bankruptcy court involves no federal financial assistance and is in no way a federal bailout. 

The government of Puerto Rico and related agencies have aprox. $72 billion in debt outstanding.


1 comment:

  1. Lending to a government is nothing more than betting on the ability of that government to extort taxes from uts subjects in the future. Morality of such lending us at best dubious - and so the lenders amply deserve to get wiped when the government goes bankrupt. That will teach them to refrain from doing business with organized crime.