{"id":181515,"date":"2016-06-02T20:32:00","date_gmt":"2016-06-03T01:32:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2016\/06\/02\/i-so-hope-that-the-banksters-lose-this-one\/"},"modified":"2016-06-02T20:32:00","modified_gmt":"2016-06-03T01:32:00","slug":"i-so-hope-that-the-banksters-lose-this-one","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2016\/06\/02\/i-so-hope-that-the-banksters-lose-this-one\/","title":{"rendered":"I So Hope that the Banksters Lose This One"},"content":{"rendered":"

Puerto Rico is in debt, and, as befitting their colonial status, they have very few options to renegotiate their debt. This is a fact of life for colonial societies: Debt peonage to your imperial masters.<\/p>\n

That being said, and audit of Puerto Rico’s debt seems to indicate that many of the debts were issued illegally, and so the contracts under which the debt was issued, and hence the debt itself, may be unenforceable<\/a>:<\/p>\n

An audit report published on Thursday suggests that debt-laden Puerto Rico may be able to void some of its borrowing because politicians exceeded constitutional debt limits and their own authority. <\/span><\/p><\/blockquote>\n

 The report, shared with MarketWatch, states that some of Puerto Rico\u2019s debt may have been issued illegally, allowing the government to potentially declare the bonds invalid and courts to then decide that creditors\u2019 claims are unenforceable. The scope of the audit report, issued by the island\u2019s Public Credit Comprehensive Audit Commission, covers the two most recent full-faith-and-credit debt issues of the commonwealth: Puerto Rico\u2019s 2014 $3.5 billion general-obligation bond offering and a $900 million issuance in 2015 of Tax Refund Anticipation Notes to a syndicate of banks led by J.P Morgan.<\/span><\/p>\n

Money for those debt payments is not in the commonwealth\u2019s proposed budget, either. On Tuesday Puerto Rico\u2019s governor, Alejandro Garc\u00eda Padilla, sent a proposed 2016-17 budget to the island\u2019s legislature that provides for only $209 million of the $ 1.4 billion of current debt-service cost. As Garc\u00eda Padilla told reporters at a news conference: \u201cThis is simple: either we pay Wall Street or we pay Puerto Ricans. If the legislature decides we pay Wall Street more, well, each has his responsibility. I will continue defending Puerto Ricans. Money I send to Wall Street, I do not have to provide services here.\u201d  <\/span>

<\/span>\u2026\u2026\u2026<\/span>

<\/span>The Puerto Rican constitution contains a balanced-budget clause that explicitly prohibits borrowing to finance operating deficits, but its politicians borrowed to cover deficit financing in its 2014 General Obligation Bond Offering, according to the commission\u2019s initial review. The March 2014 General Obligation Bond states that the proceeds would be used in part to cover deficits that had accumulated and that were expected to occur in the year of the offering. The documents include a chart showing deficits financed with borrowing during the past and that were expected to recur.<\/p>\n

In addition, Puerto Rico did not inform bondholders that its constitution forbids it from using debt to finance deficits. That, the commission\u2019s report says suggests \u201csubstantive\u201d noncompliance with the letter of the constitution.<\/p>\n

The U.S. Supreme Court has said in the Litchfield v. Ballou case and, more recently, in litigation related to Detroit\u2019s bankruptcy that borrowing above a debt ceiling may allow the issuer to declare debt invalid and, therefore, unpayable. Detroit went to court to invalidate $1.45 billion in certificates of participation, debt issued by two shell companies called \u201cservice corporations.\u201d The parties settled before the case went to trial, but, while refusing two initial proposed settlements, the judge stated that Detroit\u2019s argument had \u201csubstantial merit\u201d and that the suit would have had a \u201creasonable likelihood of success.\u201d <\/span><\/p><\/blockquote>\n

I really hope that the people of Puerto Rico win, and the bond holders lose.<\/p>\n","protected":false},"excerpt":{"rendered":"

Puerto Rico is in debt, and, as befitting their colonial status, they have very few options to renegotiate their debt. This is a fact of life for colonial societies: Debt peonage to your imperial masters. That being said, and audit of Puerto Rico’s debt seems to indicate that many of the debts were issued illegally, …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1038,1004,1068],"tags":[],"class_list":["post-181515","post","type-post","status-publish","format-standard","hentry","category-budget","category-finance","category-latin-america"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/181515"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=181515"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/181515\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=181515"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=181515"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=181515"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}