Trump Hints At “Wiping Out” Puerto Rico’s Debt

puerto rico debt crisis trump hints at wiping away debt

Puerto Rico paying back its bond debt is a complete impossibility. It is unsustainable to the point that it cannot even service its debt.

Rather than allow our protectorate to wither on the vine financially in a hopeless future, President Trump appears to be setting the stage for debt relief for the island.

Not only is it the right thing to do, but Trump’s salvo against the island’s exploiters – the same banking cartel that regularly exploits its American vassals – was a joy to behold.

“They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You’re going to say goodbye to that, I don’t know if it’s Goldman Sachs but whoever it is you can wave goodbye to that,” Trump said in an interview with Fox News.

The deeper question is this:

Is this a preview of how state pension crises, like in Illinois, will be dealt with in the future? Will the overall U.S. obligations or household credit card and student loan debt be negotiated away similarly?

In short, is America’s future one of a debt jubilee? I really hope it is.

The counterparties to these kinds of debt will howl. To be sure, there are many moral hazard issues at play here and there are no easy answers. But to allow the empire of debt to wring out every last drop of energy from mankind is deeply unchristian. And really, did we not cross the moral hazard Rubicon ten years ago on behalf of the same banking interests who will bark at debt forgiveness for the masses?

They have been repaid in interest for a long, long time, regardless. The system of usury has enabled quasi-governmental organizations like the BIS, giant corporations, and certain families to consolidate money into unrivaled political power at the expense of the toils and pain of the middle and lower classes for centuries.

A fresh start is what is needed for everyone. One without a Federal Reserve. The economic Ponzi system is going to collapse of its own weight eventually anyway. Half measures, as we’ve seen in the past, will only enrich the banksters. Let’s not let whole generations expend their life’s energy bailing water in perpetuity out of a boat with holes in it.

Here’s an excerpt of an interesting article of the topic on Naked Capitalism:

And speaking of Goldman, notice that Trump takes an explicit swipe at the investment bank turned Beltway heavyweight. He must be chafing at have been leashed and collared by the generals and the Goldmanites.

From Reuters:

President Donald Trump said on Tuesday while on a trip to Puerto Rico to observe hurricane recovery efforts that the island’s massive debt will have to be wiped out.

“They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You’re going to say goodbye to that, I don’t know if it’s Goldman Sachs but whoever it is you can wave goodbye to that,” Trump said in an interview with Fox News.

CNBC picked up on the Reuters story quickly and highlighted the bleak fundamentals:

Even before the storm brought Puerto Rico to a near standstill, the government there already struggled with an economy in shambles and a default on billions of dollars of public debt.

Today, the U.S. territory has nearly $70 billion in debt, an unemployment rate 2.5 times the U.S. average, a 45 percent poverty rate, nearly insolvent pension systems and a chronically underfunded Medicaid insurance program for the poor.

Puerto Rico’s job base continues to shrink, taking its economy along with it. Since the recession ended, a lack of job prospects has sent many Puerto Ricans fleeing to the mainland, where the job market is much stronger.

However, it is unlikely that Goldman would suffer much, if at all, in a Puerto Rico bankruptcy. It might hold some bonds in its trading inventory, but its big exposure would come via funds it manages. On those, under the Volcker Rule, Goldman is limited to owning a small percentage of the equity investment in the fund (3% is the nominal amount, although there may be some tricks of the trade for increasing the exposure).

But David Dayen has found one of the big owners of Puerto Rico debt, as reported in a new story at the Intercept. If you read the article in full, tracking down the who was behind the shell company used to hide the ultimate owners is very reminiscent of the sort of gumshoe work that Richard Smith does chasing international scammers:

For years, the identity of the owner of one of the largest holdings of Puerto Rican debts has been a mystery.

That mystery has finally been solved, with the help of the The Baupost Group, who unmasked themselves to The Intercept. The Baupost Group, a Boston-based hedge fund managed by billionaire Seth Klarman, owns nearly a billion dollars of Puerto Rican debt, purchased under a shell company subsidiary and hidden from public scrutiny. Baupost acquired the debt through an on-paper Delaware-based corporation named Decagon Holdings LLC, whose beneficial owner had been unknown until now.

“The Baupost Group is a holder of COFINA bonds through the Decagon entities,” said Baupost spokeswoman Diana DeSocio. “Baupost regularly makes investments through subsidiary holding entities.” She added that Klarman, one of the richest hedge fund managers in the world, did not hold any Puerto Rican debt individually….

Using shell companies to buy Puerto Rican bonds, then, can shield wealthy investors from public knowledge of their complicity in the misery of millions of U.S. citizens.

Julio Lopez, state director of Make the Road Connecticut and a member of the HedgeClippers coalition, which is organized to challenge the concentrated power of hedge funds, said the revelation of Klarman’s involvement will have political ramifications.

“What’s incredible about this is these people were actually hiding,” said Lopez. “In the case of this person, he’s in Boston which has a large Puerto Rican community … Our work right now will be about activating our community in Boston, letting them know this person has been hiding and making sure we go to his houses and his companies to hold them accountable.”

In July, as part of a court order to comply with bankruptcy procedures, a coalition of holders of “COFINA” bonds, backed by the island’s sales taxes, were required to supply the names of its members. The largest member in terms of bond value was Decagon Holdings, which had ten separate purchasing subsidiaries (Decagon 1-10) holding $911.6 million in COFINA bonds.

But there was no information about Decagon in the court filing, other than a Boston address of 800 Boylston Street…

Klarman, who has been described as the Oracle of Boston, has a history of buying unpopular or distressed assets on the cheap in hopes of a payday. Baupost manages over $30 billion in assets. He is known as the top campaign contributor in New England, and has been a major donor in Republican politics in Massachusetts, including largely secret support for 2016’s Question 2, an ultimately unsuccessful effort to lift a state cap on charter schools. Klarman supported Hillary Clinton in 2016, calling Trump “completely unqualified for the highest office in the land.”

Klarman’s involvement in Puerto Rican debt will surely come as a surprise to activists in Massachusetts and Puerto Rico, who have never mentioned him among the “vultures” who are causing undue pain for the island’s U.S. citizens.

 

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