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Puerto Rico Default

Don
Don
May 1, 2016
7:58am
Block User
"Governor Alejandro Garcia Padilla imposed a new debt moratorium law, the island’s chief executive said during a televised address Sunday [1 May 2016]. The bank, operating under an emergency period, will miss the $422 million payment due May 1, he said. The bank had until late Monday to make the payment."
Ref: Bloomberg

So, . . . poor old DonDiego has no investment in Puerto Rico. He owns no bonds issued by any agency of the Puerto Rican Government. To his knowledge DonDiego has not benefited in any way from the issuance of Puerto Rican debt.

The bondholders of their own free will purchased Puerto Rican bonds and were encouraged to do so by the fact that interest on those bonds is tax-free to US citizens. The bondholders can now expect significant losses on these bonds.
But DonDiego did not purchase any.

"As of last week, 44 percent, or 259, of 588 traditional municipal bond funds in the U.S. have exposure to Puerto Rico. Which means some hands-off investors, including those whose financial matters are handled by a broker, have a vested interest in what happens to Puerto Rico."
Ref: AMINewsWire
But DonDiego possesses an interest in no such municipal bond funds.


So DonDiego should be totally unaffected by the default by Puerto Rico on its bonds.

So, why does poor old DonDiego think this is gonna cost him something ?

forkushV
forkushV
May 1, 2016
8:25am
Block User
Quote
Originally posted by: DonDiego
"Governor Alejandro Garcia Padilla imposed a new debt moratorium law, the island’s chief executive said during a televised address Sunday [1 May 2016]. The bank, operating under an emergency period, will miss the $422 million payment due May 1, he said. The bank had until late Monday to make the payment."
Ref: Bloomberg

So, . . . poor old DonDiego has no investment in Puerto Rico. He owns no bonds issued by any agency of the Puerto Rican Government. To his knowledge DonDiego has not benefited in any way from the issuance of Puerto Rican debt.

The bondholders of their own free will purchased Puerto Rican bonds and were encouraged to do so by the fact that interest on those bonds is tax-free to US citizens. The bondholders can now expect significant losses on these bonds.
But DonDiego did not purchase any.

"As of last week, 44 percent, or 259, of 588 traditional municipal bond funds in the U.S. have exposure to Puerto Rico. Which means some hands-off investors, including those whose financial matters are handled by a broker, have a vested interest in what happens to Puerto Rico."
Ref: AMINewsWire
But DonDiego possesses an interest in no such municipal bond funds.


So DonDiego should be totally unaffected by the default by Puerto Rico on its bonds.

So, why does poor old DonDiego think this is gonna cost him something ?
Because when it comes to Wall Street, profits are privatized but frequently losses are socialized.

The game is rigged.
pjstroh
pjstroh
May 1, 2016
8:32am
Block User
Ignoring Puerto Rico's problem would likely raise interest on most other municipal/state bonds as well.....which would cost DonDiego and taxpayers "something" in higher costs for all states to repay debt.

There are financial consequences to doing something and to doing nothing....and you can be sure opponents of Paul Ryan will be quick to note those consequences regardless of which path he chooses. Thats part of the burden that comes with governing vs complaining from the peanut gallery of the house floor. Its a tough job and one Speaker Ryan and his predecessor often seemed reluctant to do....maybe why they schedule record low number of work days for the house to be insession.



Don
Don
May 1, 2016
10:05am
Block User
Quote
Originally posted by: pjstroh
Ignoring Puerto Rico's problem would likely raise interest on most other municipal/state bonds as well.....which would cost DonDiego and taxpayers "something" in higher costs for all states to repay debt.

Why, . . . if other State/Municipal Bond Issuers were to limit their borrowing to that which they can reasonably be expected to pay back, would their raise interest rates. pjstroh is correct that interest rates will be higher or lower naturally in a free market if information is supplied honestly and accurately, as it should be.

The folks who purchased Puerto Rico's bonds can now expect losses, . . . losses which were foreseeable; DonDiego sees no advantage to others bailing anyone out. DonDiego says let the markets sort it out.

Otherwise State/Municipal borrowers, . . . like f'rinstance Illinois and Chicago may expect someone to bail them out, including poor old DonDiego.

And as poor credit risks are bailed out, the expectation for future bailouts will arise. No good can come of this.

pjstroh
pjstroh
May 1, 2016
11:05am
Block User
You can make an intelligent case to bail out or NOT bailout Puerto Rico. But its not accurate to suggest their is no cost to the latter.
alanleroyII
alanleroyII
May 1, 2016
11:36am
Block User
Maybe the Governor should appoint an Emergency Manager.
jatki
jatki
May 1, 2016
1:00pm
Block User
Quote
Originally posted by: DonDiego
"Governor Alejandro Garcia Padilla imposed a new debt moratorium law, the island’s chief executive said during a televised address Sunday [1 May 2016]. The bank, operating under an emergency period, will miss the $422 million payment due May 1, he said. The bank had until late Monday to make the payment."
Ref: Bloomberg

So, . . . poor old DonDiego has no investment in Puerto Rico. He owns no bonds issued by any agency of the Puerto Rican Government. To his knowledge DonDiego has not benefited in any way from the issuance of Puerto Rican debt.

The bondholders of their own free will purchased Puerto Rican bonds and were encouraged to do so by the fact that interest on those bonds is tax-free to US citizens. The bondholders can now expect significant losses on these bonds.
But DonDiego did not purchase any.

"As of last week, 44 percent, or 259, of 588 traditional municipal bond funds in the U.S. have exposure to Puerto Rico. Which means some hands-off investors, including those whose financial matters are handled by a broker, have a vested interest in what happens to Puerto Rico."
Ref: AMINewsWire
But DonDiego possesses an interest in no such municipal bond funds.


So DonDiego should be totally unaffected by the default by Puerto Rico on its bonds.

So, why does poor old DonDiego think this is gonna cost him something ?


Second shocker of the evening.

My guess, the Fed Govt. will end up backing these bonds in some shape, fashion or or form.

alanleroyII
alanleroyII
May 1, 2016
1:16pm
Block User
This was 'A' rated paper yielding 6-7% Tax Free just a year and a half ago. I wonder if there's much in the way of Credit Default Swaps or Derivatives out there that might magnify the impact of this default. Couldn't be. We fixed all that in the wake of the 2008 financial crisis...right? Right?
Don
Don
May 1, 2016
11:07pm
Block User
Quote
Originally posted by: alanleroyII
Maybe the Governor should appoint an Emergency Manager.

DonDiego opines a Czar of Bailouts is more appropriate. One can reasonably expect subsequent Sub-Czars, preferably to be called "Czar-myshka" [note i], as other jurisdictions default in search of their own Czar.

Ref: ObamaCzars

Note
i. mysh translates as "mouse", and myshka translates as "little mouse".
pjstroh
pjstroh
May 1, 2016
11:41pm
Block User
The Czar's name is Paul Ryan as any bailout/restructuring deal must be initiated and appropriated by Congress.
Funny thing about governing - it requires one to move beyond cheap ideological rhetoric and be accountable for real policy that has real impact, real results, and real consequences. Saying the phrase "free market" a hundred times doesn't really do anything except make people without responsibility feel good.




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