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I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt

• deleted 9y ago
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• vkou 9y ago
  > We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to be careful about who they lend money to, as it is on the creditor to be careful about being able to pay off their debts.
  • knob 9y ago
    I will admit that you are right on that. It's a tough spot to be in. I bought, and yet to fully read, "Debt - The first 5000 years". One of the things the book states at the start is what you are saying: Not every debt has to be paid off. One of the risks creditors take is the possibility of having a debt not paid back. I also remember how Haiti was, to this day, punished via monetary means. Haiti wanted freedom? Fine... they will (and did) cripple the entire country. Another example from the book: Madagascar. The French invaded, and took out their Queen. Then imposed taxes on the population as to get back the money they invested in the invasion/war. wtf
    • vkou 9y ago
      > Another example from the book: Madagascar. The French invaded, and took out their Queen. Then imposed taxes on the population as to get back the money they invested in the invasion/war. wtf We currently charge imprisoned people for room and board for their jail stays. http://www.bbc.com/news/magazine-34705968 http://www.bbc.com/news/magazine-34705968
    • thehappy 9y ago
      > Another example from the book: Madagascar. The French invaded, and took out their Queen. Then imposed taxes on the population as to get back the money they invested in the invasion/war. wtf That's a leveraged buyout. Borrow money to take control of another entity. Use revenue from the target entity to pay that debt. Profit.
  • savanaly 9y ago
    That's true in any individual case. But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly, won't it change the equilibrium for future generations of lenders and borrowers such that an inefficiently low amount of lending goes on? If everyone has the expectation that the lenders and borrowers will try their best to live up to the contract they made in good faith, wouldn't it be a better equlibrium? And we can work towards such a world bit by bit in how we respond to crises like the Puerto Rico one.
    • fiatjaf 9y ago
      If someone has already defaulted on a loan, that will make you not want to lend to him anymore, perfect. If the Puerto Rico government defaults now, no banks should lend money to it again ever. Perfect. This outcome doesn't affect other lender-borrower relationships.
      • enraged_camel 9y ago
        >>If someone has already defaulted on a loan, that will make you not want to lend to him anymore, perfect. Yep, for example this is why no American bank will give loans to Donald Trump anymore. Too many bankruptcies. So he isn't worth the risk.
        • nsp 9y ago
          All but one of the big banks stopped loaning him or his ventures money after the first few bankruptcies
      • myrryr 9y ago
        That isn't how it works. It is never how it worked. Plenty of countries have defaulted, and they can still borrow money. And yeah, it does effect other lender-borrower relationships. It's all people, and people get nervous.
        • fiatjaf 9y ago
  • fiatjaf 9y ago
    Absolutely. Governments are stupid to borrow money and waste it, but banks were supposed to be even more stupid to lend money to these reckless institutions called governments, and it's not wrong if these banks pay the price of their stupidity.
    • skrymsli 9y ago
      Is it stupid though, if the government then bails them out? In the end it's always the poor people that get screwed.
      • rovr138 9y ago
        Is the ability to bail them stupid or the instance? I don't think the ability is stupid. Is the instance? Can't tell.
    • gwbas1c 9y ago
      It's called greed
  • wyager 9y ago
    > If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. This only works if lenders are private groups and if they have the ability to set the terms of the loan (or deny it altogether). Neither of these generally apply at the government level.
    • vkou 9y ago
      Nobody forces lenders to buy up PR bonds, or accept the terms at which they are issued.
      • dragandj 9y ago
        EU institutions force them by controlling the policy. Sure, if you have a few millions to invest, you can go elsewhere, but if you have billions, you are most usually working with other people's or institutional money, and are fairly limited by various laws and policies, and large part of that money practically has to go in some sort of government bonds. Then, you can not just disregard those AAA ratings at return * 2 because you'll have trouble explaining that you do not trust the ratings...
        • azernik 9y ago
          Which is why people are so angry at the ratings agencies - they are private institutions that were supposed to be giving honest information, and they have misleading AAA ratings to investments that did not merit them.
    • deleted 9y ago
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  • nihonde 9y ago
    Yes, and the outcome is that you can't borrow again, in theory. Also, if a region is productive, it should be able to renegotiate, but it sounds like PR isn't up to the challenge.
  • kbenson 9y ago
    This is exactly why different people/companies/governments pay different rates. The rate you pay has your risk factored in.
  • hardtke 9y ago
    Much of the Puerto Rican debt has been sold at a discount by the original lenders. The risk of default was already priced into those purchases.
  • prostoalex 9y ago
    > If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. While a reasonable idea in abstract, it's of little value to Puerto Rico and its residents. For the next few decades no one will lend money to them unless backed by some kind of collateral like government land or revenue proceeds from tolls, and their ability to raise money via other means is highly questionable, as servicing current debt has likely exhausted all of the obvious venues. Every borrower in the municipal market will pay a higher price for this, as funds and other institutional investors will deal with write-offs and potential fund outflows.
    • erikpukinskis 9y ago
      > For the next few decades no one will lend money to them unless backed by some kind of collateral like government land or revenue proceeds from tolls Sounds like normal debt raising. No one will give you money unless you have a plausible story of how it gets paid off. Why do you consider it a good thing to be able to borrow money you have no plan to pay off?
      • prostoalex 9y ago
        I don't. I was just pointing out that laissez-faire business-as-usual nothing-to-see-here-folks attitude is rarely suitable for municipal bankruptcies. None of the recently bankrupt municipal entities in the US - Stockton, Detroit, San Bernardino - are fun to live in, and most are in a downward spiral of cutting government services, which leads to employers leaving, which leads to residents moving, which leads to cutting government services, etc.
  • rburhum 9y ago
    The problem is the the holders of the bonds are largely the people of PR themselves...
    • thehappy 9y ago
      I'm really skeptical of this claim. Source?
      • rburhum 9y ago
        http://radioambulante.org/en/audio-en/debt http://radioambulante.org/en/audio-en/debt There is an English transcript there and a lot of stats. The pension funds, for example, are effectively the people of PR.
  • briandear 9y ago
    Completely correct, but a default will mean a much tougher time borrowing in the future. So a bankruptcy now can solve the immediate problem, but this creates a tough situation for the future when debt is needed to finance large projects. What Texas has done was create a "rainy day fund" which is essentially a savings account designed to protect against these sorts of situations. But, that takes fiscal discipline and politicians who are unwilling to attempt to buy votes with money they don't have.
  • jameshart 9y ago
    There are other options too: borrow money from other creditors (preferably on better terms) and use it to pay off the original creditors; negotiate with the creditors to pay back part of the sum, rather than the whole sum; arrange for the creditor to forgive the debt; buy out the creditor (after all, if all they own are bad loans, they might be willing to sell out for cheap)... In particular municipal/state/government borrowers tend to prefer the first approach - usually by issuing bonds. In theory they are secured by the government's ability to levy taxes in its territory in perpetuity, so its ability to pay the bonds should be secure so long as there's likely to be future economic activity in the territory.
  • taway_1212 9y ago
    It's close to saying that, as a shopkeeper, sometimes you get robbed, which is the cost of doing business you charge your customers for - and hence the robbery is ok.
    • marcosdumay 9y ago
      Hum, no. Robbery and bankruptcy have completely different effects on society. That's why one is legal, and the other isn't.
  • rubber_duck 9y ago
    >If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Except your pension fund probably lent them money too - how would you like it if you lost your pension because they decide to default ? This is maybe less true in the US but in EU mandatory pension funds are basically proxy for buying government bonds/funding government spending with a hope they will pay out in the future. I agree theoretically - but the reality is people don't like to see huge defaults - it breaks confidence/trust - and lower trust increases cost/slows down growth and this is not politically acceptable - therefore politicians do everything they can to eliminate corrections and create distortions to preserve confidence.
• craigyk 9y ago
  Not just overspending, but also quite a bit of corruption. I remember my parents complaining that PR senators got better job perks than US senators.
• conanbatt 9y ago
  As an argentinian, i can tell you without a shadow of a doubt, you can default. Frequently and periodically if you wish so :). I can imagine a large write-off that will come with some fiscal reform.
• ThrustVectoring 9y ago
  >Lots of people are leaving the island, which just compounds the problem (less revenue). This is one of the effects of Puerto Rico being subject to US minimum wages. Since it's illegal for large portions of the population to receive pay commensurate to the value they're able to produce, and it is legal to move to the US, guess what folks do?
  • leesalminen 9y ago
    I've heard this a few times and think I agree. Anyone in disagreement on this? Would love to hear an opposing view.
  • dragonwriter 9y ago
    > Since it's illegal for large portions of the population to receive pay commensurate to the value they're able to produce, and it is legal to move to the US, guess what folks do? If they can't produce enough value to justify minimum wages, why would they move to places with a higher cost of living? They move to the States because the States are better able to attract businesses that will pay them what they are capable of producing (even though the States still have at least the Federal minimum wage, and offlten higher minimums), because the States face more favorable federal policy because Congress and the President need their votes, whereas they don't need PR's because PR doesn't get any in the Federal government.
    • ThrustVectoring 9y ago
      >If they can't produce enough value to justify minimum wages, why would they move to places with a higher cost of living? Mopping a floor produces economic value because there's a difference in how much a dirty store sells versus a clean one. If all you can do is mop floors for this thought experiment, this difference in how much the store sells directly effects the economic value of your labor. In Puerto Rico, this difference is less than in the mainland US, which is why the value of their labor (and the natural price of it) is lower. In other words, since the US is more intensely capitalized, there are more opportunities to provide $7.25/hr worth of value.
• bingomad123 9y ago
  Don't worry USA is on the same path.
  • Ascetik 9y ago
    yeeeeeup
• SEJeff 9y ago
  What are your thoughts on Puerto Rico becoming the 51st State of the USA? I ask this as a native (mainland) born American who always thought this would be an interesting approach to solve the problem of finances in PR. Is it even well supported or is it a crazy idea?
  • MrFantastic 9y ago
    The GOP will not allow this because it would tip the scales towards the Dems.
  • eagletusk 9y ago
    Why would USA want PR as 51? What benefit is there? PR has more debt that California, and zero industry except for Bacardi rum. Name one thing made in PR?
    • bluetwo 9y ago
      Lots of our pharmaceuticals are made there due to favorable tax laws.
    • SEJeff 9y ago
      Well by that logic, what would the USA want with PR as a colony? Why not let them be free? Because it is the USA. You could say the same about what would you want with $ALL_POOR_STATES_IN_THE_SOUTH, but we want them too!
      • blackbagboys 9y ago
        I think the United States would happily not deal with Puerto Rico and it's tens of billions of dollars of debt, but almost no one in Puerto Rico wants to be 'free' (independent).
        • zanny 9y ago
          Puerto Rican statehood and / or independence is not up to the citizens of PR by themselves, its up to the whole of the US. The reasons for the civil war demonstrate why state / territory autonomy are subservient to the will of the majority.
• 23443463453 9y ago
  I may get lambasted for this, but reality is that PR is simply the canary in the coal mine of a Liberal mentality regarding government finance and government benefits without realizing their finance drug dealers on Wall Street don't have their best interest in mind. This is clearly a self imposed problem caused by and perpetrated by Puerto Ricans against Puerto Ricans. I don't get what people who want to make excuses and rationalize this or similar consequences to Liberal policies are expecting. You overspend and blow money on credit cards, what do you think will happen when you then just keep on taking on debt with ever less savory entities. It's never going to change until a means for holding people to account who had the fiduciary responsibility to serve PR. All the politicians who kept on voting for ever more debt should be rounded up, all their assets seized, and throw them in jail for 20 or so years. We don't have any real consequences for those in charge of our government and politics, therefore there is zero incentive to do the right thing. To quote one of many throughout history who have noted similar: Alexander Tytler on Democracy "A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship." Now PR has the USA to leech off of as all the rats jump ship to the USA, where they will inevitably only add to the mentality that led them to the self-imposed disaster they fled, but eventually all the pieces will start falling eventually.
• mtempm 9y ago
  Unless you have your own currency and a central bank and presumably some control over it. Then you can inflate away your debt.
• bluetwo 9y ago
  So the (selfish) question is: Is now a good or bad time to take a vacation in PR?
  • pryelluw 9y ago
    Same as always. If you do visit make sure to email me. Ill take you out to a nice dinner.
    • debacle 9y ago
      Do you have any recommendations for first-time visitors? Apart from Culebra we have no idea what we want to see.
      • pryelluw 9y ago
        Absolutely. Go to the west side to Cabo Rojo. Eat some great fresh seafood. Then head to Lajas (15 min drive) at night to see the bioluminiscent bay (wear jeans and bring mosquito repelent). Then go to the east side and end up in Fajardo. Visit El Yunque and then eat some local delicacies in los kioskos. After all that, call me, and Ill take you to my dads hacienda where Ill serve some rice and beans while you relax in a hammock and look at El Yunque from a distance.
        • debacle 9y ago
          How much Spanish should I try and pick up? Will it help?
          • stickfigure 9y ago
            If you love to travel, you should pick up as much Spanish as you possibly can! The best analogy I can think of is that it's like learning to scuba dive - it grants you access to a whole new fantastic world that you previously could only spectate on TV. Latin America is huge and diverse and wonderful (for that matter, Spain is pretty awesome too).
          • 9y ago
• anigbrowl 9y ago
  Two (heavily loaded) questions. First: what you do with a debt is to you pay it off Why? not all debts are created equal. Some contracts are unconscionable, and there's a related question of why people should be obligated on contracts that were negotiated on their behalf but in bad faith. I'm not saying that describes all of Puerto Rico's debts, but bad faith contracts are common enough that that they shouldn't just be passively accepted. Of course I know this has been litigated a lot already and I don't expect you to start over that whole process from the beginning, but I'm always a bit skeptical of blanket moral assertions like this. Second: I presume that, like most places, there are a lot of poor but more-or-less honest people who know little of complex business and governance affairs but are heavily impacted by them, to their economic detriment; and I presume further that there are rather fewer people who are expert at conducting such affairs, and have enriched themselves through this knowledge without having provided equitable value in return to those they have been dealing with. Has anyone explored the idea of prosecuting the latter group and confiscating ill-gotten gains? While doing so risks infringing upon cherished concepts of property rights and due process if not conducted correctly, bankruptcy is a singular event that results from some breakdown or conceptual weakness of The Rules, and in collective contexts it seems only natural that the pain of bankruptcy should be distributed in approximate proportion to the pleasure that preceded the bankruptcy. After all, one of the practical benefits of wealth is the ability to spend a lot of resources on placing procedural barriers between your wealth and anyone else who might want to make a claim upon it, whereas poor people are generally limited to hoping their door is strong enough to keep out wolves. The degree of legal or physical security you can afford is not necessarily correlated with the validity of one's moral claim on the property in question.
  • rovr138 9y ago
    What I would love to get from this, is an open government. I can't trust the government on the island. We got in the mess because of them. They've been slowly getting us more in debt. They've lied. It wasn't until the island was $70 billion dollars in debt that they came out talking. And now we have the son of the most governor that had the most people investigated by the FBI. I can't blame him for the actions of his dad. But I can't trust the government. I can't trust that they will bring in a firm to analyze the debt and be fully transparent. The government is the client of the firm. There will be NDA's in there. They will have a statement somewhere with something like, "with the data/access we've been provided, this is what we understand..." I can't trust it. If we can get our hands on the data. If we can analyze it. If we can get experts on it. Publish everything and be transparent about it. We can make a non profit. Ask for contributions (so people are able to claim that) and analyze everything. - How much do we actually owe? - What should we pay first? - Based on the terms, what has the highest positive/negative impact on the island? - From what we owe, what is actually legally binding? (apparently there are some terms that may not be 100% legal) This is what I want. For us as citizens to come together and do this. For us to be able to answer our own questions. But people just keep saying things along the lines of, > We aren't happy with what you are doing, fix it. > We need this fixed. > We don't want the university or anything to get funding cut off, but fix this. > O'neill bellaco (something else going on on the island in regards to the mayor of a town regarding sexual harassment complains) The people living in Puerto Rico, the people of Puerto Rico living outside the island, we all need to come together and at least analyze the fucking mess we are in. Tenemos que resolver nuestros problemas. Pero para poder resolverlos, debemos analizarlos, entenderlos y tener un plan de acción. (We need to fix the issues. In order to do so, we need to analyze it, understand it, and have a plan to execute). We need the data. Even if they make some law where they pardon everyone involved/implicated in issues because of it, we need the data to understand the mess we are in.
• pryelluw 9y ago
  Local here chiming in. Ive managed to work remotely for the past 6 years but have decided to move to the states. Anyone interested in an experienced Python/Django dev with an eye for product email me. Ive also been a tech lead as well. :)
• speby 9y ago
  With all the out of control government spending (in this case but also in general), I wonder... what did Puerto Rico get for all its borrowing? Obviously they spent the money but... on what?
  • paulryanrogers 9y ago
    IIRC it was fuel for energy production. While other islands changed to other energy sources PR kept burning oil. So the spike in costs a few years ago probably hurt. There is also a large portion of the population receiving government jobs or support.
• natermer 9y ago
  It's a lot easier when you are allowed to make your own money.
  • clarkmoody 9y ago
    ...or have people pay taxes to you.
• jshaqaw 9y ago
  Not trying to be a troll about this but in a democracy is it really honest to say "it wasn't the people who spent all this money it was the politicians"? Yes we can caveat that no democracy is perfect but PR isn't North Korea either.
• imjustsaying 9y ago
  > and what you do with a debt is to you pay it off No, there is no "you" here. Politicians accrued those debts on something else's bill in exchange for legal bribe schemes. Nobody owes those debts, legally or morally. The people and the creditors both were trolled by professional hustlers exploiting the public liability and private benefit design features of socialism. Democratic leaders, who are human and subject to economic incentives, almost inevitably play the game of trading the future earnings of another administration for the benefit of their own administration. Government leaders have 130+ IQs[1], the populace has 100 if it's lucky. It's relatively trivial for them to craft a spin to consistently leverage these vulnerabilities. https://www.quora.com/How-accurate-were-the-IQ-scores-of-the-high-ranking-Third-Reich-officials-tried-at-Nuremberg https://www.quora.com/How-accurate-were-the-IQ-scores-of-the...
• rovr138 9y ago
  > I don't leave because: it's where I was born, where I have lived my entire life, and it is, honestly, paradise. I left. I was born there too. It was my entire life. I agree, it is paradise. But your line just makes me think of the #YoNoMeQuité or #YoNoMeQuito thing. Don't let it turn into it. I had to leave my family. My mom just had to have surgery and I wasn't there. My grandparents are old and not doing great health wise. My sister is trying to finish graduate school. My friends. I had a job, was making good money (that's not the reason I left) and I now have a remote job and still I can't move back. --- For others, there is a big controversy with people saying (and shaming) others with the hashtags, #YoNoMeQuité (I didn't leave/quit) or YoNoMeQuito (I'm not leaving/quitting). The reasons why people leave are theirs. It's not easy deciding to do it and it's not for us to comment on it. I just hope this comment doesn't open the door to others who find the thread.
• aryehof 9y ago
  It is truly sad. However don't shift all the blame to the politicians. You live in a democracy where you the people are responsible for the actions your representatives take. Years of demands for more services, more facilities, more money, more wage rises, beyond your willingness to pay for them in taxes have led to this.
  • undersuit 9y ago
    I work in my state's government. My friends poke fun at my salary, but still vote for the representatives that waste time by proposing Transgender bathroom bans and fight against 1% wage increases for government employees.
• dandare 9y ago
  I am happy to hear the decisions of voters - putting corrupted populist in charge over and over - has nothing to do with the situation. Bad bad politicians!
• pif 9y ago
  > As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not have. Be one political party or the other, it is the same thing. As is typical, electors always voted for people making financially irresponsible promises, and not for people proposing to try and control the bills. Politicians are only to blame as much as voters. Same thing happened in Italy after WW2, and we (the young) are suffering enormously for the debt contracted by previous generations.
• ajha239 9y ago
  I'm an accountant and do not think this is the end or even a bad thing necessarily. I know PR is attached to the US Dollar but any dollar has to originate and then be entered into the economy, which is usually done by crediting/lending institutions. If you look at the entirety of the economy, bankruptcy is inevitable to some level or money has to be made somewhere. There is simply too much cash flow at any given time to say what countries owe what to who because if every country was debt free then there would be absolutely no currency. Even Trump has filed bankruptcy FOUR times, including defaulting entirely on a multi-billion dollar loan but he gained value through the process. I'm not saying anyone should accept defaulting on any payments but the effects of looking at an entire economy are not necessary the same. The first time PR asked for money, the value of the dollar in PR was then multipled on top of itself every time additional currency was acquired from the US. If PR was going to completely get out of debt, then it would need a large amount to be shot straight into the economy, just like this. There is so much more to it and nobody knows what will happen, just like we don't know what the stock market will do at a sound of a bell. Best of luck thou