7 ms·

The Curious Case of Aurelius Capital vs. Puerto Rico

55 points by wallflower 7y ago

neonate 7y ago
http://archive.is/x5FvQ http://archive.is/x5FvQ
whb07 7y ago
I’m all for proper saving and loaning of money. I’m not exactly eager on profligate government spending. On the one side, Puerto Rico’s government officials shouldn’t be borrowing money and spending lavishly when they know they can’t pay back. On the other hand, Wall Street got into bed with them knowing they’d get bailed out + charge fees for issuance. So while I can’t blame both sides, I am getting tired of the government being in bed with Wall Street, this isn’t “capitalism”. This is called crony capitalism. So... loan money to a terrible customer knowing the risks? Take it on the chin and call it a day.
- gok 7y ago
  The people who loaned the money are long gone. The article is about people who bought the debt knowing they would go bankrupt, but expecting to recover some of it through legal maneuvering.
  - whb07 7y ago
    But the people who voted for those officials and were the beneficiaries of the money are still there. So people learn by paying a price and sometimes hard lessons are the best kind. Kinda hard for anyone to argue that racking up a credit card bill makes you a massive victim. Or perhaps in this case, your best buddy racks up a credit card bill while you hang out with him partying. Maybe you should help him pay back some of the spending you pushed him to take on.
  - WillPostForFood 7y ago
    If the original buyers of the bonds were still holding them, would that then make the lawsuit legit?
  - jshaqaw 7y ago
    True. But lets take the alternative. If an asset like a loan or bond was non-transferable meaning once made you had to hold it to term no matter what then the price of that loan would be higher to compensate for the illiquidity. And from the perspective of the borrower whether you pay to the originator of the loan or to a subsequent buyer makes no functional difference.
- kiliantics 7y ago
  capitalism is crony capitalism, it doesn't work any other way, you can see this going back since the beginning
  - Jotra7 7y ago
    Shhhh... You will anger the enlightened techbros that are saving humanity through 10x returns.
ptah 7y ago
these firms are disgusting
ausbah 7y ago
Leeches, everyone of these people are fucking leeches. They don't create value for the greater economy, they only provide profit for themselves at the expense of citizens and governments.
- gok 7y ago
  Every one? Including the co-plaintiffs who are fighting to keep the pensions they were promised?
- downrightmike 7y ago
  Well PR loans are derivatives in a lot of other other loans, and there is too much spread around that if it failed, all the other investments would too.
hodgesrm 7y ago
This article with its tale of moneyed interests perverting the courts and democratic processes reads like Sallust's accounts of the decline of republican Rome. [1] The sad part is that America seems to have lost the ability to fix problems like this. For that we have no one to blame but ourselves. [1] http://penelope.uchicago.edu/Thayer/E/Roman/Texts/Sallust/Bellum_Jugurthinum/1*.html http://penelope.uchicago.edu/Thayer/E/Roman/Texts/Sallust/Be...
- lotsofpulp 7y ago
  >The sad part is that America seems to have lost the ability to fix problems like this. The problem is deferring payment far into the future where the people deferring the payment won't have to deal with it, and the people in the future have to now sort out how to allocate the limited resources which were already promised years and decades in the past. There is no solution other than various parties getting all of what they were "promised", so everyone has to fight to get what they can.
  - JumpCrisscross 7y ago
    > There is no solution other than various parties getting all of what they were "promised" Yes there is. It’s bankruptcy. What Puerto Rico is doing. Bankruptcy means poofing promises. Whose promises get poofed in what quantity is the question. Broadly speaking, the constituents are taxpayers, creditors (mostly lenders and pensioners) and service recipients. Austerity puts the bulk of the pain on taxes and services. Going Argentina puts it mostly on external creditors. In between are reasonable paths.
    - lotsofpulp 7y ago
      I typo’d that. I meant to write “there is no solution other than various parties NOT getting all of what they were promised”.
  - hodgesrm 7y ago
    There was a similar problem in the 1980s with the S&L crisis. In that case Congress passed legislation to clean things up.
me_me_me 7y ago
you hedged your bets and you lose... except not because rules don't apply to use and if they do we will change them.
- lotsofpulp 7y ago
  Are you referring to changing the rules so that Puerto rico can declare bankruptcy? >In June 2016, President Obama signed the law that allowed Puerto Rico to declare bankruptcy: The Puerto Rico Oversight, Management and Economic Stability Act
seibelj 7y ago
Why do governments issue debt that they do not repay? I'm glad someone is out there keeping them honest.
- downrightmike 7y ago
  Debt is the mechanism that fiat currencies use to create money. If there is no debt, there is no currency. And since we need debt to pay off debt, then you get where we get now with the FED injecting QE and pumping the Repo markets up. The main difference between now and 2008, is that the repo market helps the traders more than the banks. The traders are too big to fail, because if they don't trade and there is no liquidity because Repo fails, there is no stock market. Which destorys the full faith and credit of the USA. Which is what gives money its value. If the Government is not credit worthy, everything falls, look at Japan and their zombie banks and markets. They are no where near their boom.
rayiner 7y ago
The article is based on two false premises. First, it appeals to the idea that we should give Puerto Rico a pass because it’s poor. But Puerto Rico is not poor. Its GDP per capita is above Italy, and right below Spain and New Zealand.[1] It’s not a third world country where you can say there is a humanitarian basis why they shouldn’t have to pay back money they borrowed. The other point in the article is simply that these funds are not the original debt holders. But what difference does that make? If your neighbor owes you $100,000, and refuses to pay, I might buy the debt at $50,000 in return for the hassle of collecting it. Is there something wrong with that? Should the debt be forgiven merely because of that? The article overlooks that legal rules alter primary behavior. People alter their decisions about lending based on what might happen, legally, if the investment goes sideways. The original lenders, who put up money that allows Puerto Rico to pay for various things, did so within a legal regime where it knew Puerto Rico couldn’t declare bankruptcy. They might not have lent the money at all otherwise. Moreover, in general lenders make lending decisions knowing that they can sell bad debt to collection firms or third parties. Eliminating the legal rights of those third parties alters the lending decisions of the primary actors going forward. [1] I’d go so far as to say that it’s doubtful the author would appeal to Puerto Rico’s poverty if this was a debt owed by Italy, because the reader wouldn’t be as sympathetic. Which frankly is not a very nice thing, viewing Puerto Rican differently than Europeans who are identically situated economically.
- unexpected 7y ago
  Puerto Rico is desperately poor. GDP per capita is a poor measure of income inequality. 45% of Puerto Ricans live below the poverty line. Italy's economy is literally 20x the size of Puerto Rico. If Puerto Rico was a state, it would be the poorest state in the U.S. It's unemployment rate is double the United States. Hurricane Maria has caused $140 billion of damages to a country with a GDP of $100 million. What would the U.S. look like if it had a natural disaster that cost $20 trillion in damages? It sounds like you need to make a visit and drive around. Some parts of the island still don't have power, even today.
  - JumpCrisscross 7y ago
    OP’s point is the wealth is there. It’s just not being allocated to basic services or debt repayment. The reason seems to be corruption. The debate is around the balance between intrinsic and extrinsic corruption, with good arguments on both sides. Puerto Rico isn’t poor. But it is in a crisis. That discrepancy contains the problem and solutions.
andrepd 7y ago
>He made a fortune in distressed sovereign debt, purchasing bonds from countries that appeared to be in financial trouble, watching as they defaulted, then suing in court for full repayment. Amazing. I want to bet in shit games like roulette, inevitably lose my money, then sue the casino and get it back. Fucking parasites. A we know the only way to deal with these people. It's clear that "peaceful protests" can simply be ignored.
- oh_sigh 7y ago
  Is any blame to be assigned to PR for issuing bonds and then not honoring them?
  - bliblah 7y ago
    The problem lies in the fact that Puerto Rico (unlike States and other municipalities in the United States) is unable to declare bankruptcy due to being a commonwealth. If they could then these financial institutions would be unable to raid the island's coffers.
    - oh_sigh 7y ago
      US states can't declare bankruptcy which seems the closest analog to what PR is
      - occamrazor 7y ago
        However aren’t US states also obliged to run a balanced budget?
        oh_sigh 7y ago
        Okay, so PR isn't obliged to run a balanced budget, and they sold bonds that were beyond their ability to repay, and so the people asking for the bonds to be repaid are the bad guys here?
    - deleted 7y ago

55 points by wallflower 7y ago

http://archive.is/x5FvQ http://archive.is/x5FvQ

I’m all for proper saving and loaning of money. I’m not exactly eager on profligate government spending. On the one side, Puerto Rico’s government officials shouldn’t be borrowing money and spending lavishly when they know they can’t pay back. On the other hand, Wall Street got into bed with them knowing they’d get bailed out + charge fees for issuance. So while I can’t blame both sides, I am getting tired of the government being in bed with Wall Street, this isn’t “capitalism”. This is called crony capitalism. So... loan money to a terrible customer knowing the risks? Take it on the chin and call it a day.

gok 7y ago
The people who loaned the money are long gone. The article is about people who bought the debt knowing they would go bankrupt, but expecting to recover some of it through legal maneuvering.
- whb07 7y ago
  But the people who voted for those officials and were the beneficiaries of the money are still there. So people learn by paying a price and sometimes hard lessons are the best kind. Kinda hard for anyone to argue that racking up a credit card bill makes you a massive victim. Or perhaps in this case, your best buddy racks up a credit card bill while you hang out with him partying. Maybe you should help him pay back some of the spending you pushed him to take on.
- WillPostForFood 7y ago
  If the original buyers of the bonds were still holding them, would that then make the lawsuit legit?
- jshaqaw 7y ago
  True. But lets take the alternative. If an asset like a loan or bond was non-transferable meaning once made you had to hold it to term no matter what then the price of that loan would be higher to compensate for the illiquidity. And from the perspective of the borrower whether you pay to the originator of the loan or to a subsequent buyer makes no functional difference.
kiliantics 7y ago
capitalism is crony capitalism, it doesn't work any other way, you can see this going back since the beginning
- Jotra7 7y ago
  Shhhh... You will anger the enlightened techbros that are saving humanity through 10x returns.

ptah 7y ago

these firms are disgusting

ausbah 7y ago

Leeches, everyone of these people are fucking leeches. They don't create value for the greater economy, they only provide profit for themselves at the expense of citizens and governments.

gok 7y ago
Every one? Including the co-plaintiffs who are fighting to keep the pensions they were promised?
downrightmike 7y ago
Well PR loans are derivatives in a lot of other other loans, and there is too much spread around that if it failed, all the other investments would too.

hodgesrm 7y ago

This article with its tale of moneyed interests perverting the courts and democratic processes reads like Sallust's accounts of the decline of republican Rome. [1] The sad part is that America seems to have lost the ability to fix problems like this. For that we have no one to blame but ourselves. [1] http://penelope.uchicago.edu/Thayer/E/Roman/Texts/Sallust/Bellum_Jugurthinum/1*.html http://penelope.uchicago.edu/Thayer/E/Roman/Texts/Sallust/Be...

lotsofpulp 7y ago
>The sad part is that America seems to have lost the ability to fix problems like this. The problem is deferring payment far into the future where the people deferring the payment won't have to deal with it, and the people in the future have to now sort out how to allocate the limited resources which were already promised years and decades in the past. There is no solution other than various parties getting all of what they were "promised", so everyone has to fight to get what they can.
- JumpCrisscross 7y ago
  > There is no solution other than various parties getting all of what they were "promised" Yes there is. It’s bankruptcy. What Puerto Rico is doing. Bankruptcy means poofing promises. Whose promises get poofed in what quantity is the question. Broadly speaking, the constituents are taxpayers, creditors (mostly lenders and pensioners) and service recipients. Austerity puts the bulk of the pain on taxes and services. Going Argentina puts it mostly on external creditors. In between are reasonable paths.
  - lotsofpulp 7y ago
    I typo’d that. I meant to write “there is no solution other than various parties NOT getting all of what they were promised”.
- hodgesrm 7y ago
  There was a similar problem in the 1980s with the S&L crisis. In that case Congress passed legislation to clean things up.

me_me_me 7y ago

you hedged your bets and you lose... except not because rules don't apply to use and if they do we will change them.

lotsofpulp 7y ago
Are you referring to changing the rules so that Puerto rico can declare bankruptcy? >In June 2016, President Obama signed the law that allowed Puerto Rico to declare bankruptcy: The Puerto Rico Oversight, Management and Economic Stability Act

seibelj 7y ago

Why do governments issue debt that they do not repay? I'm glad someone is out there keeping them honest.

downrightmike 7y ago
Debt is the mechanism that fiat currencies use to create money. If there is no debt, there is no currency. And since we need debt to pay off debt, then you get where we get now with the FED injecting QE and pumping the Repo markets up. The main difference between now and 2008, is that the repo market helps the traders more than the banks. The traders are too big to fail, because if they don't trade and there is no liquidity because Repo fails, there is no stock market. Which destorys the full faith and credit of the USA. Which is what gives money its value. If the Government is not credit worthy, everything falls, look at Japan and their zombie banks and markets. They are no where near their boom.

rayiner 7y ago

The article is based on two false premises. First, it appeals to the idea that we should give Puerto Rico a pass because it’s poor. But Puerto Rico is not poor. Its GDP per capita is above Italy, and right below Spain and New Zealand.[1] It’s not a third world country where you can say there is a humanitarian basis why they shouldn’t have to pay back money they borrowed. The other point in the article is simply that these funds are not the original debt holders. But what difference does that make? If your neighbor owes you $100,000, and refuses to pay, I might buy the debt at $50,000 in return for the hassle of collecting it. Is there something wrong with that? Should the debt be forgiven merely because of that? The article overlooks that legal rules alter primary behavior. People alter their decisions about lending based on what might happen, legally, if the investment goes sideways. The original lenders, who put up money that allows Puerto Rico to pay for various things, did so within a legal regime where it knew Puerto Rico couldn’t declare bankruptcy. They might not have lent the money at all otherwise. Moreover, in general lenders make lending decisions knowing that they can sell bad debt to collection firms or third parties. Eliminating the legal rights of those third parties alters the lending decisions of the primary actors going forward. [1] I’d go so far as to say that it’s doubtful the author would appeal to Puerto Rico’s poverty if this was a debt owed by Italy, because the reader wouldn’t be as sympathetic. Which frankly is not a very nice thing, viewing Puerto Rican differently than Europeans who are identically situated economically.

unexpected 7y ago
Puerto Rico is desperately poor. GDP per capita is a poor measure of income inequality. 45% of Puerto Ricans live below the poverty line. Italy's economy is literally 20x the size of Puerto Rico. If Puerto Rico was a state, it would be the poorest state in the U.S. It's unemployment rate is double the United States. Hurricane Maria has caused $140 billion of damages to a country with a GDP of $100 million. What would the U.S. look like if it had a natural disaster that cost $20 trillion in damages? It sounds like you need to make a visit and drive around. Some parts of the island still don't have power, even today.
- JumpCrisscross 7y ago
  OP’s point is the wealth is there. It’s just not being allocated to basic services or debt repayment. The reason seems to be corruption. The debate is around the balance between intrinsic and extrinsic corruption, with good arguments on both sides. Puerto Rico isn’t poor. But it is in a crisis. That discrepancy contains the problem and solutions.

andrepd 7y ago

>He made a fortune in distressed sovereign debt, purchasing bonds from countries that appeared to be in financial trouble, watching as they defaulted, then suing in court for full repayment. Amazing. I want to bet in shit games like roulette, inevitably lose my money, then sue the casino and get it back. Fucking parasites. A we know the only way to deal with these people. It's clear that "peaceful protests" can simply be ignored.

oh_sigh 7y ago
Is any blame to be assigned to PR for issuing bonds and then not honoring them?
- bliblah 7y ago
  The problem lies in the fact that Puerto Rico (unlike States and other municipalities in the United States) is unable to declare bankruptcy due to being a commonwealth. If they could then these financial institutions would be unable to raid the island's coffers.
  - oh_sigh 7y ago
    US states can't declare bankruptcy which seems the closest analog to what PR is
    - occamrazor 7y ago
      However aren’t US states also obliged to run a balanced budget?
      - oh_sigh 7y ago
        Okay, so PR isn't obliged to run a balanced budget, and they sold bonds that were beyond their ability to repay, and so the people asking for the bonds to be repaid are the bad guys here?
  - deleted 7y ago