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Posts Tagged ‘PROMESA’
June 9th, 2016 at 9:13 am
Puerto Rico Bailout Bill Allows “Gifts, Bequests, or Devises of Services or Property” to Control Board Members
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As reported by Bloomberg yesterday, the PROMESA bailout bill for Puerto Rico includes a provision that would allow members of the control board to “accept, use, and dispose of gifts, bequests, or devises of services or property, both real and personal” for the purpose of “aiding or facilitating” the board’s work.

If that wasn’t bad enough, the House Natural Resources Committee claimed that such language is “fairly commonplace in ensuring statutory objectives are met in circumstances where non-federal sources of funding will be necessary.” Accordingly, the rationalization for the provision in this case is that the board will be able to “fulfill its purpose” in the event that Puerto Rico’s government can’t (or rather chooses not to) provide “sufficient funding” for it.

Will the Puerto Rican government actually fund the control board knowing its existence is widely opposed by the Puerto Rican people?  And, of course, there’s the little matter of Puerto Rico allegedly being “out of money,” as their governor has so stridently claimed for months. According to the CBO, the board will cost $370 million over its lifetime.  So it appears that these gifts will come in handy.

So who will be in the giving spirit?

The provision is crafted in such a way that any stakeholder looking to buy influence on the board will be able to do so.  Perhaps labor unions (SEIU, in particular), which already have generously given their time and resources to help Puerto Rico’s government produce a report claiming that billions of dollars of its debt is invalid, will take center stage in the gift-giving war, hoping to ensure that the Commonwealth’s underfunded public pension system is provided preference over bondholders.  Or what about certain hedge funds looking to convince the board that their claims should be prioritized over the claims of other bondholders, including those afforded first priority in Puerto Rico’s Constitution?

Indeed, rather than actually weighing Puerto Rico’s competing claims, and clarifying where they stand in the context of Puerto Rico’s Constitution, some in Congress have decided to invite a contest between who can out-bribe the others.  When people say that Washington is broken, revelations like this help explain why.

June 7th, 2016 at 6:10 pm
Who Authored Puerto Rico’s Self-Serving Audit Report?
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Last week, ahead of this week’s vote on the PROMESA bailout legislation for Puerto Rico in the U.S. House of Representatives, a commission appointed by Puerto Rico’s government released a preliminary report charging that the Commonwealth violated its Constitution in issuing billions of dollars of its $72 billion debt.  If the bonds were in fact sold illegally, the report insinuates, then the government shouldn’t have to pay them back.

In other words, they would punish lenders for the Puerto Rican government’s own mistakes.

So not only would Puerto Rico’s government get a free pass from its obligations after illegally issuing some of its debt, it would effectively be allowed to stiff good faith bondholders.

It’s worth emphasizing that the legislative body that created this commission, whose membership includes Puerto Rico legislators with obvious conflicts of interest, authorized the very same bond sales that it now seeks to repudiate.

That is morally and logically backward, and sounds like a plot characteristic of a lawless dictatorship.  And for very good reason:  Shenanigans like this are a tried and true tactic of leftist Latin American countries, rooted in the rhetoric of Cuban Dictator Fidel Castro from 30 years ago.  It has been attempted with varying degrees of success by governments or factions in Brazil, Argentina and Ecuador.  More recently over in Europe, a similar government-appointed commission made nearly identical claims in Greece.

Conspicuously, Puerto Rico’s government has not directed any funding toward this commission that it created a year ago.  So that raises an obvious question:  Who is behind this report?

Well, we already know that SEIU was heavily involved in the drafting process, and was one of a number of “stakeholders” to provide “in-kind labor contributions.”  The SEIU, of course, has a vested interest in ensuring that its members receive preferential treatment over good faith bondholders in Puerto Rico, even if Congress has to rewrite the rules to make that possible.

It also has been reported that SEIU has deep ties to consulting firms retained by the Garcia Padilla Administration.  It also is tied directly to the Administration through former president Dennis Rivera, who came under fire earlier this year for running a questionable non-profit in Puerto Rico whose only paid employee is the governor’s brother.

What about those “other stakeholders” who contributed?

We can’t know for sure, but there are commonalties between Puerto Rico and other governments that have attempted similar tactics.  For example, they all had a common ally in Jubilee, the leftist religious organization that has fought to wipe out bondholders in debt disputes across the world, and which has been a staunch advocate before Congress of doing the same to the American savers who lent money to Puerto Rico.

Ecuador, Argentina and Greece also all at one point retained the same counsel as Puerto Rico, which has built a reputation helping leftist governments to avoid repaying the money that they’ve borrowed.

One thing is clear:  The Commission’s report amounts to a political and negotiating ploy.  It’s designed to give Puerto Rico enormous leverage over the innocent people from whom it borrowed, threatening them with the prospect of the all-powerful PROMESA control board invalidating 100% of their debt.

Members of Congress should, at the very least, understand the lengths to which Puerto Rico’s government is going to escape its obligations.

May 8th, 2016 at 6:41 pm
Wisconsin Politifact Couldn’t Fact Check Cheese

So there are these folks in Wisconsin who run a version of “Politifact,” complete with a “Truthometer.”  Problem is, theirs needs to be recalibrated.

They subjected one of CFIF’s ads to their Truthometer. They decided we told a half-truth in calling the bailout for Puerto Rico a bailout, because no taxpayer funds would be used, which we never said, even though some of their “experts” experted that the negative effects on individual bondholders would, in fact, be pretty much what we said. Go figure.

If they had started by fact-checking themselves, they’d have been on more credible footing, since they identify CFIF several times as a “Super PAC” and once as a “political action committee.”  CFIF is not now, nor has it ever been a Super PAC, ditto political action committee. The Truthometer’s worst designation – “Pants on Fire” – is too silly for grown-ups to use, so we’ll give them a big fat zero for that one.

The bill currently before Congress, H.R. 4900 or PROMESA, would bail out Puerto Rico. It would do so by empowering a financial oversight board to force “Super Chapter 9 bankruptcy” restructuring of Puerto Rico’s debt, which means that Puerto Rico could renege on paying its creditors all it owes them, even though a great deal of that debt is protected and prioritized by Puerto Rico’s constitution, which is how the bonds were sold as being really, really safe.

Since a large portion of that debt is held by individuals, they involuntarily will be paying for Puerto Rico’s bailout. Thus, what we actually said:  “Retirement accounts crushed. A bailout on the backs of savers and seniors.”  Or, as the so-called fact-checkers in Wisconsin put it:  “And Duffy’s bill, experts tell us, almost certainly would mean lower returns for perhaps hundreds of thousands of Americans who invested in what long had been regarded as safe Puerto Rican bonds.”

Ultimately, our “sin” is adjudged as taking “things out of context.”  Precisely how do we take “things out of context” when we specify the exact context we use?

After attacking CFIF, they attempt to defend the restructuring by writing: “With an Oversight Board managing a debt restructuring, savers likely will get a lower return than they expected. But without such a board, creditors would be fighting in court and the returns for individuals (sic) investors would likely be lower still.”

In actuality, creditors are already fighting in court, and given that one class of Puerto Rican bonds was issued under the “full faith and credit” of Puerto Rico’s constitution, the law is on their side. One reason for the urgency of restructuring (and along with the bill forcing a retroactive moratorium on litigation) is the fear that courts will indeed rule for the creditors.

One final note: The Wisconsin piece accuses CFIF of throwing around the word “bailout.”  Here’s a term we will throw around: journalistically challenged. Fact check that.

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Thomas Humber is founder of CFIF, and has been a recovering journalist for forty years.

April 13th, 2016 at 11:37 am
CFIF’s Response to House Natural Resources Committee re: PROMESA
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Linked here and below is a letter to House Committee on Natural Resources Chairman Rob Bishop, which serves as our response to his invitation for CFIF’s Timothy Lee to testify at today’s legislative hearing regarding HR 4900, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).

Read the letter here (PDF).