Obama to Puerto Rico: Drop Dead.
That was the message from the White House this week to 3.5 million U.S. citizens of Puerto Rico — our own version of Greece.
No one is even considering a bailout for Puerto Rico, White House spokesman Josh Earnest said. This was after Puerto Rico Gov. Alejandro García Padilla stunned the financial world by announcing his government will default on $1 billion in debt service payments due Wednesday.
There isn’t enough money to pay that tab, plus another $72 billion owed to bondholders, García Padilla said.
Puerto Rico’s debt dwarfs Detroit’s when it went bankrupt. But as a U.S. territory, the island cannot file for bankruptcy without new legislation from Congress.
And even if Congress approved, the island faces structural deficits for years to come.
Things didn’t get this bad overnight. Washington ignored Puerto Rico’s problems for years. And just as it happened in Greece, international vulture funds quietly scooped up Puerto Rico’s debt at fire-sale prices in hopes of making a financial killing.
Hedge funds now hold half of the island’s $73 billion in debt. Last year, for instance, John Paulson and other hedge fund managers bought $3.5 billion in new Puerto Rico bonds.
And they’re not alone. Many municipal pension and mutual funds hold considerable slices of Puerto Rico bonds.
This is an old story. Ever since the U.S. occupied and grabbed Puerto Rico in 1898 during the Spanish-American War, Washington and our big corporations have treated the island’s inhabitants as a source of money.
First came the sugar barons who paid their workers starvation wages and rigged sugar prices for enormous profits.
Then came the textile, pharmaceutical and oil firms that paid cheap wages while enjoying total exemption from federal taxes.
By the 1980s, Puerto Rico had become the most profitable entity in the world for U.S. corporations.
At least until China, Bangladesh and Vietnam began offering even cheaper labor. Then in 2006, Congress phased out the last federal tax loopholes for island manufacturers, and the companies fled.
Suddenly, Puerto Rico became the colony Washington didn’t need — despite its residents being U.S. citizens since 1917.
As its economy spiraled downward — island unemployment is officially more than 12% — Congress turned its back.
But Washington and Wall Street can’t ignore the island’s problems any longer.
“Obama and the Treasury Department should pressure these hedge funds to restructure the debt,” U.S. Rep. Nydia Velazquez (D-N.Y.) said.
The presidential hopefuls will soon face questions as well. In Florida, that state’s huge and fast-growing Puerto Rican population is gearing up to press Sen. Marco Rubio and former Gov. Jeb Bush to take a stand.
As in Greece, the solution will not be easy — for the debtors or the holders of that debt.
President Ford learned that in 1975, after refusing to aid a nearly bankrupt New York City, which led to the infamous front page Daily News headline, “Ford to City: Drop Dead."