In 2008 Wall Street got in over its head, and the U.S. government and Federal Reserve stepped in with trillions of dollars to bail them out. Now Puerto Rico has debt that it cannot pay. Instead of helping, though, Republicans in Congress are demanding increased austerity and an unelected “oversight board” that sets aside democratic governance – the same way Republicans imposed unelected government on Michigan cities like Flint. (We know how that turned out.)
Puerto Rico is in trouble. Alfredo Estrada explains the background at The Hill, in “Tough choices in Puerto Rico“:
Since 2006, a severe recession has crippled the island’s economy and left a budget deficit of over $20 billion. Puerto Rico has the highest unemployment rate in the nation, above 12 percent, and a poverty rate of 45 percent, higher than any state. Home foreclosures are up 89 percent from 2008, and 20 percent of housing units are empty. Public services have been curtailed because the government has run out of cash, and more than 100 schools and a children’s hospital have closed, despite an outbreak of the Zika virus. The island has seen a 10 percent drop in its population over the last 10 years. Over 100,000 left for the mainland last year, causing a brain drain and further depleting the tax base.
The recession forced borrowing to maintain human services. The debt totals around $70 billion. Puerto Rico is already spending a third of its revenue on debt service. They have already trimmed pensions and services. They have reached the limit and need a solution.
There is one big problem with finding a solution through governance, though. Republicans control Congress. Republicans don’t do governance and they don’t do solutions.
After much negotiation (and interference from Wall Street hedge funds) Congress has put together a bill called the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) (“Promesa” is Spanish for “promise”).
The legislation sets up an oversight board to restructure Puerto Rico’s debt. The oversight board is empowered to restructure Puerto Rico’s debt, which can include requiring creditors to accept less than 100 percent of what they are owed. This board will not be subject to any Puerto Rican authority. PROMESA requires its decisions to be the interests of Puerto Rico’s creditors.
Puerto Rico has already been through rounds of austerity, cutting human services and laying off public workers, closing schools, increasing the sales tax, and other measures.
But the bill will require more of this. PROMESA lowers the current $7.25-an-hour minimum wage to $4.25 an hour for workers 25 years and younger. Puerto Rico will be exempt from the new overtime rule raising the salary above which people can be made to work more than 40 hours with no extra pay from $23,660 to $47,476. The bill specifically protects creditors before pensions. Measures like this force the people of Puerto Rico to become poorer.
David Dayen writes at Salon, in “Bernie says bail out Puerto Rico: Sanders details how the feds should rescue the territory as they did big banks,” explains:
The oversight board would be able to institute more cuts, supersede local laws, lower the island’s minimum wage, and as a last resort institute a court-approved debt restructuring, as long as it is “in the best interest of creditors.”
It’s hard to see this as anything but a colonization of Puerto Rico. Even supporters of the bill acknowledge that. They see it as the only opportunity for Puerto Rico to avoid disaster by obtaining the ability to restructure its debt, given the makeup of this Congress. Hillary Clinton, who expressed “serious concerns” about the plan, nonetheless said Friday, “we must move forward with the legislation.”
Sen. Bernie Sanders gave a speech on the subject, saying,
“In the midst of this massive human suffering, it is morally repugnant that billionaire hedge fund managers on Wall Street are demanding that Puerto Rico fire teachers, close schools, cut pensions, and abolish the minimum wage so that they can reap huge profits off the suffering and misery of the children and the people of Puerto Rico. We cannot allow that to happen”
Sanders called for hedge funds that hold Puerto Rico’s debt to take “a massive haircut,” meaning accept much less than 100 percent of the amounts. He also asked the Federal Reserve “to use its emergency authority under Section 13(3) of the Federal Reserve Act,” saying, “If the Federal Reserve could bail out Wall Street, it can help the 3.5 million American citizens in Puerto Rico improve its economy and lift its children out of poverty.”
Antonio Weiss, formerly chief of global investment banking for Wall Street firm Lazard, has been put in charge of the Treasury Department’s response to the Puerto Rican financial problems.
This name might be familiar to progressives. In 2014 Weiss was nominated to become Undersecretary for Domestic Finance at the Treasury Department. Sen. Elizabeth Warren objected and led an effort to block the nomination of yet another Wall Streeter to the administration. The nomination was withdrawn and Weiss was appointed to a position as Counselor to the Treasury Secretary.
Here’s the thing. Weiss is in charge of the administration’s efforts on Puerto Rico, while his former firm Lazard (which paid him $21 million as he left to join the government) was one of the Wall Street firms that got Puerto Rico into this mess. According to Presente.org, “Antonio Weiss received a golden parachute from Lazard after helping them target Puerto Rico for predatory lending, and it’s outrageous for him to lead the Treasury’s response to the crisis he helped manufacture.”
A coalition of citizen groups sent a September 2015 letter to Weiss detailing Lazard connections to the Puerto Rico problems, and calling on Weiss to recuse himself. A report from Hedge Clippers and Rootstrikers titled “The Antonio Weiss Files: Vultures, Bribes & Conflicts of Interest in Puerto Rico” details some of the potential conflicts of interest.
We The People Bail Out Banks, They Take Over Democracy
Setting aside democratically elected governments and putting an unelected commission in charge sets a terrible precedent for Republican control in U.S. cities and states. The Republican state government did this in Michigan, setting up the Flint disaster. Now they are taking away self-government in Puerto Rico.
What city or state is next up? The Wall Street Journal, in an editorial praising Republicans for imposing “free market reforms” concludes with the words, “Next up Chicago?”