Posted on 01/18/2019 7:34:41 AM PST by SeekAndFind
A U.S. Bankruptcy Court decision wiping out half of Puerto Rico's general obligation bonds represents a potential Death Star precedent against Wall Street buying municipal bonds from states without a balanced budget.
The reason that high-tax rate and potentially insolvent states like California, Illinois, Connecticut, New Jersey, and Maryland have continued to have access to massive new borrowing is Wall Street's ability to sell general obligation municipal bonds to high-income individuals who can benefit from receiving federally tax exempt interest. Most muni investors also believe that the federal government will bail out any state financial crisis.
Few Americans understand that the first two attempts at a central bank of the United States failed and were shut down in 1811 and 1840. A series of inflationary panics from 1833 to 1839 led to the state bond defaults in the 1840s by Arkansas, Illinois, Indiana, Louisiana, Maryland, Michigan, Mississippi, Pennsylvania, and the territory of Florida. Despite such historic risk, municipal bonds outstanding have soared to $3.9 trillion.
Despite the U.S. territory receiving $22 billion a year in federal subsidies and its residents being exempt from paying federal income taxes, Puerto Rico was an economic disaster in 2015 with a median household income of $18,626 versus $56,500 for the U.S. mainland. Low incomes are mostly due to 86 percent of islanders speaking Spanish in their home, after politicians banned English from public schools in 1948.
With a workforce of 1 million, Puerto Rico retained 285,000 public-sector union jobs by selling $73 billion in municipal bonds. That worked out to a municipal debt burden of $34,000 and unfunded public pension debt of $20,300 for every man, woman, and child.
(Excerpt) Read more at americanthinker.com ...
Puerto Rico should be a paradise. It should be one of the wealthiest places in the US. The standard of living in Puerto Rico should be on of the highest is the Caribbean. There should be little or no poverty or homelessness.
But it isn’t.
I wonder why?..........................
Who, or what, would lend to an entity that terribly managed?
Anyone stupid enough to buy those bonds deserves the haircut.
Ditto Illinois bonds.
High risk bonds carry high risk yields. Buyers beware.
I wouldn’t want to get THAT telephone call from my broker.
We just HAD to have an empire back in 1898.
Puerto Rico allowed their “best and brightest” to essentially loot the island.
Time to give Puerto Rico their freedom.
Make George Soros buy all of Kalifornia’s debt bonds.
Mismanaged government. It can happen. Why no let Occasional Cortex who is now on the finance committee go and solve this.
Why would a State sell bonds if it budget was balanced?
Especially if you had been holding GM bonds during the bail-outs.
RE: Time to give Puerto Rico their freedom.
They were given that choice, the keep voting NO.
The problem is that the moment it’s announced the PR is going independent, everybody would leave the island for the US to keep their US Citizenship.
Agreed!
Unfortunately true.
Last time I looked, Puerto Rico couldn’t file bankruptcy. So I would ignore anything this writer had to say.
Now, if the writer ever figures out what PROMESA means....
Missouri and many other states sell bonds to do big bridge and road projects.
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