Political Support Growing to Wipe Out Puerto Rico’s Wall Street Debt

The push to wipe out Puerto Rico's debt is uniting disparate factions.

CAROLINA, PUERTO RICO - OCTOBER 03:  US President Donald Trump greets U.S Air Force airmen as he arrives at the Muniz Air National Guard Base as he makes a visit after Hurricane Maria hit the island on October 3, 2017 in Carolina, Puerto Rico.  The President has been criticized by some that say the government's response has been inadequate.  (Photo by Joe Raedle/Getty Images)
US President Donald Trump greets U.S Air Force airmen as he arrives at the Muniz Air National Guard Base as he makes a visit after Hurricane Maria hit the island on October 3, 2017 in Carolina, Puerto Rico. Photo: Joe Raedle/Getty Images

President Donald Trump, Independent Sen. Bernie Sanders, and Illinois Democratic Rep. Luis Gutiérrez are all on the same page when it comes to how to handle Puerto Rico’s crushing debt load in the wake of Hurricane Maria: The hedge funds need to take the hit.

“They owe a lot of money to your friends on Wall Street, and we’re going to have to wipe that out,” Trump said on Fox News this week. “You can say goodbye to that. I don’t know if it’s Goldman Sachs, but whoever it is, you can wave goodbye to that.”

Office of Management and Budget Director Mick Mulvaney quickly tried to dial back the comments, saying his remarks should not be taken literally, but if there is one issue Trump is deeply familiar with, it’s bankruptcy and the wiping out of debt.

Republican Sen. Orrin Hatch of Utah, when asked by The Intercept if he supported Trump’s initial suggestion to completely wipe out Puerto Rico’s debt, said that he agreed with the sentiment. “I wish we could,” he said, “but that isn’t the way the economic system works.”

NPR, meanwhile, reported that wiping out the debt “would be a drastic and highly unusual intrusion of the government into the debt markets.” Bloomberg quoted an analyst warning, “It may possibly be the end of the municipal bond market as we know it.”

But underneath the doomsday talk is a simpler reality: A federal judge is currently overseeing a case that could very easily result in Puerto Rico’s debt being entirely or almost entirely wiped out. Before the storm, the judge had already agreed to write down 79 percent of it. Contra Hatch, that is, in fact, the way the economic system works.

And thanks to Trump’s comments, which sent Puerto Rican bond prices crashing, hedge funds that own the debt might be lucky to get anything at all. “Now, thanks to President Trump, a court restructuring, where recoveries are up for grabs, suddenly looks positively calming by comparison,” offered Bloomberg.

That’s music to the ears of Gutiérrez, a congressman from Illinois, who represents a sizable Puerto Rican population.

“Donald Trump, you wanna take care of that one? Hallelujah, I’m with you,” Gutiérrez said on Thursday.

“If you eliminate the debt, like Donald Trump says, you don’t need a control board and therefore you don’t have to make decisions anymore between paying the bondholders, and many of them are unscrupulous members of Wall Street hedge funds … and you don’t have to eliminate school teachers, you don’t have to eliminate doctors, you don’t have to eliminate care for the elderly,” he said.

The island is facing immediate crisis in the wake of the storm as only half of Puerto Ricans have access to drinking water and 5 percent of the entire island has electricity, but lawmakers are also debating the future of its massive $72 billion debt.

At the moment, the decision of the amount of debt to cancel legally is up to U.S. District Court Judge Laura Taylor Swain. Gutierrez thinks that’s cause for optimism. “I’m going to be a little political here: It’s kind of good to have an African-American woman, appointed by a Democrat that lives in New York, because at least maybe we’re going to get a fair shot,” Gutiérrez said. “She’s still, in the end, a bankruptcy judge, but it’s kind of good to have those three things historically working in our favor. She can do a lot, and she should do a lot.”

Sanders echoed the attack on Wall Street vulture funds on Thursday in one of Puerto Rico’s top newspapers, El Nuevo Dia.

“Let me be very clear in saying that the 2016 PROMESA law that treats the island like a colony is not the answer,” Sanders said. “The people of Puerto Rico, through their own elected officials, should be determining the future of the island, not a seven-member control board. Wall Street vulture funds should not be allowed to make huge profits off the misery of the Puerto Rican people.”

Ironically, though, it is the board, and the structure erected around it, that opens up the path for the debt to be written down legally.

Meanwhile, the U.S. territory is home to 3.4 million American citizens who don’t have anyone to vote for them in Congress, only one House delegate who cannot vote on the House floor, and no representation at all in the Senate.

Sen. Bob Corker, R-Tenn., initially didn’t believe Trump suggested wiping away Puerto Rico’s debt when told by The Intercept, but reaffirmed support of the federally appointed fiscal oversight board that controls the island’s finances.

“I have not heard that statement. I, I want to make sure that … Are you sure he said that? I don’t want to speak relative to his statement, but the reasons that I was so interested in us having a board down there, was for them to deal with their own debts in an appropriate manner, not us wiping it clean,” Corker said.

Rep. Adriano Espaillat of New York said if “these fat cats from Wall Street” want to get their money back, “they’ve gotta recognize Puerto Rico is in a crisis right now.”

“If they pressure more, they’re going to break Puerto Rico’s back, and they won’t get their money,” Espaillat said. “So if they want their money, they better play ball, in this court … Otherwise, they won’t get their money back, and I think they’re very concerned about that.”

The idea of entirely wiping away the debt, he added, was a “great idea.”

For Trump, there may be more at play than warm feelings for the people of Puerto Rico. Trump has long derided hedge fund managers as “paper pushers” who are “getting away with murder.” Perhaps not coincidentally, Trump’s offer to wipe out the debt came shortly after The Intercept revealed that a leading holder of those bonds was the ardently anti-Trump Seth Klarman, who said during the campaign it was “unthinkable” Trump could become president.

Top photo: U.S. President Donald Trump greets U.S Air Force member as he arrives at the Muñiz Air National Guard Base as he makes a visit after Hurricane Maria hit the island on Oct. 3, 2017 in Carolina, Puerto Rico.

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