In 2010, everyday Americans, fed up with Washington politicos using their money to pay for the excesses of leftist policies feathering the beds of the nation’s financial elites, demanded an end to the era of bailouts when they went to the voting booths.
The message voters sent was clear: taxpayers will not sit idly while they are made to foot the bill for the actions of unaccountable elites run amok. Yet, here we are in 2016, compelled to remind Congress not to repeat the mistakes of just 8 years ago.
Puerto Rico has for years served as a splendid example of how socialism simply doesn’t work (even in a nation as prosperous as the United States), amassing an eye-popping $72 billion of debt through generations of a leftist fiscal policy so broken, so removed from economic reality, that only Greece could love. As its population and tax base have decreased over time, its public spending inexplicably soared; its ballooning government has steadfastly refused to balance its budget, borrowing more and more to cover its deficit. As economic conditions on the island worsened, Puerto Rico’s political leadership – dependent on the vote of its gargantuan public sector – stuck its collective head in the sand, readily passing the buck to subsequent generations. It is the very case in point that the fundamental problem with socialism is that you eventually run out of other’s people’s money.
Now, faced with debt its governor has deemed “unpayable,” the Puerto Rican Government and the Obama Administration are asking Congress (and therefore the American people) to wipe the slate clean, and legislators have answered the bell, delivering legislation that will give the Commonwealth Government a free pass to default on the money it owes to Americans who bought its bonds for their retirement accounts.
Supporters of the “Puerto Rico Oversight, Management, and Economic Stability Act,” have bristled at the description of their bill as a “bailout,” but what else can you reasonably call it?
Puerto Rico’s Government entered into contracts that dictated the terms of how it would repay its bondholders, some of whom it pledged to repay before any other government expenses. PROMESA, however, allows it to do just the opposite – giving it cover to stop payments to bondholders under the protection of a federally-imposed legal stay, and use bondholders’ money to fund government pensions, pay off contracts, and otherwise spend at will. After this period of nonpayment, the Commonwealth can and will appeal to an Oversight Board to make the bondholders take big losses in a forced restructuring in bankruptcy court.
Some eighty percent of Puerto Rican debt is in the hands of individual Americans, who did no wrong in lending the Commonwealth money under clear terms. In overriding their contracts, and giving Puerto Rico a free pass out of paying them back, Congress is absolutely passing a bailout bill that will come at the expense of their savings.
Moreover, because of the clear contractual terms of the investments made by Puerto Rico’s most senior bondholders, which precluded bankruptcy and stipulated that they would be paid ahead of all government expenses, a federal court may determine that the bill enabled a taking of private property by the federal government for public use. This would trigger a broader taxpayer bailout – forcing taxpayers across the country to pick up the tab for compensation.
Congress does indeed owe it to the Puerto Rican people to help bring about a solution to this crisis, just as it would to any other American citizens in a similar predicament. But that does not mean that that solution should be a free pass for their government, nor should that solution come at cost to other taxpaying American citizens.
Puerto Rico’s Government should be made to negotiate with its bondholders, and engage in any restructuring in line with the promises it made to them and in accordance with its laws. Congress can do its part by removing the many roadblocks to economic growth that have shackled the Caribbean territory over the years, and by making sure that the island provide the necessary incentives to attract private investment for the first time in a generation.
All of this can be accomplished without forcing those who depend on their bonds for income and savings to bear the brunt of this crisis, and Congress owes it to the American people to ensure that this is the case. If it does not, and it gives the Puerto Rican Government a free pass at the expense of constituents from whom Puerto Rico borrowed money, then Washington will merely demonstrate that it learned has learned nothing from the mistakes of its past.