Why is Congress denying that it is bailing out Puerto Rico’s $70 billion of debt?
This process is eerily reminiscent of the government’s 2008 bailout of Big Banks where Wall Street was saved and millions of Americans on Main Street lost retirement savings and Uncle Sam footed the bill.
The Puerto Rico Oversight, Management, and Economic Stability Act, (PROMESA), just passed by the House of Representatives boasts it will take the island “from a path of destitution towards a path of prosperity. ” In reality, the House decided that debt-ridden Puerto Rico is simply too big to fail but what about the island’s bondholders, many of whom are regular Americans, saving for retirement.
Once again we see the big liberal arm of government (bolstered this time by conservatives in the House leadership) picking the economy’s winners and losers, instead of standing by the rule of law and supporting free markets
This neo-Chapter 9-bankruptcy bill was fast tracked out of the Natural Resources Committee and passed in the House thanks to Speaker Paul Ryan’s leadership with only 139 Republicans and with 158 Democrats voting for it.
Concocted by the Obama administration, the bail out bill is so poorly designed it likely will allow Puerto Rico to fund its government employee pensions before it pays back the bondholders. Just like with the 2008 auto bailout, where the unions were placed in the front of the creditors’ line and paid more than everyone else, this crony bill puts Big Labor before hard working Americans and investors who purchased bonds from Puerto Rico in good faith.
Under the bill, bondholders, the majority of whom are average Americans who invested their life savings to buy Puerto Rico debt, would be stripped of their existing legal rights to sue for payment. About $1.5 billion in bonds alone were issued by the Puerto Rico Electric Power Authority, purchased by hard working Americans who now are placed at the back of creditor bus.
Most of the scrutiny on PROMESA focuses on the creation of a 7-member Oversight Board, whose members will be appointed by Congress and President Barack Obama. While being able to put the fiscal brakes on island spending is good, the board’s power goes even further. In an unprecedented fashion, the board can vote to stay any and all creditor litigation well past the February 2017 deadline created in the bill.
Essentially, Congress is demanding that average Americans throw away their rights to recover their investment because the Puerto Rican government mismanaged its money for decades. Congress has never authorized a stay on creditor litigation. Nor has it delegated to any oversight board the ability to extend a stay on litigation.
PROMESA also violates Puerto Rico’s constitution that explicitly states bondholders hold “absolute priority over all other debts and expense of the Puerto Rican Government. Congress ratified the island’s constitution, approving this measure and “reaffirmed it in 1961 when it approved the implementation of Puerto Rico’s constitutional debt limit.”
The fifth amendment of the US Constitution notes that “no private property be taken for public use, without just compensation.” If this bad bill is passed in the Senate and signed into law we are very likely to see a federal takings lawsuit and bondholders prevail in a court, taxpayers will be forced to pay the debt owed to bondholders – the very debt that Puerto Rico won’t. Ultimately making this law a taxpayer bailout.
If this bad bill is passed in the Senate and signed into law and bondholders sue and prevail in a court , taxpayers will be forced to pay the debt owed to bondholders that Puerto Rico won’t. And another costly taxpayer funded bailout will occur.
The House passed a bill that forces bondholders to give up their rights and money, bails out Puerto Rico and its government workers who promulgated these failed debt ridden policies. This is un-American and unconstitutional.
“This bill prevents a bailout. That’s the entire point,” Ryan said. “If we do not pass this bill … there will be no other choice.”
But PROMESA is a bailout bill by another name. The Senate needs to come up with a better bill that doesn’t revoke bondholders’ rights, or reward Puerto Rico’s reckless government, unsustainable pension system, and Big Labor. Americans need to demand Congress learn lessons from the past costly federal bailouts and put American taxpayers first not last in creating a solution to Puerto Rico’s debt.
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