Sanders Breaks With White House on Puerto Rican Rescue Plan

[ineedsleep212]

By KEN THOMAS, ASSOCIATED PRESS

Democratic presidential candidate Bernie Sanders is breaking with the Obama administration and House lawmakers over a plan to restructure Puerto Rico's $70 billion in debt, saying the legislation would make "a terrible situation even worse."

The Vermont senator writes in a letter released Monday that the deal reached last week between the White House and House Republicans and Democrats would empower an "unelected and undemocratic oversight board" and allow the governor of Puerto Rico to slash the minimum wage to $4.25 an hour for up to five years.

"We must stop treating Puerto Rico like a colony and start treating the American citizens of Puerto Rico with the respect and dignity that they deserve," Sanders wrote in a letter to Senate colleagues.

"At a time when the people of Puerto Rico are suffering, the legislation introduced in the House would make a terrible situation even worse," he wrote.

Sanders trails Democratic rival Hillary Clinton in the presidential primaries and both are competing in the upcoming June 5 Puerto Rican caucuses. Clinton has outperformed Sanders among Latino voters during the primaries.

Sanders has been virtually absent from Senate proceedings during his lengthy primary campaign but his opposition could complicate the measure's future after careful negotiations between the White House and House Speaker Paul Ryan.

Ryan, R-Wis., has said the bill would avoid an eventual taxpayer bailout and Treasury Secretary Jack Lew has called it a "tough bipartisan compromise." House Democratic leader Nancy Pelosi also supports the agreement.

Puerto Rico, which has struggled to overcome a lengthy recession, has missed several payments to creditors and faces a $2 billion installment, the largest yet, on July 1. The island has been under a state of emergency and many businesses have closed, schools have lacked sufficient resources like electricity and some hospitals are limiting treatment.

Sanders warned that the control board would have the power to cut the budget, slash pensions and take other measures. He notes that most of the control board would be chosen by Ryan and Senate Majority Leader Mitch McConnell, R-Ky.

Puerto Rican officials have argued for a less powerful board that could not control the island's finances.

Republicans say the legislation would force the control board to both consider creditors and also find a way to fund pensions. The Puerto Rican government has underfunded pensions by more than $40 billion.

Sanders said the legislation "looks out for the needs of Wall Street vulture funds first and foremost. That is unacceptable."

Sanders Breaks With White House on Puerto Rican Rescue Plan

 

[ORDER_66]

Slashing the minimum wage to 4.25 to up to five years?!!?! what the fukk man?!!?

 

[Poh SIti Dawn]

Don't want their finances controlled, but can't control their finances.

Yeah, ok, get real, because the world doesn't work like that regardless of where you're at.

 

[hashmander]

if you could control your finances you wouldn't be in this mess. it's unfortunate that republicans will pick a majority of the board, but thems the breaks when you get in trouble while republicans have control of congress.

i'd be curious what's bernie's solution that would magically get republican support (and you know it has to get their support since they control congress and all). so without their support it's do nothing and doing nothing is even worse than this deal for them. oh i forgot, you just have to negotiate really hard and the republicans will see the correctness of your position. living in a fantasy world must be awesome.

 

[☑︎#VoteDemocrat]

Slashing the minimum wage to 4.25 to up to five years?!!?! what the fukk man?!!?

Some of you don't understand economics.

Puerto Ricos economy is different. They can't sustain high wages.

 

[ORDER_66]

Some of you don't understand economics.

Puerto Ricos economy is different. They can't sustain high wages.

I know that but still it sounds like a fukking nightmare, how they expect people to live on those wages???

 

[hashmander]

I know that but still it sounds like a fukking nightmare, how they expect people to live on those wages???

lower cost of living most likely. compared to the rest of the U.S. it's cheaper to live there.

 

[StatUS]

The GOP is about to experiment like a mothafukka in PR.

 

[ORDER_66]

I'm surprised the guys who's running puerto rico havent gotten outside investors to invest in their lands!?!? in return bringing trade and commerce back to the island using that money to bail itself out...

 

[FAH1223]

if you could control your finances you wouldn't be in this mess. it's unfortunate that republicans will pick a majority of the board, but thems the breaks when you get in trouble while republicans have control of congress.

i'd be curious what's bernie's solution that would magically get republican support (and you know it has to get their support since they control congress and all). so without their support it's do nothing and doing nothing is even worse than this deal for them. oh i forgot, you just have to negotiate really hard and the republicans will see the correctness of your position. living in a fantasy world must be awesome.

Recently introduced bipartisan legislation to deal with Puerto Rico’s fiscal crisis would “make a terrible situation even worse,” according to Sen. Bernie Sanders, who is urging his Democratic colleagues in the Senate to reject it. The presidential candidate believes that instead, the Federal Reserve should act within their authority to alleviate the situation.


Sanders sees a double standard at the central bank in how they handle crises. “The Federal Reserve must be just as creative in finding solutions to help the 3.5 million American citizens in Puerto Rico as it was in rescuing the largest financial institutions in this country and throughout the world in 2008,” Sanders told Salon in a statement.

This is obviously not the first time that Sanders has separated himself from the political establishment. But it marks one of the first legislative battles since Sanders acquired newfound national stature from the presidential campaign. It also amplifies his critiques about the financial industry, and the lack of attention Washington pays to the struggles of ordinary people.

Puerto Rico has been reeling from a decade of recession, and successive governments papered over those problems with excessive borrowing. Last year, Gov. Alejandro García Padilla called Puerto Rico’s debt, around $73 billion, “not payable.” The island has already defaulted on small debt payments three times, and engaged in grinding austerity to manage the rest. Hundreds of thousands have left as poverty and unemployment skyrockets. Defaulting on a July 1 debt payment of $1.9 billion would further devastate the island.

Territories like Puerto Rico cannot use U.S. bankruptcy laws, and the island cannot seek help from the IMF or the World Bank as a sovereign country might. Puerto Rico’s creditors – mostly mutual funds and “vulture” hedge funds that scooped up debt at a massive discount (as low as 29 cents on the dollar) in search of a payday – have little incentive to make a deal because the laws work so completely in their favor.

After months of inaction, House negotiators released the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) after bipartisan talks. PROMESA would institute a seven-member fiscal oversight board, the majority of whom would be selected by Congressional leaders Paul Ryan and Mitch McConnell. Puerto Ricans have no say in the board; members must have bond market and financial experience but cannot be a current or former elected official from the island. 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.”

This is precisely what Sanders rejects. This artificial constraining of choices, he believes, leads to terrible outcomes. He outlined his alternative, which does not require approval from Congress, in a memo.

Sanders wants the Federal Reserve to issue new loans to Puerto Rico. The island would be contractually obligated to use the proceeds to hold “reverse Dutch Auctions” to force hedge funds and other creditors to sell their debt at a discount. As a result, the Fed would become the primary creditor for Puerto Rico, able to lengthen payment timelines and give the island space to recover economically.

In a reverse Dutch Auction, Puerto Rico would offer to buy back debt from creditors at a low price, incrementally increasing it until finding sellers. This would make the creditors compete with each other to ensure their debt gets sold. Holdouts who refuse to participate in the reverse Dutch Auction, Sanders says, would be at risk of greater discounts on their debt later, though he does not specify how.



Federal Reserve experts have repeatedly argued lending to Puerto Rico is impossible, but Sanders cites two parts of the Federal Reserve Act that would grant the authority. First, under Section 13(3), the Fed could cite “unusual and exigent circumstances” and lend to individuals, partnerships, or corporations that cannot otherwise secure credit. Puerto Rico has several public corporations, which issued about one-third of their overall debt.

13(3) lending has become a bigger challenge now because of changes to the rules under Dodd-Frank. First, the Treasury Secretary must approve any emergency lending. Second, no insolvent firm can receive money, with insolvency broadly defined to include borrowers that failed to pay debts in the past 90 days. This makes the Government Development Bank, which defaulted on $422 million in principal payments on May 1, currently ineligible.

Third, lending is limited to programs with “broad-based eligibility.” It cannot be designed to aid specific corporations, and must allow “at least five entities” to be able to participate. You could maybe get around that by opening the program up to all U.S. territories. Finally, the Fed must institute a penalty rate of interest on these loans, “designed to encourage borrowers to repay emergency credit as quickly as possible.” It’s unclear how that would help Puerto Rico.

Sanders’ other option appears more promising. Section 14(2) allows the Fed to purchase “bonds and notes of the United States” with a maturity date of six months. Though Puerto Rico is not a state, it is considered part of the Second Federal Reserve District based in New York. According to a paper by Arturo Estrella, an economics professor at Rensselaer Polytechnic Institute, most Federal Reserve regulations treat Puerto Rico like a state, meaning the Fed could purchase the island’s debt short-term. After the six-month maturity, Puerto Rico could roll over the debt repeatedly until they can pay it down once the economy recovers.






There are other alternatives. The Fed could capitalize a separate corporation, similar to the New Deal-era Reconstruction Finance Corporation, to provide financial support to Puerto Rico. Congress could await the results of an active Supreme Court case that would allow Puerto Rico to use a local law to restructure its public corporation debt. They could investigate whether Puerto Rican debt wasunconstitutionally issued, as an audit committee on the island is now doing.

The larger point Sanders makes is this: “when there’s a will, there’s a way.” The Fed and the Treasury Department moved heaven and earth in 2008, lending to dozens of non-bank corporations and opening up numerous credit facilities to bail out Wall Street. At that time they interpreted their powers broadly, with relentless imagination to massaging the rules. If they can do that, Sanders tells Salon, they can “facilitate an orderly debt restructuring to alleviate the humanitarian crisis in Puerto Rico.”

There are implications to that. The new 13(3) rules were imposed under Dodd-Frank because of concern that the Fed was playing too fast and loose with its authority. And if the rules are bent to accommodate Puerto Rico, you can bet they will be pried open in the next financial crisis.

But Sanders obviously puts the people of Puerto Rico above those concerns. And he’s not wrong about the level to which the Fed and the Treasury did handstands to get help to Wall Street, without exhibiting the same urgency for others. If there are legitimate alternatives to an unelected shadow government imposing its will on Puerto Rico, they should be taken. As Sanders puts it, “We must stop treating Puerto Rico like a colony and start treating the American citizens of Puerto Rico with the respect and dignity that they deserve.”

Bernie says bail out Puerto Rico: Sanders details how the feds should rescue the territory as they did big banks

 

[FAH1223]

The GOP is about to experiment like a mothafukka in PR.

experiment? they've done plenty in states like Louisiana and Kansas

we know the prescription

cut taxes, cut government spending, cut all jobs in public sector

it's the same neoliberal shid we've read about our whole lives, we know what's coming

Sanders aint lying about people working for, in his words, "starvation" wages

 

[hashmander]

Recently introduced bipartisan legislation to deal with Puerto Rico’s fiscal crisis would “make a terrible situation even worse,” according to Sen. Bernie Sanders, who is urging his Democratic colleagues in the Senate to reject it. The presidential candidate believes that instead, the Federal Reserve should act within their authority to alleviate the situation.


Sanders sees a double standard at the central bank in how they handle crises. “The Federal Reserve must be just as creative in finding solutions to help the 3.5 million American citizens in Puerto Rico as it was in rescuing the largest financial institutions in this country and throughout the world in 2008,” Sanders told Salon in a statement.

This is obviously not the first time that Sanders has separated himself from the political establishment. But it marks one of the first legislative battles since Sanders acquired newfound national stature from the presidential campaign. It also amplifies his critiques about the financial industry, and the lack of attention Washington pays to the struggles of ordinary people.

Puerto Rico has been reeling from a decade of recession, and successive governments papered over those problems with excessive borrowing. Last year, Gov. Alejandro García Padilla called Puerto Rico’s debt, around $73 billion, “not payable.” The island has already defaulted on small debt payments three times, and engaged in grinding austerity to manage the rest. Hundreds of thousands have left as poverty and unemployment skyrockets. Defaulting on a July 1 debt payment of $1.9 billion would further devastate the island.

Territories like Puerto Rico cannot use U.S. bankruptcy laws, and the island cannot seek help from the IMF or the World Bank as a sovereign country might. Puerto Rico’s creditors – mostly mutual funds and “vulture” hedge funds that scooped up debt at a massive discount (as low as 29 cents on the dollar) in search of a payday – have little incentive to make a deal because the laws work so completely in their favor.

After months of inaction, House negotiators released the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) after bipartisan talks. PROMESA would institute a seven-member fiscal oversight board, the majority of whom would be selected by Congressional leaders Paul Ryan and Mitch McConnell. Puerto Ricans have no say in the board; members must have bond market and financial experience but cannot be a current or former elected official from the island. 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.”

This is precisely what Sanders rejects. This artificial constraining of choices, he believes, leads to terrible outcomes. He outlined his alternative, which does not require approval from Congress, in a memo.

Sanders wants the Federal Reserve to issue new loans to Puerto Rico. The island would be contractually obligated to use the proceeds to hold “reverse Dutch Auctions” to force hedge funds and other creditors to sell their debt at a discount. As a result, the Fed would become the primary creditor for Puerto Rico, able to lengthen payment timelines and give the island space to recover economically.

In a reverse Dutch Auction, Puerto Rico would offer to buy back debt from creditors at a low price, incrementally increasing it until finding sellers. This would make the creditors compete with each other to ensure their debt gets sold. Holdouts who refuse to participate in the reverse Dutch Auction, Sanders says, would be at risk of greater discounts on their debt later, though he does not specify how.



Federal Reserve experts have repeatedly argued lending to Puerto Rico is impossible, but Sanders cites two parts of the Federal Reserve Act that would grant the authority. First, under Section 13(3), the Fed could cite “unusual and exigent circumstances” and lend to individuals, partnerships, or corporations that cannot otherwise secure credit. Puerto Rico has several public corporations, which issued about one-third of their overall debt.

13(3) lending has become a bigger challenge now because of changes to the rules under Dodd-Frank. First, the Treasury Secretary must approve any emergency lending. Second, no insolvent firm can receive money, with insolvency broadly defined to include borrowers that failed to pay debts in the past 90 days. This makes the Government Development Bank, which defaulted on $422 million in principal payments on May 1, currently ineligible.

Third, lending is limited to programs with “broad-based eligibility.” It cannot be designed to aid specific corporations, and must allow “at least five entities” to be able to participate. You could maybe get around that by opening the program up to all U.S. territories. Finally, the Fed must institute a penalty rate of interest on these loans, “designed to encourage borrowers to repay emergency credit as quickly as possible.” It’s unclear how that would help Puerto Rico.

Sanders’ other option appears more promising. Section 14(2) allows the Fed to purchase “bonds and notes of the United States” with a maturity date of six months. Though Puerto Rico is not a state, it is considered part of the Second Federal Reserve District based in New York. According to a paper by Arturo Estrella, an economics professor at Rensselaer Polytechnic Institute, most Federal Reserve regulations treat Puerto Rico like a state, meaning the Fed could purchase the island’s debt short-term. After the six-month maturity, Puerto Rico could roll over the debt repeatedly until they can pay it down once the economy recovers.






There are other alternatives. The Fed could capitalize a separate corporation, similar to the New Deal-era Reconstruction Finance Corporation, to provide financial support to Puerto Rico. Congress could await the results of an active Supreme Court case that would allow Puerto Rico to use a local law to restructure its public corporation debt. They could investigate whether Puerto Rican debt wasunconstitutionally issued, as an audit committee on the island is now doing.

The larger point Sanders makes is this: “when there’s a will, there’s a way.” The Fed and the Treasury Department moved heaven and earth in 2008, lending to dozens of non-bank corporations and opening up numerous credit facilities to bail out Wall Street. At that time they interpreted their powers broadly, with relentless imagination to massaging the rules. If they can do that, Sanders tells Salon, they can “facilitate an orderly debt restructuring to alleviate the humanitarian crisis in Puerto Rico.”

There are implications to that. The new 13(3) rules were imposed under Dodd-Frank because of concern that the Fed was playing too fast and loose with its authority. And if the rules are bent to accommodate Puerto Rico, you can bet they will be pried open in the next financial crisis.

But Sanders obviously puts the people of Puerto Rico above those concerns. And he’s not wrong about the level to which the Fed and the Treasury did handstands to get help to Wall Street, without exhibiting the same urgency for others. If there are legitimate alternatives to an unelected shadow government imposing its will on Puerto Rico, they should be taken. As Sanders puts it, “We must stop treating Puerto Rico like a colony and start treating the American citizens of Puerto Rico with the respect and dignity that they deserve.”

Bernie says bail out Puerto Rico: Sanders details how the feds should rescue the territory as they did big banks

the only thing i agree with in any of that is "Congress could await the results of an active Supreme Court case that would allow Puerto Rico to use a local law to restructure its public corporation debt."

and i hate this silly they bailed out the big banks argument. that money wasn't given away. https://projects.propublica.org/bailout/

now if you want to talk about the trillions in loans the fed made available to like only 3 big banks in between 2007-09. dodd-frank has provisions to end that cowboy behavior where the fed did whatever they felt was best for the system without any oversight. and even under the old rules bailing out puerto rico would never be viewed as necessary for the system. and puerto rico's history says don't lend them money.

sanders is basically talking about giving away money. regardless of everything else said, their feet wouldn't be held to any fire to pay back those "loans" so this would be lost money.

 

[ADevilYouKhow]

What a bozo this Sanders guy is.

 

[CHL]

Stupid hippie. This is entirely the fault of Puerto Rico.