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Mind you, not only is Trump capable of saying five contradictory things before breakfast, but he very rarely says the same thing over time (save declaring things he says he’s done to be “great”).
Nevertheless, having Trump go off the Wall Street/neoliberal script, likely by virtue of his own experience with bankruptcy, and say that debts that can’t be won’t be, is one of his occasional displays of speaking inconvenient truths. Does anyone want to place a bet as to how long it takes one of Trump’s Goldman operatives to walk his remarks back?
And speaking of Goldman, notice that Trump takes an explicit swipe at the investment bank turned Beltway heavyweight. He must be chafing at have been leashed and collared by the generals and the Goldmanites.
President Donald Trump said on Tuesday while on a trip to Puerto Rico to observe hurricane recovery efforts that the island’s massive debt will have to be wiped out.
“They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You’re going to say goodbye to that, I don’t know if it’s Goldman Sachs but whoever it is you can wave goodbye to that,” Trump said in an interview with Fox News.
CNBC picked up on the Reuters story quickly and highlighted the bleak fundamentals:
Even before the storm brought Puerto Rico to a near standstill, the government there already struggled with an economy in shambles and a default on billions of dollars of public debt.
Today, the U.S. territory has nearly $70 billion in debt, an unemployment rate 2.5 times the U.S. average, a 45 percent poverty rate, nearly insolvent pension systems and a chronically underfunded Medicaid insurance program for the poor.
Puerto Rico’s job base continues to shrink, taking its economy along with it. Since the recession ended, a lack of job prospects has sent many Puerto Ricans fleeing to the mainland, where the job market is much stronger.
However, it is unlikely that Goldman would suffer much, if at all, in a Puerto Rico bankruptcy. It might hold some bonds in its trading inventory, but its big exposure would come via funds it manages. On those, under the Volcker Rule, Goldman is limited to owning a small percentage of the equity investment in the fund (3% is the nominal amount, although there may be some tricks of the trade for increasing the exposure).
But David Dayen has found one of the big owners of Puerto Rico debt, as reported in a new story at the Intercept. If you read the article in full, tracking down the who was behind the shell company used to hide the ultimate owners is very reminiscent of the sort of gumshoe work that Richard Smith does chasing international scammers.
Klarman, who regularly acts as a vulture, owns so-called COFIFA bonds, which are issued by what translates as the “Puerto Rico Sales Tax Financing Corporation”, a state-owned corporation that receives half of the receipts of Puerto Rico’s sales tax. Dayen reports that Klarman owns the bonds only through the entities named in his story, not personally:
The Baupost Group, a Boston-based hedge fund managed by billionaire Seth Klarman, owns nearly a billion dollars of Puerto Rican debt….Baupost acquired the debt through an on-paper Delaware-based corporation named Decagon Holdings LLC,….
Klarman…the top campaign contributor in New England, and has been a major donor in Republican politics in Massachusetts…Klarman supported Hillary Clinton in 2016…
COFINA bondholders have been sparring with holders of Puerto Rico’s general obligation debt over who has the right to be repaid first from a pool of sales tax revenue. Judge Laura Taylor Swain, currently presiding over the bankruptcy-like process in Puerto Rico, suspended COFINA payments in May.
As regular readers may know, ProPublica did an in-depth investigation of the American Red Cross in the wake of Hurricane Sandy, showing how the organization was great at fundraising and compensating top executives, as well as being non-transparent and terrible at disaster relief. So even the efforts at virtue-signaling need to be taken with a fistful of salt. And even if they were bona fide, they’d be a teeny fraction of the lucre Klarman’s fund hoped to reap on the back of the island’s misery.
The man is defined by the need to stroke his own ego, but if there’s one thing he understands it’s the virtue of bankruptcy.
Wonder if he understands that the virtue of a secret service that is now bankrupt?
Does MMT money fund the Secret Service? Or are we back to kitchen table budgeting for that entity?
Point taken, I’m in need of more research into that pump priming as it is currently performing. Maybe soon time will allow.
Not to forget over a decade of deferred taxes….. chortle…
I’ll believe it when I see it.
Trump probably doesn’t want Puerto Ricans to migrate to places where they can vote against him.
On the Twitter, I’ve seen liberal Democrats pleading for Puerto Ricans to help them turn states blue, and I’ve also seen your view expressed. Both views being equally repugnant, treating disaster victims as political pawns, and more abstractly, treating persons instrumentally, as things.
“Never let a crisis go to waste.” Eh?
Self-interest triumphs once again. How the species does…
Assuming you’re accurate on this, it’s beyond morally repugnant. It’s gotta be sociopathic to look at every domestic event through the lens of the electoral college in the next election.
Without getting specific, I’ve come to suspect that a lot of these people are really just DC careerists desperate for job opportunities that they feel entitled to have. They also feel that those opportunities have been unjustly, and temporarily, been taken from them.
It’s also revealing in it’s simplistic approach to complex human societies. Just a few questions….what if all the political plaything Puerto Rican refugees all go to MA, NY and CA? What if they go to swing states and push up rents and push down wages in poorer areas? Might that invite a backlash among working class whites, blacks who get displaced or overwhelmed? What if it’s only the Puerto Rican middle classes and elites that leave and they lean Republican (like the Cubans many years ago)? Latino voters didn’t really flock to Dems in 2016.
I wonder if it is also telling about how they managed to profess so much love for Syrian refugees, also? They loved them because they were hoping for another niche constituency in swing states to stay loyally Democratic? My god, that’s creepy.
I probably shouldn’t be thinking this much into it, but that kind of thinking SO perfectly exemplifies what’s wrong with the DC elites, and especially Dem Party elites which gets at why they are so deeply despised in so many parts of the country.
It’s both disgusting AND simplistically stupid. Which sounds a lot like our foreign policy, I suppose.
These tweets truly are creepy, but the idea that Dems actually have a plan to import minorities to secure voting blocs is totally off and repugnant – your other point, that they are happy to nominally support immigrants and refugees, but prefer to keep their own zones lily white and gentrified is right on the nose, however (and you’re right on their sense of entitlement, too). Dem party leaders don’t have the strategic capacity to envision a plan like that, let alone keep it secret. It really is just skin-deep, self-flattering belief, bolstered by a blind faith in markets to lift all boats of the deserving.
The GOP are the ones capable of shaping the playing field when it comes to voting. Dems would be far better served trying to rollback the massive GOP gains on gerrymandering and voter disenfranchisement (of minorities, poorer people and students) than pursuing this paranoid fever dream of importing masses of the other. The fact they can’t even do that is proof of how little they’re truly capable of
“Dems would be far better served trying to rollback the massive GOP gains on gerrymandering and voter disenfranchisement (of minorities, poorer people and students) than pursuing this paranoid fever dream of importing masses of the other.”
— HA!!! Dems hate their base so much, they’d rather just import a set of new replacement voters who are more compliant!!!
Or he heard about the Puerto Rican nationalists who attacked the Blair House while Truman was living there. That attack failed, but things could have turned out differently.
Actually most traditional muni bond funds bailed as PRs ratings were cut over the last several years. So it is likley most of its debt is now held by gamblers like the guy listed above. Note similar things happend to at least some of the greek debt also. The bottom fishers gamble that there will be some money back, just like the folks who took a bath on old GM bonds, There is always a risk of bankruptcy when you buy a bond.
Some mutual fund companies still have large PR bond holdings in their muni funds.
Pam and Russ Martens claim these are “Mom and Pop Investor Funds” http://wallstreetonparade.com/2017/10/puerto-ricos-debt-is-quietly-sitting-in-mom-and-pop-mutual-funds-as-trump-says-it-will-be-wiped-out/
I disagree that muni bond funds are mom and pop investor funds:
1. They don’t make any sense until you are in one of the upper tax brackets, so by default about 80% or more of the population is unlikely to have a reason to hold them.
2. They generally don’t make sense inside a tax deferred retirement account which is where most people in the upper 20% have their investment holdings (like me).
3. So they only make sense for people in high federal or state income tax brackets who have significant investment holdings outside of their tax-deferred retirement savings accounts. I think that is a pretty small percentage of the population. I think this could hit doctors, dentists, lawyers, and high finance people but not the typical mom and pop.
so he is effectively calling to make someone who supported his opponent HRC take a billion dollar hit?
If he is, this would be one of the rare +’s I’d put in his books, which from the article his comments in this particular instance certainly seem like one of his rare +’s.
God, this is a great site. I have gotten, I believe, the equivalent of a degree in finance from reading it.
Trump knows exactly what he is saying and who it will hurt.
“The man must die. He tried to help my enemies.” –Baron Harkonnen, Dune.
To be fair, that’s a lot of that going about; conflict among the elites….
Paging Peter Turchin ….
I owe my knowledge of finance to this wonderful site (and to David Malone over at GolemXIV, where I first clicked through to NakedCapitalism).
I will be contributing some dollars to the fundraising drive :)
Keep up the excellent work!
Klarman isn’t just busy getting rich off the misery of people in Puerto Rico; he’s also a big supporter of charter schools and the hostile takeover of public education.
So he’s in competition with Betsy?
And tepid Hillary supporter (according to his Wikipedia bio) but his $1.5B net worth is not that much. I’d like to see who else owns the rest of the $70B debt. Kudos to Trump for saying it. Would an Obama, Hillary or Biden do the same?
Note that the debt is worth already less than 35b as even before the storm the bonds were selling at .50 on the dollar. Of course even then recall that they will get some relief on their income taxes as a loss is deductable against other investment income.
Today the general obligation debt of Puerto Rico fell to 37.5 cents on the dollar. at the close and 30 cents at the market open.
“How long until Trump walks it back”
CNN reports at 8:58 AM that Mick Mulvaney (OMB) says we should not take Trump “word for word” on Puerto Rican debt. There the story ends unless Trump sees some reason to blow up again. As he is in Las Vegas today I don’t think that he will (at least not until the next round of debt ceiling talks, which is December 8, 2017. To be fair, Senator McConnell doesn’t want a December vote on the debt ceiling
Of course the question of ‘how do we pay for all these hurricanes’ could come up in early December, so save the date!
Important to remember the rule of last conversation with regards to Trump: he tends to parrot the views of the last smart-sounding person he talked to. So he comes to Puerto Rico, talks to some official on the ground who pleads for a debt jubilee, Trump parrots them.
Besides sophisticated investment managers like Klarman and other hedge fund managers, I wonder how much Puerto Rican debt is unknowingly held by ordinary Americans through “mutual funds” and exchange-traded funds, whether in their retirement IRA’s and 401(k)’s, embedded in their pension plans, directly in tax exempt mutual funds, or in insurance company annuities? Believe some fund managers invested in Puerto Rican debt to juice their nominal yields after Wall Street successfully lobbied to have the interest on Puerto Rican debt exempted from state income tax in many states. Calls to mind the old saying about not knowing who the sucker is among those sitting at the poker table. But regardless of the ultimate bagholders, perpetuating illusions through clever accounting, and underlying questions regarding fiduciary responsibility and ethics, Trump is right in his observation IMO. This situation begs for debt forgiveness, federal fiscal relief, a restructuring of debt under the umbrella of force majeure and the bankruptcy code, and a quick end to the chapter on counterproductive and damaging Austerity policies in the neoliberal playbook.
They make little sense as a safe investment in a tax deferred account or in an untaxed account like a pension fund or non-profit investment fund since the yields are reduced due to the tax free nature of the income. They would purely be a speculative investment for capital gain or higher yield, similar to a distressed debt bond, in those accounts.
Thanks for your observation. The link provided by xformbykr below also added to understanding this aspect.
There is no fundamental problem in buying or holding the debt of a troubled entity. Investors who picked up the debt on the cheap after mutual funds bailed out of it arguably did those funds a service by providing them an exit. They are taking a chance, but there is no moral argument against making a risky investment, particularly if people know that they’re taking a risk.
I don’t think we should be demonizing holders of securities issued by governments or corporations that are under pressure – particularly since it has the potential to make things more difficult for those entities.
OK, now that’s a problem. I don’t have an issue with investors taking a chance on a bond that’s at risk, but heavily lobbying the Federal government for favorable treatment – particularly when that favorable treatment could come at the risk of other bondholders, or even pensioners or government services – is seriously problematic. This is somewhat specific to Puerto Rico since the legal status of its debt was (is) up in the air, but it’s certainly worth calling it out as bad behavior.
I agree but I have already written my federal legislators saying that the bankruptcy court should be weighing the ability to repay those bonds should be based on post-hurricane conditions, not after the Federal government will have pumped $10s of billions of dollars back into the Puerto Rico economy. This is distressed debt purchased by speculators and they should not be bailed out by the Federal government.
Conceptually similar to what occurred with the AIG bailout of politically well-connected TBTF derivatives counterparties; although P.R. would presumably not be of comparable size to the magnitude of that bailout. Difficult to distinguish among various classes of creditors based on their financial and legal sophistication, however.
I don’t agree with your first point, as I don’t believe in holding people hostage over decisions made by others, at the behest of rich folks or countries who were looking for avenues for investment (which is where most 3rd world debt comes out of, one way or another — either because people were looking for interest payments, or because they were looking for places to saddle with forced loans — that would also pay interest, sometimes for centuries — for infrastructure projects that parties in the home countries wanted to engage in because that would benefit exports; such as in the case of a lot of 19th-century railway construction in colonized areas).
Leaving that aside, though: wrt lobbying, the only reason they’re “taking that debt off others’ hands” is because they know they can work the legal and political system.
Wall Street on Parade has weighed in with regard to PR debt owners:
apologies if this has already been linked.
Are the people who borrowed and squanderd the money without sin?
Is the Iraq war my fault? I had as much agency there as the average voter in PR.
When a broken, corrupt government does something, is it the voter’s fault?
The Puerto Rican electorate sent round after round of corrupt politicians into office to borrow money in their name. In response, bourgeois white knights in New England will hold a person who’s five steps removed from from the original transaction accountable.
Do I have this right?
The borrowers should have done their research and known that this would be a risk. I have no problem with holding the Puerto Rican political establishment responsible for this mess and cleaning up any corruption there, but it’s disingenuous for bondholders to argue that they should be made whole when it was well-known that there were serious problems with Puerto Rican governance.
A bit off-topic, but if anyone is interested in recent activities (or rather, lack thereof) of the Red Cross…
Write off Puerto Rico’s debts? Sure, why not. They only cratered mid-year and nobody cared about ‘helping’ them with their debt ‘problem’ until Hurricane Maria slammed them. And I know a little bit about hurricanes since Charlie cost me an entire building in 2004 and I didn’t get a nickle from insurance or FEMA so I manned up and ate that loss all by myself, but I digress.
Anyway, what about Illinois-debt? Unlike Puerto Rico, they’re actually a state. Do we wipe out their debt too? Or are IL citizens less entitled than PR citizens? Come to think of it, does IL actually pay tax to the treasury? I’m pretty sure about two things, a) IL does pay into the Federal kitty, and b) PR specifically pays nothing whatsoever in Federal taxes. And this, whilst getting plenty in the form of Medicaid and other ‘entitlement’ spending. Please don’t shoot me for bringing up the fact we have actual US states that are teetering on the brink of insolvency as well when we’re talking about absolving corrupt politicians in PR and their business cronies who put the island into what is essentially receivership. Bail them out and the party starts all over again. Doesn’t anybody go to jail?
Finally, I thought pension plans bought munis and other bonds, like the ones for roads, bridges, sewers, electric infrastructure, etc. Also, that pension plans like the ones in which school teachers and policemen retirement accounts are held buy these instruments. Thus, I wonder this, while speculating about that guy holding $1B in paper is one thing, there’s a lot more PR debt out there. Something about seeing who is swimming naked when the tide goes out comes to mind, so I bet we’ll find out soon enough if forgiving PR debt gets real traction. My money is talk about PR debt forgiveness is nothing but talk and basically forgotten tomorrow but if not, will wiping out PR-debt affect little people like firemen, cops, librarians and their dreams of retiring some day with what they were promised?
And note, on the basis of once bitten, twice shy, who will be the next bond holders if PR stiffs the present ones? More to the point, who will step up to the plate and put the money into play that will be needed for re-building PR? Will it be the US Treasury. E.g. We The People . . . and what do we get out of this? I wonder this because PR has voted against being part of our union – more than once.
Of course, they haven’t minded being granted US citizenship, and receiving Medicaid and other Federal largess (whilst not contribution a nickle to the pot) is just great – if you’re on the receiving end. Here;’s the rub, is the welcome mat ever retracted? Can it be politically? Especially seeing as how they tend to vote Democrat? I have my doubts but what distinguishes Puerto Ricans from Bahamians? Now’s not really the time to bring up the question, e.g. kick them while they’re down, but when is a mooch called out for being a mooch? Ever?
In closing, please believe I’m not trying to throw a Molotov into the conversation for the joy of it but respond to my real questions with real answers because they’re a distillation of the questions that came up tonight amongst friends (small group of friends and fellow business owners who meet for dinner on Wednesday evenings). Basically, three facts stood out. First, a lot of Puerto Ricans make their home here in central-FL (and more are pouring in since the disaster). Second, it’s generally acknowledged folks from PR a hard working folk. Third, the main topic of conversation tonight was about debt, bonds, etc. Specifically as they concerned PR and then the conversation turned to IL and it became a free for all.
Anyway, we all wondered; regarding debt forgiveness . . . where does the slippery slope begin, and when do we call for a debt jubilee because, after all, I’d love for my debts to be wiped off the books, too!
My goodness, nothing like a baseless attack, and nasty to boot.
Contrary to your claim, I have been making my living from selling my intellectual property rights for nearly 30 years. I have also not only written for publication for over 25 years, but I have also presented at courses for mid-caeer journalists and editors, so you are very much mistaken on many fronts.
One of my attorneys is a top intellectual property attorney, having among other things written the first intellectual property license for the US. Another one of my attorneys is a noted First Amendment/defamation lawyer. This site is also read disproportionately by lawyers, journalists and editors who are also sensitive to copyright and intellectual property matters.
You are the only person ever to complain, and that includes all the publications we’ve quoted regularly. You attacking me when you have no personal interest in this matter strongly suggests that you have a person agenda of some other sort.
For someone who professes to know something about journalistic practices and copyright, you make it clear that you don’t. It appears not to occur to you that it is typical for journalists to retains a copyright interest in their work. Even though an employee of a publisher could be employed on a “works for hire” basis, at most if not all US publications, the norm is for the writer to retain a copyright interest, as well as limited republication rights. That is likely because freelancers generally insist on those terms and the major publications feel compelled to meet similar standards.
You also appear unaware of the fact that Dayen has written regularly for our site, that we have many personal relationships with journalists, including many of the other writers at the Intercept as well as some of the editors there, and even journalists with whom we do not have a personal relationship e-mail us seeking to have us promote their work.
Moreover, what constitutes fair use is not determined by the number of paragraphs. And in this case, if you read the site regularly (and it appears you don’t) you would recognize that we virtually never feature a quote of this length. The reason we did was to show clearly the extent and difficultly of the original reporting Dayen did. This was a courtesy to him, a point that seems lost on you.
In addition, I sincerely doubt you are policing sites that regularly and flagrantly abuse copyright, such as Leo Kovolakis at Pension Pulse, Michael Shedlock, or CalPensions, to name a few. Kovolakis harbors a long-standing grudge precisely because he used to post here, and when he tried republishing an entire New York Times article, I told him that was not on. He got astonishingly abusive (I circulated his e-mails to close colleagues and they said they’d never seen anything so unhinged) and continues to attack me regularly at his site for that offense. He also continues to regularly republish MSM articles in full.
Moreover, a point that seems lost on you is that MSM pubs like having their material quoted on other sites, provided there is a link back. It is important to them in ad metrics and even for MSM pubs, helps them in search traffic rankings (as in more links back = more authoritative). We regularly have journalists and editors tell us they like seeing their work on NC.
Our use here and in general bears no resemblance to CalPERS systematically infringing on copyright by reproducing articles in full on a site open to the Internet, clearly with the intent in the case of Dow Jones and other high-cost subscriptions like Private Equity International, of evading the cost of paying subscriptions. We’ve written at length about the nature of CalPERS’ abuse and why it constitutes not only arguably willful infringement, subject to statutory damages of up to $150,000 per article, but separately removal of copyright notifications under the DMCA, subject to additional damages of up to $25,000 per article. The proof is that several of the most severely affected publication are aggressively seeking substantial damages. Other publications lost out by being deprived of views on their site and getting ad revenues.
Not only does the Intercept not take subscriptions or run ads, it does not appear that they have taken basic steps to preserve their copyright interest. I do not see any copyright notice on the site, as one would expect and is almost universal. So by contrast to nearly all of the publications that CalPERS abused, The Intercept does not appear to assign high priority to taking basic steps to protect its copyright interest. Thus your hyperventilating attack on me looks even more peculiar.
The fact that you cherry pick one article where we departed markedly from our usual practices for a particular reason and attempt to put us in the same category as CalPERS’ flagrant copyright abuse strongly suggests you have an ulterior motive.
Please take your unfounded insinuations elsewhere.