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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.