HOW WE DESTROY A COUNTRY

 There will be no last minute deals here. The Governor of Puerto Rico, Secretary of State (second in command), President of the Senate and the Speaker of its House of Representatives have all left town.
Puerto Rico actually has enough money to make it to the end of the month, but default was inevitable, so they decided to do it now rather than wait until they ran out of cards to play like Greece.
Puerto Rico’s bonds are at a six year low.

There is a back story to this.

 According to a new investigation, many of those same billionaires demanding payment from Puerto Rico have also profited from the debt crises in Greece, Argentina, and Detroit. These hedge funds specialize in buying up “distressed” assets and pushing governments to take on debt they can’t afford under predatory rates and conditions. At the same time, the groups are lobbying Congress to not allow the island to declare bankruptcy, as doing so would cut into their profits.

A cadre of Wall Street hedge funds have been making a bundle off of Puerto Rico’s woes for years.

 The Wall Street Journal recently reported that in 87 bond deals since 2006, Puerto Rico sold $61 billion of bonds which resulted in fees to Wall Street firms and their cohorts of $1.4 billion. The fees charged were higher than those assessed on other financially troubled US states and cities. In fact, according to Reuters, banks such as UBS, were paid gross spreads averaging 31% higher than spreads charged to Detroit.
UBS, one of the major underwriters of Puerto Rican debt, not only charged fees to underwrite Puerto Rican bonds, they then neatly packaged these bonds into their own “closed end mutual funds”, charged retail investors a “front end load” of 4.75 % and annual fees of 1%.

Puerto Rico didn’t get in this situation without a great deal of incompetence and corruption in their government, but that doesn’t mean that Wall Street should get all the benefits from that incompetence and corruption while shouldering none of the costs.
The problem is that the hedge funds have already managed to off-load much of the risk to you and me. Around 60% of Puerto Rico’s debt is held by American citizens, much of it in retirement accounts.