Puerto Rico Debt Crisis Redux

Puerto Rico – Redux
"Retirement accounts crushed … a bailout on the backs of savers and seniors …" a throaty voice intones, over the miserable visages of clearly "crushed" seniors bearing the unbearable on their backs. Whats this? Another grab for social security? A new tax to throttle growth (and crush seniors of course, along with their retirement accounts)? No. It's an ugly little attack ad aimed squarely at the bipartisan attempt to sort out the finances of Puerto Rico, now gone critical after a period in intensive political shadow. Bipartisan. Yes, I've said it – one of the weirder moments in the commercial is that unlike so many of this sort that try to exploit some angle of partisan polarization, this one has an image we have not seen for a while: the Speaker of the House, Paul Ryan, shoulder to shoulder with President Barack Obama (albeit in the roles of villains trying to rob seniors of their hard-earned pensions, brutalize the budget or whatever, etc.). So, whose ad is this? The fact is that technically we cannot know who's behind it – it was paid for with "dark money", one of the nasty little side-angles for morally crooked campaign finance shenanigans that are allowed following the "Citizen's United" ruling. "Dark money" basically means that a group of people shilling a political position can create a "front" organization (in this case, some featureless, ownerless monolith calling itself "The Center for Individual Freedom" – remember, there's nothing in a name in this world, anyway – a group calling itself "American Liberty-Loving Patriots" could be fronting for pro-cancer scoundrels, for example). The people putting up the money stay in the dark, funneling their funds to the front organization without identifying themselves. Thus far, the "Center for Individual Freedom" has spent almost a million dollars on this ad and others, targeted to markets and districts of the supporters – from both parties, but particularly trying to frighten Republicans – of a bill or at least a plan to try to salvage some part of the economy of the territory island of Puerto Rico.
I have written extensively about the Puerto Rican debt crisis elsewhere, but I'll briefly try to hit the highlights. When I last wrote about it, back in January, it was a horror; now it is a monstrosity.
Through a series of almost insanely irresponsible government actions over the past three decades, Puerto Rico finds itself in almost 77 billion (yes "billion") real dollars in debt. 2 billion are due in July. The causes are complicated. Puerto Rican politicians (both parties – it was a bipartisan strain of crazy) found themselves in an ever-escalating war of provisions: each administration, with the culpable collaboration of the legislature, found itself promising more services, more entitlements, more government-funded subsidies; to be a nay-sayer in this political environment was to be a Cassandra: you were right, but no-one was listening. Budget shortfalls? No problem. Because of the tax-exempt status of manufacturing in PR, the economy was burgeoning; and PR could always (and apparently always did) issue bonds. Puerto Rican bonds. "[I]nvestors snapped them up" reported the Fiscal Times, "because the bonds are exempt from federal, state, and local taxes in all 50 states". Free money. The Government was drunk with spending, bond holders were drunk with greed, and everyone was happy. Until 1998. When the tax exemption for manufacturing was withdrawn and the bubble began to deflate. What followed was predictable: manufacturing left (the tax dodge had paid for the transport of goods to the mainland – now it was too expensive to move goods), and the government doubled down. There is no doubt that government is responsible. But now they are getting a massive push towards final destruction. Remember those guys with the ad – that nasty accusation of crushing the backs of seniors or whatever? Yes, those guys.
"Those guys" are in all probability the bondholders. Fellow travelers, enablers; these were the folks who, when Puerto Rico should have been cleaning house, funneled millions to the high rollers running the place, and, like any leg-breaking loan-shark operation, they were charging a 20% "vig". And now they want paid.
The problem is that the people of Puerto Rico are the real debtors. Their current government, a bit more sober than its predecessors, is not begging for a bailout as the ads claim, they are pleading for a bankruptcy law that will allow them to prioritize their debts and continue to provide basic services. Naturally, this likely means that police, fire responders, teachers, and ambulance personnel are probably going to be paid before the bondholders. Thus the threatening ads.
Last Friday, it worked. The budget failed to pass, and along with it, the Puerto Rican deal. While we cannot lay the blame of the failed budget on them, we can certainly point to "Center for Individual Freedom" for firing up the threat campaign that derailed what promised to be the one and only thing the Congress really managed to solve this year. The future of any restructuring of the debt is now in doubt for the current session. Soon, the members of both houses will be headed home to campaign to return.
Thing is, the end of the congressional session does not mean the end of the issue – or its massive impact on politics, particularly the politics of Florida. The people living in Puerto Rican are facing a sudden increase in taxation this month and next: from 11.5%, where it is now, to the conversion of this to the double-whammy of a VAT tax, and if that were not enough, the addition of a 4% "professional services" tax, all of it to pay off the interest to those poor "Center for Individual Freedom" people. As this goes forward, even more Puerto Ricans are likely to come to Florida, to find work and a livable income with a low tax rate. And they are citizens, and they have family back in Puerto Rico, and they are likely to be a little angry. But here, they are not impotently raging against the machine. Here, they can vote.
Next: what are the political options?