Daily Archives: August 1, 2015

Puerto Rico debt crisis: austerity for residents, but tax breaks for hedge funds

Caught between the demands of billionaires, pro-bankruptcy activists and more than three million people plagued by unemployment, poverty and government debt, who would you choose? As Puerto Rico confronts the quagmire of its $72bn financial crisis, it has come up with an answer: humouring a few very wealthy people.

The island has for three years courted some of Wall Street’s richest citizens, from solitary investors to hedge fund elites. Last year it sold at auction hundreds of millions of its debt to various funds, displeasing many who believe the “vulture funds” only want a quick profit off Puerto Rico as it desperately tries to repay debt with high local taxes and austerity cuts.

Hedge fund manager John Paulson, best known for making billions off the 2008 subprime loan market crash, led the charge last year when he declared the island“the Singapore of the Caribbean”. His fund bought more than $100m of Puerto Rico’s junk-rated bonds last year.

The most visible effect has been a rush to buy property akin to the buying spree bytwo billionaires in Detroit as that city filed for bankruptcy. Detroit’s woes are often held up for comparison to Puerto Rico’s but the island lacks the statehood or permission from Congress it would need to file for bankruptcy and follow Michigan’s decision to declare Motor City bust.

Read on.

Congress won’t grant Puerto Rico bankruptcy protection

Ever since Puerto Rican Governor Alejandro García Padilla said late last month that the island’s approximately $72 billion in debt was “not payable,” institutional investors have scrambled to re-assess their risk exposure, particularly in the event the federal government stepped in to provide assistance.

But although the Puerto Rican debt crisis has garnered increasing attention in Washington in recent weeks, Congress is unlikely to get involved, barring a crisis of Jurassic World proportions.

Puerto Rican officials, along with holders of the general obligation bonds that are high up in the island’s capital structure, have lobbied Congress for months to extend Chapter 9 authority under the bankruptcy code, which is for reorganizing municipalities. Currently, Puerto Rican municipalities and public corporations cannot avail themselves of Chapter 9 bankruptcy protection. As Puerto Rico is now pursuing a voluntary debt restructuring, it especially wants access to Chapter 9 to address any potential holdouts. But these lobbying efforts have been ineffective thus far and are unlikely to prove any more successful going forward.

Read on.

Goldman Sachs To Drop $270M To Settle $6B RMBS Suit

A drop in the bucket….

Law360, Los Angeles (July 31, 2015, 9:47 PM ET) — Goldman Sachs Group & Co. has tentatively agreed to pay $270 million to resolve a putative class action brought by a union pension fund accusing the investment banking giant of selling $6 billion in shoddy residential mortgage-backed securities, according to multiple media reports published Friday.

The news reports, each citing anonymous sources, said Goldman agreed to the settlement to resolve claims brought by NECA-IBEW Health & Welfare Fund that Goldman duped more than 400 investors by giving nearly identical misstatements about the loans underlying each offering….

Source: Law360

Rick Perry Channels Warren in ‘Too Big to Fail’ Speech

WASHINGTON — Former Texas Gov. Rick Perry laid out a sweeping financial reform agenda on Wednesday, suggesting he would force the biggest banks to hold even more capital or possibly reinstitute elements of the Glass-Steagall Act.

In a surprisingly forceful speech from Perry, who has said little on the topic prior to this speech, he addressed concerns about “too big to fail” institutions head on, vowing to stop financial bailouts if he wins the White House. He added that government should work harder to “level the playing field” between Wall Street banks and community institutions.

He offered several options to limit the footprint of the biggest banks, touching on the idea of reinstating the Glass-Steagall Act, a Depression-era law separating commercial banking and investment activity, though he stopped short of naming the law directly.

“We could once again require banks to separate their traditional commercial lending and investment banking and related practices,” he told attendees at a New York event hosted by the Committee to Unleash Prosperity, which was formed by several conservative economists.

Read on.