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Hillary's Hedge Fund Donors Exacerbated Puerto Rico's Crisis:
How Hedge Funds Deepen Puerto Rico’s Debt Crisis
Vulture investors have descended on the commonwealth, taking advantage of a debt crisis that has impoverished citizens and created massive unemployment.
David Dayen
“This is a distress call from a ship of 3.5 million American citizens that have been lost at sea,” ..... Puerto Rico now carries $73 billion in debt, a sum that García Padilla had termed “not payable” in June.
Successive governments have enacted punishing austerity measures to service the debt, despite a stubbornly depressed economy and poverty rates near 50 percent. Now, after defaulting on smaller loans, it’s likely that much of the $957 million due January 1 will go unpaid, bringing more chaos and suffering at the hands of Puerto Rico’s creditors.
.....Puerto Rico is just the latest battlefield for a phalanx of hedge funds called “vultures” ......
snip
Though Puerto Ricans pay the same payroll taxes as mainland workers, the island receives sharply lower reimbursement rates for Medicare and Medicaid.
Its poorest citizens are ineligible for the Earned Income Tax Credit.
snip
As unemployment soared and the economy crashed.....Wall Street asset managers and investors egged them on, because Puerto Rican municipal bonds are free from federal, state, and local taxes. Usually Americans must reside in the state whose bonds they purchase to get “triple tax-exempt” status. But anyone from Arizona to Maine can buy triple tax-exempt Puerto Rican bonds.
snip
To pay back the debt, Puerto Rico has delayed tax refunds and payments to suppliers, cut back on health care and public transportation services, fired 30,000 public-sector workers, closed 100 schools, increased the sales tax by more than 50 percent, and even forced community credit unions to take IOUs in exchange for cash.
..... The poverty rate on the island is around 45 percent, and only 40 percent of the labor force has a job. Trapped in an economic death spiral, the tax base has eroded, amid massive out-migration to the U.S.: Puerto Rico has lost 300,000 citizens since 2006......
snip
This was when “vulture” hedge funds like Fir Tree Partners and Appaloosa Management and Och-Ziff made their move. ..... “They see Puerto Rico as an opportunity for huge earnings.....
Hedge funds also became the sole investors willing to lend to the commonwealth, making up nearly all the participants in the 2014 sale of $3.5 billion in low-rated, 8.7 percent general obligation bonds, the biggest U.S. municipal junk bond sale in history. Hedge funds were prepared to lend even more to Puerto Rico in the summer of 2015, until the governor warned about inability to pay. But vulture funds DoubleLine Capital and Avenue Capital were still buying up discounted debt as recently as November. Jeffrey Gundlach of DoubleLine recently called Puerto Rican debt his “best idea” for investors.
snip
Mutual funds like Franklin Templeton and Oppenheimer, which together own $10.8 billion in Puerto Rican debt, bought the bonds at 100 percent and want to limit any losses, whereas vulture funds with discounted debt have more wiggle room to extract profits....
IN AN OCTOBER HEARING, Senator Bernie Sanders addressed a more obscure option for Puerto Rico. “I’ve heard that some of the debt was incurred in an unconstitutional way,” Sanders noted, echoing a sentiment for nullifying some debt that has been proposed by academics and a handful of Puerto Rican lawmakers. This may sound far-fetched, but it rests on solid constitutional ground.
Vulture investors have descended on the commonwealth, taking advantage of a debt crisis that has impoverished citizens and created massive unemployment.
David Dayen
“This is a distress call from a ship of 3.5 million American citizens that have been lost at sea,” ..... Puerto Rico now carries $73 billion in debt, a sum that García Padilla had termed “not payable” in June.
Successive governments have enacted punishing austerity measures to service the debt, despite a stubbornly depressed economy and poverty rates near 50 percent. Now, after defaulting on smaller loans, it’s likely that much of the $957 million due January 1 will go unpaid, bringing more chaos and suffering at the hands of Puerto Rico’s creditors.
.....Puerto Rico is just the latest battlefield for a phalanx of hedge funds called “vultures” ......
snip
Though Puerto Ricans pay the same payroll taxes as mainland workers, the island receives sharply lower reimbursement rates for Medicare and Medicaid.
Its poorest citizens are ineligible for the Earned Income Tax Credit.
snip
As unemployment soared and the economy crashed.....Wall Street asset managers and investors egged them on, because Puerto Rican municipal bonds are free from federal, state, and local taxes. Usually Americans must reside in the state whose bonds they purchase to get “triple tax-exempt” status. But anyone from Arizona to Maine can buy triple tax-exempt Puerto Rican bonds.
snip
To pay back the debt, Puerto Rico has delayed tax refunds and payments to suppliers, cut back on health care and public transportation services, fired 30,000 public-sector workers, closed 100 schools, increased the sales tax by more than 50 percent, and even forced community credit unions to take IOUs in exchange for cash.
..... The poverty rate on the island is around 45 percent, and only 40 percent of the labor force has a job. Trapped in an economic death spiral, the tax base has eroded, amid massive out-migration to the U.S.: Puerto Rico has lost 300,000 citizens since 2006......
snip
This was when “vulture” hedge funds like Fir Tree Partners and Appaloosa Management and Och-Ziff made their move. ..... “They see Puerto Rico as an opportunity for huge earnings.....
Hedge funds also became the sole investors willing to lend to the commonwealth, making up nearly all the participants in the 2014 sale of $3.5 billion in low-rated, 8.7 percent general obligation bonds, the biggest U.S. municipal junk bond sale in history. Hedge funds were prepared to lend even more to Puerto Rico in the summer of 2015, until the governor warned about inability to pay. But vulture funds DoubleLine Capital and Avenue Capital were still buying up discounted debt as recently as November. Jeffrey Gundlach of DoubleLine recently called Puerto Rican debt his “best idea” for investors.
snip
Mutual funds like Franklin Templeton and Oppenheimer, which together own $10.8 billion in Puerto Rican debt, bought the bonds at 100 percent and want to limit any losses, whereas vulture funds with discounted debt have more wiggle room to extract profits....
IN AN OCTOBER HEARING, Senator Bernie Sanders addressed a more obscure option for Puerto Rico. “I’ve heard that some of the debt was incurred in an unconstitutional way,” Sanders noted, echoing a sentiment for nullifying some debt that has been proposed by academics and a handful of Puerto Rican lawmakers. This may sound far-fetched, but it rests on solid constitutional ground.
http://prospect.org/article/how-hedge-funds-are-pillaging-puerto-rico
The vultures have deep political ties, amplifying their voice in Washington. Most hedge fund managers are major donors to both parties. .... Chelsea Clinton worked previously at Avenue Capital, which recently walked away from negotiations.
Avenue Capital and the Clintons: A Two-Way Street
By Dealbook November 3, 2006 3:57 pm November 3, 2006 3:57 pm
Chelsea Clinton
Fresh off selling a stake to investment bank Morgan Stanley for about $300 million, Avenue Capital Group has linked up with another powerful name. The hedge fund, which has about $10.5 billion in assets, has added Chelsea Clinton as its newest employee, the New York Daily News reported Friday, citing unnamed sources.
Ms. Clinton is no stranger to finance, having served as a consultant at McKinsey & Company for several years. And the hedge fund, run by Marc Lasry, is no stranger to the Clintons. Avenue co-founders Mr. Lasry and Sonia Gardner are major Democratic Party donors who have each given extensively to Hillary Rodham Clinton’s Senate reelection campaign.
The younger Ms. Clinton is not the first in her family to enter the world of high finance: Her father serves as an adviser to billionaire Ron Burkle’s Yucaipa Companies.
By Dealbook November 3, 2006 3:57 pm November 3, 2006 3:57 pm
Chelsea Clinton
Fresh off selling a stake to investment bank Morgan Stanley for about $300 million, Avenue Capital Group has linked up with another powerful name. The hedge fund, which has about $10.5 billion in assets, has added Chelsea Clinton as its newest employee, the New York Daily News reported Friday, citing unnamed sources.
Ms. Clinton is no stranger to finance, having served as a consultant at McKinsey & Company for several years. And the hedge fund, run by Marc Lasry, is no stranger to the Clintons. Avenue co-founders Mr. Lasry and Sonia Gardner are major Democratic Party donors who have each given extensively to Hillary Rodham Clinton’s Senate reelection campaign.
The younger Ms. Clinton is not the first in her family to enter the world of high finance: Her father serves as an adviser to billionaire Ron Burkle’s Yucaipa Companies.
http://dealbook.nytimes.com/2006/11/03/avenue-capital-and-the-clintons-a-two-way-street/
Avenue Capital is one of the vulture funds that owns some Puerto Rico debt, and is currently aligned with Candlewood Investment Group, Fir Tree Partners, and Perry Corp, which have formed what is known as the GDB Ad Hoc Group (BGF is the acronym in Spanish), a coalition of vulture funds that hold bonds issued by Puerto Rico’s Government Development Bank.
http://www.thenation.com/article/is-an-obama-donor-tying-the-presidents-hands-on-puerto-ricos-debt-crisis/
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