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As reported here on several earlier posts, hedge funds saw that Puerto Rico was staggering under debt and bought up its bonds. Now that Puerto Rico is virtually bankrupt, the New York Times reports today that the financiers are fighting bankruptcy protection. States and cities may declare bankruptcy, but Puerto Rico must get permission from Congress to do so. Forcing Puerto Rico to pay back its lenders will require austerity that cripples the island and its people. Lenders have proposed that the debt could be paid off by slashing health care and education.
To block proposals that would put their investments at risk, a coalition of hedge funds and financial firms has hired dozens of lobbyists, forged alliances with Tea Party activists and recruited so-called AstroTurf groups on the island to make their case. This approach — aggressive legal maneuvering, lobbying and the deployment of prodigious wealth — has proved successful overseas, in countries like Argentina and Greece, yielding billions in profit amid economic collapse.
The pressure has been widely felt. Senator Marco Rubio, whose state, Florida, has a large Puerto Rican population, expressed interest this year in sponsoring bankruptcy legislation for the island, says Senator Richard Blumenthal, Democrat of Connecticut. Mr. Rubio’s staff even joined in drafting the bill. But this summer, three weeks after a fund-raiser hosted by a hedge-fund founder, Mr. Rubio broke with those backing the measure. Bankruptcy, he said, should be considered only as a “last resort…..”
“What they are doing, by getting all the resources for themselves, is undermining the viability of Puerto Rico as a commonwealth,” said Joseph E. Stiglitz, the Nobel Prize-winning economist. “They want their money now, and they want to get the rules set so that they can make money for the next 20 years.”
This is predatory capitalism at its worst.
On this earlier post, a couple of commenters argued that the hedge funds had only a small investment in Puerto Rico and that I was wrong for saying they were pressuring P.R. to cut services and programs to repay their debt. Why were they defending the hedge funds? Because one of the major lenders to P.R., John Paulson, made a gift of $8 million to Eva Moskowitz. So they take from the children of P.R. and give to the children who are retained in SA.