IF THIS REPORT ABOUT THE GOVERNMENT ANGLING TO UPSET THE LEGAL PRIORITIES OF PUERTO RICO’S CREDITORS IS CORRECT, IT’S VERY, VERY BAD
The premise of a commentary published yesterday on The American Interest site is that the government is floating a plan to take away from the holders of Puerto Rico bonds their legally established priority for payment. I’m reserving judgment on whether or not that premise is going to come to fruition, but if it does, it’s really not good.
I know it’s easy to think that the holders of those bonds are a bunch of Wall Street fat cats who don’t deserve to be paid ahead of the citizens of Puerto Rico. In fact, I’m sure that the people who are floating this plan (if that’s what is happening) are depending on exactly that sentiment.
That course of action and the sentiment underlying it are wrong for two reasons: (1) I’d be willing to bet that the majority of the Puerto Rico bonds are owned, not by Wall Street investors, but by main street investors, in the form of mutual fund accounts held by individuals for retirement savings and income; and (2) if investors can’t rely on the promises that are made when municipal bonds are sold, then bond financing for municipal governments will become either much more expensive or nonexistent. In other words, it will hurt the little guys that the government wants you to think they are protecting.
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