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Puerto Rico is roughly $70 billion in debt and will be forced to begin defaulting if a deal is not reached by Sunday. The battle over whether to bailout the US territory, and on what terms, is now playing out in the US Congress.
Though there is much talk of the principle and ideology involved in the decision, it looks as though the real battle lines are demarcated by which investment funds a member of Congress is aligned with, or thinking of being aligned with. Some bailout proposals only help certain funds, while some will help others.
The battle is even bringing in former members of Congress who are representing different funds in the contest for influence.
Former Sen. Judd Gregg, R-N.H., represents a group that holds bonds that are backed by a portion of the territory’s sales tax, and he has been asking lawmakers to support the House bill. Those bondholders stand to benefit if the territory’s economy — and sales — thrive because of restructuring. Gregg says the bill “treats creditors fairly and does not use taxpayer dollars.”
Former Rep. Connie Mack, R-Fla., represents a group of general obligation bondholders opposed to the bill. In an email to former colleagues obtained by The Associated Press, Mack wrote: “The legislation is pure and simple a BAILOUT on the backs of taxpayers, retirees and savers … Some in leadership have decided to try and pull the wool over the House GOP Conference’s eyes.”
A dark money group called The Center for Individual Freedom has already spent $200,000 running TV ads opposing the bailout. The donors to the group do not have to be disclosed, though it would be reasonable to assume some of them are those general obligation bondholders.
According to IRS filings published at OpenSecrets.org, The Center for Individual Freedom has received almost $5 million from Karl Rove’s own dark money group, Crossroads GPS. The Center for Individual Freedom has also received at least $40,000 from the American Action Network which is led by former Senator Norm Coleman and is closely tied to Wall Street. The American Action Network recently ran ads on behalf of Wall Street against the Consumer Financial Protection Bureau.
It is worth noting that the current bill before the House of Representatives, supported by Speaker Paul Ryan, is not really a bailout. The bill contains no direct financial aid, only the imposition of a control board to help manage Puerto Rico’s debt. But, as the general obligation bondholders know well, that control board would have the authority to restructure Puerto Rico’s debt and potentially cost those bondholders millions.
The proponents of the current bill claim that failure to intervene now could lead to a larger bailout in the future. But those claims and others appear just as compromised, given that none of the proponents are willing to simply say bondholders of all stripes will take losses. For all the protestations about fiscal responsibility with taxpayer money and larger dangers, the reality is the battle of the Puerto Rican bailout is, as Ambrose Bierce once said of politics, “a strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage.”
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