There must be something in the water

On Wall St that is.  Something that turns brains to mush.  Only a totally mushed  brain would have loaned $93 billion to Puerto Rico over the years.  It was obvious to anyone that Puerto Rico, a nice place to visit during the New England winter, had no way of ever paying the loans back.  The money was frittered away on salaries and graft, and this and that, it didn't create anything like industries that made money.  Most of  the new loan money went to rolling over old loans.  But Wall St kept on making loans to Puerto Rico.  Must be something in the water.
   And then Puerto Rico, after getting a special act of Congress to allow it, declared bankruptcy last month.  You would think that lower the value of outstanding Puerto Rican loans.  Not on Wall St.  They kept right on trading Puerto Rican bonds at around 90 cents on the dollar, right up to last week.  After Hurricane Maria blew down every electric wire on the whole island and President Trump made an off hand comment that Puerto Rico's loans would have vanish, then finally did Wall St start trading Puerto Rican bonds at 60 cents on the dollar.  Not quite worthless, yet, but a solid hit.  Anyone with two brain cells firing knew that after filing for bankruptcy, Puerto Rico was never going to pay off those bonds.  Which makes them worthless.  But Wall St kept swapping them around at a mere 10 percent discount for weeks.   Must be something in the water.

Shed a tear for Puerto Rico

They will declare bankruptcy to day, unless some last minute deal is made.  Over the years Puerto Rice managed to borrow $73 billion dollars from bone headed Wall Street bankers, who should have known that the island didn't have and never would have the revenues to pay off the debts.  Wall St bankers must have been taking stupidity lessons from the Euro bankers who lent to Greece. 
   The money ran out last year, and to complicate matters, Puerto Rice as a territory had been left out of the bankruptcy law.   You have to be a real US state to declare bankruptcy.  Territories don't count.   So last  summer Congress passed a law to allow the island to go bankrupt.  Being Congress, they put a few bells and whistles and a committee to negotiate into the law, but today the red tape unwound and bankruptcy is going to happen. 
   Anastasia O'Grady, writing on the Wall St Journal's op-ed page is all kinds of indignant about this.  She never really says just what gets her all riled up, but riled up she is.  Puerto Rico got access to a lot of credit, her politicians took advantage of that to borrow when they had no way of paying off the loans.  Politicians are like that.  And the banks deserve to loose their money.  Those were stupid loans, and loosing the money might smarten up the next generation of bankers.
   Capitalism depends upon intelligent distribution of capital.  Capital used to build businesses, employ people, grow the economy, is intelligent.  Capital used to pay government workers, politicians, and pensions is wasted.  It's clear that Wall St wasted $73 billion that it loaned to Puerto Rico.  Let's have the banker's smart for it. 
   It will take a few years (five maybe ten) for bankers to forget a bankruptcy and begin to loan again.  That will be a little tough on Puerto Rico, but that's the way the world works. 

House passes Puerto Rico bill.

The Hill, usually a pretty good source, is fairly clueless on this one.  They give a good discussion of the back and forth tugging to pass it.  Nothing about what's in it.  They give one brief quote from Paul Ryan to the effect that there is no taxpayer money going to Puerto Rico, but that's it.  I hope that's true.   There was talk a few weeks ago, about setting up a special board/commission/bureau in Washington to supervise Puerto Rico's government and it's spending habits.  The Hill didn't say anything about that.
   Such a bill ought to offer Puerto Rico protection for law suits while a bankruptcy court sorts out the island's finances.  Without the customary protection from lawsuits, Puerto Rico and the courts would be swamped as every lender and every supplier, and every union, and every body else sues Puerto Rico for the money they think they are due.  You gotta shut all that off to get any where.
   Was I the bankruptcy judge, with full powers, I would tell the lenders to suck it up.  It's been obvious to anyone for the past 20 years that Puerto Rico had no way, and never would have a way. to repay the loans.  For making dumb loans, the lenders deserve to loose.  I'd  review all the island pensions, and chop them back to barely enough to live on.  I'd  review the government payroll, I understand that a third of the island's residents are on it, and lay off a lot of 'em.  I'd shake up the island's tax collection department and drive them to collect all the taxes owed, by everyone.