June 21, 2017

Political Report # 1255 Puerto Rico Is Emblematic of the Excesses of Financial Systems

You can find the audio for this interview here

Janine Jackson interviewed Ed Morales about Puerto Rico's recent filing for bankruptcy amidst its debt crisis for the May 12, 2017 episode of CounterSpin. This is a lightly edited transcript.
Janine Jackson: A CNN story headlined "Five Facts About Puerto Rico's Utter Economic Misery" invited readers to marvel at the $74 billion in debt and $50 billion in pension obligations that led to the largest municipal bankruptcy ever filed. Puerto Rico owes $8 million to Microsoft alone, readers are told, but now they may be shielded by the court as they try to negotiate that settlement. "There's no established rulebook to shape what comes next" in Puerto Rico, said a recent Bloomberg report, which described fights around the debt as "about to plunge into the unknown."
There is much that is unclear about the way forward in Puerto Rico, but some things about how we got here are just not being much talked about. We're joined now to discuss the situation by Ed Morales, author and journalist and lecturer at the Center for the Study of Ethnicity and Race at Columbia University. Welcome back to CounterSpin, Ed Morales.
Ed Morales: Hi. Thanks for having me.
JJ: When we had you on the last time in 2015, in July, talking about Puerto Rico's debt crisis, you said that the moderate position is that Puerto Rico should be allowed to declare bankruptcy, but even if that happened, "there is still going to be a price paid by Puerto Rico." And you also noted at the time that the Puerto Rican government had its own committee looking at restructuring the debt, but that there was "noise from more right-wing Republicans, who want a US oversight committee that would take away a lot of the autonomy of Puerto Rico to determine its economic future." Well, that sounds a lot like where we're at about now. I can't imagine that you're surprised by the current situation.

EM: Yeah, I'm not surprised. I was always skeptical, unfortunately, about the Democratic position, about pushing for the bankruptcy provision that would be contained in the PROMESA bill that they wound up working out, because it's still going to involve a level of austerity in terms of budget cuts. And that's actually what's happening now, and causing a lot of political turmoil in Puerto Rico.
The university students have been on strike for about a month, and actually today, as we speak, they've had a court order to open up the gates of the university, which they've maintained closed, and they have refused to leave. And so now we're waiting to see if the government is going to send police or the riot squad. There's actually already been reports of police showing up around the perimeter of the school, but that's because students are engaging in street protests outside of the gates.
JJ: You know, I think that activism is almost off the page in US media coverage of the debt situation and the bankruptcy, so-called. And the Washington Post's editorial ended by saying that Puerto Rico is going to have to endure a difficult adjustment before it starts to see the results, and they actually talk about an "initial dose of austerity." In other words, some media accounts are making it sound as though Puerto Rico's going to try austerity now. But the reason that students are out in the street is because austerity has been happening and been happening, and has not led to what we're told it's going to lead to.
EM: Well, yeah, sure. I mean, even the IMF, in several reports issued over the years, have said themselves that austerity does not help economies rebound from debt crises like these. But the situation right now has come about because there are direct cuts that have been proposed for the university itself. There's also been an announcement of 178 public schools that are going to be closed. The thing is that measures of austerity may have something close to catastrophic effects on the average Puerto Rican, including a lot of taxes and fines and things like drivers' licenses all going up at the same time.
JJ: Let's talk about what's being presented as the reason for these draconian-sounding cuts and measures, which is the debt, the debt itself that Puerto Rico is said to owe. Now, even the Washington Post says some of those creditors are so-called vulture funds, who swooped in when there was already a crisis and were just looking for a big payoff. But you say that some of it is actually illegal debt.
EM: Yeah. I mean, it's not only me but, first of all, the independent debt audit commission, which was dissolved by the new Gov. Ricky Rosselló just a few weeks ago, found several irregularities having to do with the fact that Puerto Rico has a constitutional limit on the debt that it's allowed to issue, and that that may have been violated by these Wall Street practices of switching interest rate indices so that they don't really show up as going over the limit. The debt that's based on the new sales tax that they implemented several years ago, which is 11.25 percent, is also being legally challenged. But then there's also been a study by a public interest group based out of Chicago that has found similar irregularities.
JJ: It sounds as though what's needed is sunlight. I mean, it sounds as though, why don't we just open up the process of exactly who is owed this debt, and talk about it, and talk about which of it is illegal and which of it is odious, and all of those various categories. But it doesn't sound as though the political process is very transparent right now.
EM: Well, both sides-and what I'm talking about is the US financial sector and the US state apparatus in maintaining the status of colonialism, and on the other side, the Puerto Rican political and financial elites-have stuff that they want to hide. I talked earlier about the unsure payday loan Wall Street practices that has added really huge amounts, up to $18-$20 billion of just outrageous interest rates and underwriting fees. And then, on the other hand, it's the revolving door between the Puerto Rican government and the Puerto Rican financial sector, who also participated in these irregularities. And so both of those things stand to be exposed, the Wall Street abuse and the collaboration by corrupt Puerto Rican government and government bank officials.
JJ: Well, there's a tremendous amount of history that's difficult to get to in this short space of time. I mean, we can go back all the way to 1917, when the US law said that Puerto Rico could raise money by issuing tax-exempt bonds, and there are various laws and policies put into place from Washington, DC, that have curtailed Puerto Rico's ability to control its own economic destiny. And that is just missing from so much of the coverage of the situation now. And that history, it's complicated, it's long, but at the same time, it's not that complicated, and it so influences the present moment that you would hope that media, for example, would make it relevant to their coverage today.
EM: Yeah. Well, absolutely. I mean, going back to 1917, and the whole process of the US control over Puerto Rico has consisted of using it as a laboratory for various things. And I think I mentioned last time, the sort of NAFTA-like tax avoidance and lower wages that were used to use Puerto Rico as a dumping ground for a lot of US products, and also a source of cheap labor. And then, when you get up to 1984, and the mysterious ruling which took away Puerto Rico's right to bankruptcy, which no one has a way to explain. And so the fact that Puerto Rico was known not to have the bankruptcy option is what drove a lot of the sales of the bonds as well. And that's why a lot of the bondholders are angry with the process, because part of the reason they bought some of the bonds is because they were under the understanding that Puerto Rico could not declare bankruptcy, and they actually had that right until 1984.
JJ: Right. That's a fascinating footnote that we can't figure out: In 1984, an unknown person added a provision to federal law that explicitly barred Puerto Rico and the District of Columbia from sheltering from creditors in Chapter 9 bankruptcy. I mean, it's just rich with things that you would hope reporters would dig into and would talk about, but the question then is how they talk about it. And so in some ways, it's a very familiar story.
The Washington Post's editorial says, "What matters now for Puerto Rico is reasonably shared sacrifice by all-creditors, public employee pensioners, bloated government agencies-so as to restore financial order." There's this notion that everybody played and now everybody's got to pay, and it doesn't really divide up the actors in a way that, as a reader, you would really understand what's going on.
EM: Yeah. Well, I'm also part of this working group at Columbia that's studying the Puerto Rican debt crisis and comparing it to other ones, say like in Greece and Argentina. And one of the things we're trying to do is develop, what are the narratives about the debt crisis? And this is the narrative that is being used to justify what would seem to be the reasonableness of the bondholders' position, and the lack of fault that the US colonial policy has in Puerto Rico.
So, yeah, I mean there's a deliberate skirting around the issue of not only the history of the US involvement, but in a way what happened in Puerto Rico is emblematic of the excesses of these financial systems, the whole idea that betting on risk is something that actually happened in sequence from Argentina to Greece and Puerto Rico. A lot of the same hedge fund and vulture fund groups actually went in that sequence. They almost all have ties to both areas. And so it's part of the whole process that happened with the end of Glass-Steagall and the deregulation of the financial markets in general.
So it's almost even beyond just the colonial relationship. It's like the perfect ending point of this flight of risk capital investment, which is one of the few areas where profit is generated in the whole global financial system.
JJ: Well, I'm going to have to end you on that note, which is rich for further exploration, and ask folks, indeed, to seek out Ed Morales's previous interview on CounterSpin, which fills in a lot of the history that we've been alluding to here. Ed Morales is the author of Living in Spanglish and of the book Latinx, which is forthcoming from Verso. Ed Morales, thank you so much for joining us this week on CounterSpin.

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