When I read the details of Congress’ latest proposal to address Puerto Rico’s debt challenges, I came away feeling a sense of déjà vu: Once again, politicians are galloping down a path that rewards avarice, greed and the rich, while at the same time blaming and punishing millions of regular people.
Some facts: Puerto Rico faces a debt of over $70 billion. That debt was largely accumulated because of a decadelong economic depression that has left 60% of the adult population without jobs, which obviously makes the government’s task to pay back debts quite onerous (unemployed people don’t pay taxes). And now, a Republican-written bill proposes to hand over decision-making power over the island’s economic restructuring to a seven-member commission with a Republican majority.
Among the measures put forward: exempting residents from new overtime protections, cutting the minimum wage to $4.25 an hour for five years (far lower than the U.S. minimum wage of $7.25 that all Democrats now agree is a poverty-level wage), drastically reducing pensions, raising taxes, and privatizing public assets. This is nothing short of a playbook for austerity wielded by some very powerful behind-the-scenes players. In essence, Wall Street profiteers are holding a huge sword over the heads of 3.5 million American citizens.
Hedge funds currently hold somewhere between a quarter and possibly as high as 50% of the debt. What does this mean exactly? Hedge funds swoop in to try to make a buck when they see distress, snapping up bonds at bargain basement prices. According to the activist group Hedge Clippers: “Several groups of hedge funds have bought up large chunks of Puerto Rican debt at discounts and have also pushed the island to borrow at extremely favorable terms for creditors. … The spoils they ultimately seek are not just bond payments, but structural reforms and privatization schemes that give them extraordinary wealth and power — at the expense of everyone else.”
It doesn’t have to be this way. Typically, when any entity is facing bankruptcy, an appointed judge acts as an arbiter. To be sure, this does not remove politics from the equation. But it does mean citizens have a platform to make a case for evenhandedness and shared sacrifice. Take Detroit’s bankruptcy: Originally, the city administrator sought to drastically slash pensions and health care coverage for retirees using wildly inflated future cost estimates. Eventually, after substantive input and commitment from impacted workers and local philanthropies, the cutbacks were scaled back. Big companies, which had cut business-friendly deals with pliant officials, walked away with less, and workers and retirees took a softer hit.
In Puerto Rico’s case, it’s patently obvious that the fate of Puerto Rico’s people would be in the hands of a majority of Republican politicians who hate the idea of a minimum wage, have opposed any expansion of overtime guarantees (similar to the ones covering federal employees recently announced by the Obama administration) and are quite comfortable defending profiteering by Wall Street hedge funds. Unlike the residents of Detroit, they will have no say or recourse to raise objections or concerns.
In a sense, Puerto Rico’s precarious fate is also another indicator of what many people feel is a rigged system — and the intensity animating the disgust with politicians of both parties. A handful of people created the mess in which Puerto Rico now finds itself, a tiny elite is reaping vast riches, and the 99% are being left to pay the consequences.
Among the presidential candidates, Bernie Sanders opposes the plan, reiterating objections he made last year in a letter to Treasury Secretary Jack Lew. There are alternatives, which Sanders has also put forth in a letter to his Senate colleagues. He called for the Treasury Department and the Federal Reserve to assist Puerto Rico by providing billions of dollars in loans to the electric power and water agencies — which hold about a third of the island’s debt — to directly purchase bonds on favorable terms and force the hedge funds to take big “haircuts” on their holdings.
Sanders’ approach underscores the economic stupidity of the proposed bill. If you want to have a vibrant economy, people need to have money in their pockets. Slashing wages and benefits, or suppressing income by paying people sub-poverty-level minimum wages, breeds austerity for the vast majority of consumers.
We saw that in the wake of the financial crisis when, rather than have a massive public stimulus, Republicans, and many Democrats, opted for a miniscule plan that prolonged the economic pain for millions of people — pain from which they have yet to fully recover. This plan won’t hurt hedge fund managers and their political enablers who will float above the misery. But it will consign a generation or two of Puerto Ricans to economic depression.