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Guest Post: Puerto Rico's Debt Crisis – Another Domino Keels Over
Submitted by Pater Tenebrarum of Acting-Man blog,
Puerto Rico's Bonds Collapse
If one looks at various sovereign states, it seemingly doesn't matter that their public debts continue to rise at a hefty clip. The largest ones are considered to have economies that are big and resilient enough to be able to support the growing debt load. Part of the calculus is no doubt the notion that they contain enough accumulated wealth to allow their governments to confiscate even more of their citizens property and income in order to make good on their debts.
Then there are the small and mid-sized states in the EU that are getting bailed out by their larger brethren, or rather, the tax payers of their larger brethren. However, things are different when the territories or municipalities concerned are considered too small and have no such back-up. Detroit was a recent case in point, and it seems that the US territory of Puerto Rico is the next domino to fall. Here is a recent price chart of the Puerto Rico 20 year bond maturing in 2033, which currently yields 10.6% and trades at 46 cents below par:
Puerto Rico's 20 year bond crashes – click to enlarge.
Amazingly, this junk is still rated 'investment grade' by the major rating agencies, even if barely so (both Moody's and S&P have slapped their lowest investment grade rating on the bonds, with a 'negative outlook').
As a good friend of ours remarked, once the inevitable downgrade to junk occurs, there will be a wave of forced selling from bond funds that are statutorily mandated to only hold investment grade bonds. Apparently Puerto Rico's bonds were extremely popular with US muni bond funds due to their tax exempt status, which increases the effective yield considerably.
Now financial regulators are 'investigating the Puerto Rico bond strategies' of these funds – in what will no doubt be a prelude to a plethora of investor law suits:
“U.S. mutual funds that loaded up on Puerto Rico bonds, including Oppenheimer Funds, are now the target of an investigation by a state securities regulator, who says investors may not have been aware of their exposure to the island's fiscal crisis.
The probe by Massachusetts' top securities regulator could spark other investigations because many other state-specific municipal bond funds include Puerto Rico debt in their portfolios, according to analysts. The bonds are exempt from federal, state and local income taxes in all U.S. states, making them attractive to mutual fund managers across the country.
William Galvin, the Massachusetts Secretary of the Commonwealth, said he is investigating three large fund managers, Fidelity Investments, OppenheimerFunds, a unit of MassMutual Life Insurance Co. and UBS Financial Services , to determine how they sold mutual funds with heavy concentrations of Puerto Rico debt and how they disclosed the risk.
"Puerto Rican bonds are like sugar in a bakery product. They are always included. Now the question is just how much and what were investors told," Galvin told Reuters.”
(emphasis added)
This prompts one question on our part: what the hell were the managers of these funds thinking or doing? Investors in their funds may “not have been aware of Puerto Rico's fiscal crisis”, but isn't it a fund manager's job to be aware of such things? Here we have more proof that there is far 'more money out there than intelligence to guide it' to paraphrase J.K. Galbraith. We can thank the Fed for said surfeit of money.
A Long Simmering Crisis
Judging from stories in the press, Puerto Rico's fiscal troubles were not exactly a big secret. By now officials from the territory are making emergency visits to Washington, presumably hat in hand.
The NYT writes:
“In a meeting with bond analysts in New York on Monday, the president of the Puerto Rican Senate, Eduardo Bhatia, said officials in the United States Treasury and White House had been analyzing the situation carefully, “wondering how they can help Puerto Rico send a very strong signal of stability right now.”
“We are waiting for some sort of an announcement from the Treasury and the White House,” he said without clarification. He also complained that analysts and investors did not appreciate the tough austerity measures that Puerto Rico pushed through in recent months.
Puerto Rico, with 3.7 million residents, has about $87 billion of debt, counting pensions, or $23,000 for every man woman and child. That compares with about $18 billion of debt for Detroit, with a little more than 700,000 people, or about $25,000 for every person in the city. Detroit and Puerto Rico have been rapidly losing population, leaving a smaller, and poorer, group behind to shoulder the burden.
Detroit, at least, was able to seek relief in bankruptcy court, but Puerto Rico is in a legal twilight zone. Territories, like states, have no ability to declare bankruptcy. Another territory, the Northern Mariana Islands, tried in 2012, but its case was rejected. Top Puerto Rican officials say that the territory is not bankrupt and is working through its problems responsibly.”
(emphasis added)
It seems that the 'strong signal' mentioned above is sorely needed. How Puerto Rico's officials will 'work through the problem responsibly' with a debtberg amounting to $87 billion is not quite clear to us. As to the inability of the territory to declare bankruptcy, bankrupt is bankrupt, whether anyone declares the fact or not.
Puerto Rico's 20 year bond yield – click to enlarge.
A bailout or a federal takeover of the territory's financial management are apparently additionally complicated at the moment by the misnamed 'government shutdown' in Washington:
“[..] the coming weeks will be critical, and how Puerto Rico comes through depends, to some extent, on factors beyond its control. If its financial problems worsen, it may need some form of sovereign debt relief for which there is no direct precedent — and that would probably be subject to approval by a Congress now paralyzed and focused on a fiscal situation closer to home.
“A lot of people believe that the Territorial Clause of the United States Constitution gives Congress the power to impose control,” said Robert Donahue, a managing director with Municipal Market Advisors, who has been discussing the situation with members of the President’s Task Force on Puerto Rico, a group representing 16 cabinet-level agencies and the White House.
One idea being considered is that Congress might establish a financial control board, perhaps like the one that helped guide the District of Columbia through a turbulent period from 1995 to 2001. One of that board’s first steps was to appoint a financial official with power to override the mayor and City Council. But with the federal government shut down, Mr. Donahue said, “there’s really no path.”
(emphasis added)
If Puerto Rico were part of the EU, it could at least rely on the fact that the bureaucracy in Brussels never sleeps.
Still, why were bond fund managers so utterly blind to the developing problems? Barron's reported already in August that the territory was in grave economic and fiscal trouble. In fact, it seems it has been in recession since 2006! In addition to its debt, it has a $30 billion pension hole as well. One positive is that its new government has taken measures to bring the deficit and debt under control, but this may be a case of these measures simply coming way too late in the game.
“Puerto Rico's debt load would rank third among the states, behind only California and New York. And its debt burden relative to key financial measures—gross domestic product, personal income, and population—is off the charts. Puerto Rico's debt per capita, for instance, of $14,000 is 10 times the average of the 50 states. In addition to its debt, Puerto Rico has more than $30 billion of unfunded pension liabilities.
The backdrop in the U.S. territory isn't promising: The economy has been in recession since 2006, the unemployment rate is 13.2%, and the budget has been structurally imbalanced for nearly a decade. The poverty rate is high, government employment accounts for a quarter of all jobs, and transfer payments make up 40% of income. More than a quarter of Puerto Rico's nearly four million residents receive food stamps.
"There's a debt spiral in Puerto Rico that will not turn out well unless there is a dramatic turnaround in the economy," says Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management in Minneapolis. "We've been advising clients to stay away from Puerto Rico. The government is doing all it can, but it has to climb out of a very deep debt hole."
[…]
Puerto Rico has taken painful and politically unpopular steps to cut bloated government payrolls, raise taxes, and shore up its badly underfunded pension system. A new government elected in 2012, led by the populist Governor Alejandro García Padilla, is committed to putting Puerto Rico and its various bond-issuing authorities on a stronger financial footing. Default and restructuring aren't in the government's vocabulary.”
(emphasis added)
Maybe “default and restructuring are not part of the government's vocabulary”, but the markets evidently believe that said vocabulary may have to be enlarged fairly soon.
Puerto Rico's 15 year yield is at an even higher 11.27% – the yield curve usually tends to invert when insolvency and default are considered increasingly probable – click to enlarge.
We find the Puerto Rico debt crisis quite interesting for three reasons: first of all, it is yet another symptom of the world's addiction to debt coming home to roost, in spite of the countless attempts to paper the problem over with even more debt. Secondly it demonstrates that systemic risk has not magically 'disappeared' since the 2008 crisis, but has merely been shifted around. In the past, many banks would probably have found themselves in hot water, as they likely would have held quite a few PR bonds. These days, investors are bearing the vast bulk of the risk. Of course, in light of the financial system's interconnectedness, it ultimately doesn't really matter who is first in line when it comes to financial impairment.
Thirdly, we would point out that this is precisely how wider credit crises tend to begin: one corner of the credit universe begins to burn (in this case, municipal and territorial debt, beginning with Detroit and a few smaller entities), and eventually the flames engulf all or most of it, as many of those hit by losses are forced to sell whatever they can still sell. It is of course possible Puerto Rico's crisis will blow over without wider-ranging ramifications taking shape – but in a sense it is just be the tip of an iceberg.
Major holders of Puerto Rico's debt, via Barron's.
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DRINK MORE RUM!
I'm sure Yellen and her magic printer can solve this problem very quickly ...
Oh but look at those yields!
Only deadbeats don't pay their debts
Damn, 10-17-13, oh nevermind.
No!!!!!! Not the Rum.
Looks like the first bar is running out of Entitlement booze. Concerned Entitlement Drunks seen moving to the Inside Lounge. This could get ugly.
Look at how steady the price of those bonds were until suddenly.....pop! Just like the great Kyle Bass says.
Ok, lets add PR to the list of probable candidates for outright sucession.........Right behind Texas and Alaska!
They cant do any worse on their own, then they've obviously done under the American Ponzi Scheme!
The bond thing is just one of PR's tax gimmicks designed to attract financing to feed to useless eaters. Succession would be like a Walmart welfare queen threatening to go get a job in a Chinese slave factory.
"They cant do any worse on their own, then they've obviously done under the American Ponzi Scheme!"
Guess again. Puerto Rico receives massive subsidies from US taxpayers. Last I checked they were the number one recepient per capita of social security, and this article states that 25% of the residents receive food stamps. Yet they have numerous tax advantages over the US taxpayers that support them. Screw Puerto Rico, let them support themselves for a change. On the brighter side, they do produce some seriously gorgeous women.
"On the brighter side, they do produce some seriously gorgeous women."
Never forget White Men Can't Jump and Rosie Perez.
For those that don't know her here's a picture (not from that movie though):
http://img14.imagevenue.com/img.php?image=97014_rperez3_122_564lo.jpg
Ah, but I'll take my wife. I'm a lucky guy...
They won't be succeeding at much of anything positive. As for secession, I hear the best time to do it is not during insolvency.
PR bonds are like sugar in a bakery product. LOL
These fuckers are real wordsmiths.
... y portate mal!
http://www.youtube.com/watch?v=PKE_6OmBijk
So debt DOES matter???? Whaaaaat???
Where the fuck is Dick Cheney when you need him?
With a name like Oppenheimer it's gotta be good!
Does anyone really believe investors are aware of the pr bonds in thier portfolios. Most firs sell prepackaged model portfolios. Neithe the advisor or the client really knows who is making the decision on which funds to place in the model portfolios
Wouldn't this be characterized as the "coming home to roost" "yield chasing" of the ZIRP era?
And one day it'll be how things are in order to catch a meal...
87B in debt?
When are we going to start measuring stuff in the correct Fed Res measuring units.
PR is just over 1 monthly QE (unit - QEU) in debt, which is hardly even worth talking about.
Kyle Bass covers this nicely in his most recent Faber interview on CNBC
They'll get bailed out by .gov, or the funds will be made whole on the backs of the taxpayers, or both.
Don't worry...the "free" market will figure this out.
Wall Street Bond Traders are loving it! Sell..no wait...buy...no wait....
"it is yet another symptom of the world's addiction to debt coming home to roost"
that is not the point at all
the Bonds are tax exempt "everywhere in the usa" - this was a marketing gimick akin to the CMO's - when the market wants more - you shovel shit out the door - until they choke - basic Investment Banking Principle
get with the program - politicians would take the money regardless of need or even desire for more capital - feeding the clowns is what it is about !
It's got nothing to do with debt? (scratching head)
Spic-tacular news
Its all pretty simple. Who has attained the greatest amount of wealth and power due to any government's monetary and budget policies? We don't need Ms Marples for this. Just follow the money. And why is that all those doing GOD's work, looking out for the poor and abused, live in wealth and comfort?
Clap, clap...
Well, it is Their system and all. Like I've been saying, the only way out of this is to dump it ALL. (and for those wanting some "solution" from me- YOU figure it out!)
wait for Delaware to file for bankruptcy ;-)
Puerto Rico means Rich Port, right?
Oh the Irony
Actaully it means the port of Racketeer Influenced and Corrupt Organizations.
its ok, perfectly normal. just listen to ray dalio. you just have some delveraging, some printing, some mass extinctions, some manipulation, its all ok. part of the beautiful deleveraging. i mean, isnt it so beautiful??? the suffering, the poverty, the mass abjection, the centralized control? ray says not sweat it. just bear with this another 10 years and everything will return to normal.
Call me stupid, But I see a trend happening worldwide, and it's not getting better.
I think it's time to push the red button, "Peregruzka"
+1000 For pointing out how fucking out of touch the talking-heads are (well, all they do it talk, they won't know shit about actually DOING, which is how things really work/get done)
It's been ONE BIG CYCLE, and it's ending. No more of these little cycle things...
One man's debt is another man's asset if you just move it to the other column.
PR didn't want statehood because they didn't want to pay taxes.
KARMA is a bitch.
If you think that's bad, Guam is markedly worse. Guam has a nuclear submarine and ship base and Andersen AF Base, housing B-2s. In short, a strategic command base. It's electricity rates hover around 30 cents a kw-hr, strangling their people, and unemployment is higher there than in PR.
We should cut the territories loose. Redeploy our forces and let them fend for themselves. Theyve bitched for years about sovereignity. Let them eat coconuts. They'd probably fare better than us in CONUS.
Makes me glad that my state has a balanced budget provision in its constitution. After 2008-2009, I got to witness several people ask the legislature to implement some shiny new program only to be told "That sounds great, but like we told the last person, we probably don't have enough room in the budget to implement it."
A "balanced budget provision" in your state's constitution is all fine and well, but you are incredibly naive if you believe your state will actually follow the letter or the spirit of the provision.
It is exactly like financial regulation. Whaever "provision" your state has will get "massaged" or "innovated" out of relevance or legal potency.
From Article 6, section 2 of the Constitution of Puerto Rico-
Section 2. The power of the Commonwealth of Puerto Rico to impose and collect taxes and to authorize their imposition and collection by municipalities shall be exercised as determined by the Legislative Assembly and shall never be surrendered or suspended. The power of the Commonwealth of Puerto Rico to 'contract and to authorize the contracting of debts shall be exercised as determined by the Legislative Assembly, but no direct obligations of the Commonwealth for money borrowed directly by the Commonwealth evidenced by bonds or notes for the payment of which the full faith credit and taxing power of the Commonwealth shall be pledged shall be issued by the Commonwealth if the total of (i) the amount of principal of and interest on such bonds and notes, together with the amount of principal of and interest on all such bonds and notes theretofore issued by the Commonwealth and then outstanding, payable in any fiscal year and (ii) any amounts paid by the Commonwealth in the fiscal year next preceding the then current fiscal year for principal or interest on account of any outstanding obligations evidenced by bonds or notes guaranteed by the Commonwealth, shall exceed 15% of the average of the total amount of the annual revenues raised under the provisions of Commonwealth legislation and covered into the Treasury of Puerto Rico in the two fiscal years next preceding the then current fiscal year; and no such bonds or notes issued by the Commonwealth for any purpose other than housing facilities shall mature later than 30 years from their date and no bonds or notes issued for housing facilities shall mature later than 40 years from their date; and the Commonwealth shall not guarantee any obligations evidenced by bonds or notes if the total of the amount payable in any fiscal year on account of principal of and interest on all the direct obligations referred to above theretofore issued by the Commonwealth and then outstanding and the amounts referred to in item (ii) above shall exceed 15 percent of the average of the total amount of such annual revenues.
Still have faith in that "state constitutional provision"?
Better re-read that "provision" and take a hard look at some no-shit budget numbers.
It is highly likely that your state has applied warm oil and is actively "massaging" the kinks...
You would be dead wrong. Outlays do not exceed revenues in my state. It will look towards unsustainable sources of revenue during hard times, but it actually follows that one. There is plenty of corruption here, and there are many problems here, but deficit spending is not one of those problems.
Vaquero, the sceptic in me tends to doubt official figures and budgets whenever there are enormous political and economical pressures. I have been proven right many times on this score.
The point I was trying to make is that Puerto Rico also has a "Constitutional Provision" that would have prevented their current predicament had they actually adhered to it.
Funny how we haven't actually put a name to this state. It might be worthwhile to do a little digging into the books to see if there is a fiscal picture that differs from the "official" numbers. I would be willing to bet a few fiat dollars that upon closer inspection, a different picture would emerge.
Don't get me wrong. I would be happy to lose that small wager, and I truly hope you are right about this state. The nation desperately needs positive examples of fiscal discipline.
Perhttp://www.ncsl.org/issues-research/budget/state-balanced-budget-require...
Also:
And there's the kicker, "capital" expenditures aren't included. I can understand why this divergence, but it sure opens things up for abuse...
A very strong signal of stability. This is the name of the game now. Really it is just paluaible deniability. Because the morons running these funds are not that stupid. They are just too supid to realise they are not TBTF but expendible.
This is in fact the essential question of all financiers in today's financial freak show: Am I too big to fail?
Ye who gets out first, gets out best....
This is a naive article. Puerto Rico is our "Cyprus".
Puerto Rico has been a tax haven for many decades. All kinds of multi-nationals relocated there to dodge US taxes. For example. Coca-Cola manufactures its syrup there and ships tax free to us stupid ones on the continental mainland and worldwide. Or take the pharma crowd, doing the same.
How could this article not include that Puerto Rico is America's "Cyprus" and "Ireland", spending freely and irresponsibly while being a parasite?
After being a parasite for so long, let them fix their own economy and government. There are plenty of assets they stole from the USA by leveraging no taxes and their access to our market. Cannibalization is in order.
PR has been a basket case ever since we captured it from Spain (who basically reduced the island to something like modern day Haiti). Most of the other far-flung possessions of the US have also been budgetary black holes where taxpayer money goes to die.
The first stage of collapse of an empire is at the periphery -- and then steadily inward toward the capital city.
"The first stage of collapse of an empire is at the periphery -- and then steadily inward toward the capital city."
Refreshing to see others who get it.
Welcome to ZH. And thank you for adding some sound wisdom (which often seems in short supply).
Old Yellen will take it...
Hide the Rum -- Captain Jack Sparrow
http://www.youtube.com/watch?v=sIBOESeZ-IY
Are you kidding me?
This is totally fucking bullish!!!
Americans, don't you fucking get it?
Puerto Ricans are fucking you!
They are corrupt free loaders that are stealing from you.
Give them their independence so that they'll have to work for a living.
NO MORE FREELOADING!!!!!!!!!!!!
what are you? a master of the obvious?
No, "Americans" (assuming it's the ones in the USA) are FUCKING THEMSELVES.
In this case it's Puerto Ricans doing what any lifeform does by default- takes advantage of the lowest energy costs/inputs to obtain sustainance.
I have guinea fowl, they're really good foragers. But, if I walk out and dump out a bunch of feed for them they'll come running and gobble it up. Are these guineas "freeloaders," are they "stealing" from me?
Clearly we're off the peaks of our excesses and will be heading toward the sustainable spectrum. It is therefore advisable for all seek sustainability (independent of any "virtual" man-made structure).
Although I admit that I'm not very familiar with how Puerto Rico came to fall under the pretectorate wing of the US, I'm fairly confident that it had to have been due to either exploitable resources or strategic military bases (to hold off "communism"), or both.
And lastly, the US had been freeloading on the rest of the globe for a LONG time (via FAKE money).
not to mention you can pretty much grow anything on that islland. and the Puerto Ricans know it.
PR will be just fine w/o USAInc. question is: will USAInc. be just fine w/o PR?
Great point.
We'll ALL be getting a LOT closer to the land.
I now that speaking about Cuba here is like saying one loves Communism, but the fact is Cuba presented us with a perfect example of what the collapse and continuation of a country is like in the modern era: the trigger was the collapse of the USSR, which, clearly, ended. Modern Ag in Cuba didn't do so well without all the oil imports that the USSR had been subsidizing. And then one can contrast this with N Korea... poor humans in N Korea, what cruel trick to have been plopped out of a vagina in a place like that...
There's a LOT of good, arable land in the US, not to mention still lots of resources (though depletion rates could readily wipe such assets out).
Why is there no mention of where the $87 billion in accumulated debt went? PR essential facilities are in shambles, the people live in poverty, yet there is more debt per capita than anywhere else. Why? Like they said back at Watergate, follow the money. Somebody got rich.
Is there a mention of it being created in the first place? That it was just generated out of thin air? This is what, one month's worth of Uncle Ben's printing activies?
Does that mean the switchblade industry is in trouble too?
"The largest ones are considered to have economies that are big and resilient enough to be able to support the growing debt load."
So, what's the problem/issue you might ask?
We have "big" enough.
We have "resilient" enough.
... to "support the growing debt load."
AT WHAT RATE IS IT GROWING? No metrics! And, and this is the big one that people skirt around who wish to deceive: FOR WHAT DURATION?
You cannot have perpetual growth on a finite planet.
Being "big enough" and "resilient enough" to handle a 5% growth rate in debt (a doubling every in about 20 years), 2% (a doubling every 35 years), what's the NUMBER, Pater? And, what time frame? Are we talking about for ONE YEAR or TEN, or, TWENTY? And after that amount of time, THEN WHAT?
The System, via the IMF, has the big countries eating up the small ones. And when the feast is done? We're seeing how it starts to look right now- LOW, and then NO, growth. The grow-or-die System will turn canabalistic; this is not, in my view, a "negative," it's just what it is.
In Puerto Rico everyone is a Yankee fan.... why is that ?
Dumping grounds for surplus NY Yankee apparel?
betya those ARod jerseys are going for about $5.99 right now down there...and still not sellin.
by next spring training, they'll probably be on a boat to Panama where they'll try to hawk em at the Canal gift shops.
next stop, Cooba.
Will probably see them on the backs of Filipino kids one day...
surprised no one's questioned WHY the trez & the DubHouse are so interested in helping lil' ol' PR in the midst of a "GOVERNMENT SHUTDOWN".
could this fun fact be part of the reason mayhaps?
The Bureau of Internal Revenue and the alleged Internal Revenue Service were not created by any Act of Congress. These are not organizations or agencies of the Department of the Treasury, or of the federal government. They appear to be operated through pure trusts administered by the Secretary of the Treasury (the Trustee). The Settlor of the trusts and the Beneficiary or Beneficiaries are unknown. According to the law governing trusts, that information does not have to be revealed. You will not find the Bureau of Internal Revenue, or the Internal Revenue Service, or the Bureau of Alcohol, Tobacco and Firearms fisted in 31 USC, Chapter 3, as an authorized agency of the Department of the Treasury.
The Philippine Customs Administrative Act was passed by the Philippine Commission between 1900 and 1902, which created Trust Fund #1, the Philippine special fund (customs duties) (31 USC 1321). The Act was administered under the general supervision and control of the Secretary of Finance and Justice. The Philippine Commission passed another Act known as the Internal Revenue Law of Nineteen Hundred and Four. This Act created the "Bureau of Internal Revenue" and the federal government's second trust fund, Trust Fund #2, the Philippine special fund (internal revenue). Article 1, Section 1, of the Act provides that: "There shall be established a Bureau of Internal Revenue, the chief officer of which Bureau shall be known as the Collector of Internal Revenue. He shall be appointed by the Civil Governor, with the advice and consent of the Philippine Commission, and shall receive a salary at the rate of eight thousand pesos per annum. The Bureau of Internal Revenue shall belong to the Department of Finance and Justice."
At some unknown date, before 1940, another Bureau of Internal Revenue was established in Puerto Rico, along with Trust fund #62 Puerto Rico (Internal Revenue). These two Bureaus are the only Bureaus of Internal Revenue which have ever existed, one in the Philippines and the other in Puerto Rico. In 1953, the United States relinquished its control over the Philippines.
(the rest of this skinny take with as many grains of salt as your tastebuds can handle)
step up your game, kiddoes.
i'm gettin tired of this shit.
calling chumba, chumba to aisle #62, toots sweet.
Don't get me started on why the Philippines is fucked up. (wonderful people [except politicians of course])
Has any municipality ever paid off their bonds debt without issuing new bonds? The ususal trick is to have voters vote for popular tangable things for bonds like school buildings, libraries, flood control lands, and then use taxes to pay for stuff that the public would rather not pay for like social servies, halfway houses, unwed mother assistance, drug rehabilitation, prison services, etc.. Another trick is to build tollroads with private money loans that once repaid is taken over by the city as a perpetual new revinue stream, taxing citizens in endless hidden ways. The real problem is that parasites can vote. That was our founding faters greatest fear that onece 'the rabble' learn that they can vote money for themselves from the public treasury democracy is threatened. THey were right.