Pay Attention Greece: Puerto Rico Refuses To Pay Creditors Before It Fully Funds Its Citizens' Needs

Tyler Durden's picture

While Greece may be "contained" for the time being, the only reason why its creditors were eager to collaborate on an expedited basis with the humiliated Syriza government is because as we noted earlier, of the €7.1 billion bridge loan released to Greece €6.8 billion would promptly be used to repay Greece's creditors including the ECB for whom an event of default would be unthinkable unlike the IMF.

The sad part, as we laid out in "The Unspoken Tragedy In The Upcoming Greek Bailout" is that both with the bridge loan(s) and the actual €86 billion (or more) EFSF bailout still to come, the vast majority of funds will be used to repay creditors, and even that wouldn't be sufficient hence the need to put €50 billion in Greek assets in escrow as a repayment pledge for all incremental overages.

Said otherwise, very little if anything from Europe's generous third bailout would actually reach the Greek people yet again (and quite likely there would be a funding deficiency hence the need to sell assets).

Compare that to the position taken by Puerto Rico today, when its budget director said the commonwealth won’t redirect cash from its operating budget to make debt payments, in the process "ratcheting up the pressure to restructure the island’s $72 billion debt burden" as Bloomberg reports.

The comments from Luis Cruz, director of the Office of Management and Budget, come as Standard & Poor’s slashed its rating on the Public Finance Corp.’s bonds to CC from CCC-, calling an Aug. 1 default on the securities a “virtual certainty.”

Puerto Rico has $36.3 million of Public Finance Corp. debt maturing Aug. 1 that needs to be repaid through legislative appropriation and as previously reported, Puerto Rico said last week the agency failed to transfer $36.3 million to a trustee to cover the Aug. 1 debt payment because the legislature didn’t appropriate the funds.

The junk-rated island must first pay health, security and education expenses, Luis Cruz, director of the Office of Management and Budget, said during a press conference Monday in San Juan.

“It is the government’s priority to provide public services and we will not be transferring funds from these assignments to pay the debt,” Cruz said.

"We all know the difficult situation we are facing in terms of cash flow,” Cruz added, "And we have to decide how we handle that cash flow and our priority is to provide services to citizens: health, safety, education."

Bloomberg adds that last month the island's legislators approved a budget for the fiscal year that began July 1 that doesn’t include $93.7 million to repay debt-service costs on PFC bonds. "The legislature did create a fund that the Government Development Bank can use to repay debt. The bank, which handles the island’s borrowing deals, must ask the legislature before it can access that money. The legislature doesn’t reconvene again until mid-August, after the bonds mature. Governor Alejandro Garcia Padilla doesn’t plan to call a special legislative session to bring lawmakers back earlier to discuss the Aug. 1 payment, Cruz said."

David Hitchcock, a S&P analyst in New York, wrote that "A default on the PFC bonds would be further demonstration of increasing unwillingness to pay debt in full and also raises the potential for future unequal treatment between various types of bondholders."

And while it would be easy to say that Puerto Rico and Greece are comparable, the reality is that unlike the soon to be default island, Greece truly did have, and still has, a gun to its head, as a result of its unwillingness to prepare for the Plan B it itself was eager to escalate to, namely existing in a world without the financial backing of the ECB which it found the hard way, means capital controls, bank runs, and a paralyzed financial system.

Which is why Puerto Rico is lucky that its creditors are largely inert entities - mostly municipal funds and a few activist hedge funds - who have no leverage over the island. Which is why PR can default on them without fear of retaliation - surely the US will never throw the commonwealth out of the Dollarzone, whether permanently or "temporarily", and why Greece can only stand and watch as two case studies emerge: one of an insolvent state which can at least prioritize its own population over the demands of foreign creditors, and another insolvent state, whose creditors can take advantage of the European monetary "union" which for Greece is now a prison, and set any and every demand they want, knowing full well they can crush the local economy all over again with just one ELA-limiting press release.

In this regard, it is quite clear that Schauble was joking when he offered to trade Greece, which has zero leverage over its creditors (at least until it implements plans for existence outside of the Eurozone) for Puerto Rico, whose creditors have zero leverage over the island.

Finally, we hope the Greek government is watching and learning, and taking appropriate measures so that it too can, at least once, prioritize its own people's needs over those of a global banking oligarchy.

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SolidSnake961's picture

why does anyone think its absolutely necessary to repay creditors? they took the risk, let capitalism take place, high yield exists for a reason

Sorry_about_Dresden's picture

The moneylender must get interest payments.

Richard Chesler's picture

Puerto rican balls ain't that big.

El culo de las portorras on the other hand...

 

knukles's picture

Never, ever tell a Puerto Rican window washer to get them spic and span.
I used to have accounts/prospects in PR.  Why does this not surprise me one iota*?

* iota, irony of the day, is of Greek etymology

nmewn's picture

This is the second time the Tylers have gotten me to click on a post with hot PR chicks with no hot PR chicks under the fold.

I think I'm being abused ;-)

Creepy A. Cracker's picture

There's a reason for the picture being tiny and blurred.  That's Bruce Jenner and friends. 

Welcome... to Obama's America: The few, the proud, the men wearing dresses.

old naughty's picture

ok, guess we now shout: "Puerto Rico is not Greece", no?

nmewn's picture

Thanks MsC, I think (upon closer inspection) Creepy A Cracker may be right...lol.

migra's picture

PR is a crime infested massive sheethole. the south Bronx is a set up for ricans.

Buckaroo Banzai's picture

Q: How do you tell your parents that you are dating a Puerto Rican girl?

A: You don't. You tell them she's Spanish.

Meat Hammer's picture

It's clearly time to invade Puerto Pobre

Buckaroo Banzai's picture

Fun Facts!

1) IRS back office operations are all located in Puerto Rico.

2) if you are stupid enough to start a business in Puerto Rico, you are exempt from all corporate and personal income taxes.

CheapBastard's picture

Trump will cut the tax rate while Hitlary will raise it:

 

Poll: Donald Trump takes double-digit lead over the GOP presidential field

 

According to the just-released poll, Trump — with 24 percent support among likely Republican voters — holds a comfortable, double-digit lead over nearest competitor Scott Walker, who captures 13 percent support.

 

http://www.msn.com/en-us/news/politics/poll-donald-trump-takes-double-di...

 

 

Bemused Observer's picture

I can't believe these polls! The GOP wants Trump, and apparently the Democrats are giving Sanders a good look...It's too perfect!

It was all about Bush/Clinton again, but instead Bush/Clinton just get shoved out of the way while everyone rushes past to hug on Trump/Sanders! LOL!

In a more metaphysical vein, it's almost as if the Universe decided to tear away the "Dorian Gray" portraits of both Dems and Repubs and force them to reveal their true faces to the world...

Oldwood's picture

So what exactly did the spend the borrowed money on? I assume they were taking care of their social obligations again. You recon they realize that if they don't pay their debts they won't have anymore money to spend for the peeps?

MsCreant's picture

This is what I'm talking about!

If you owe the bank $10,000, you have a problem. If you owe the bank $70,000,000,000, they have a problem.

Greece is tied up in some head games, when they should have Just Walked Away (JWA).

Kaiser Sousa's picture

spoken like a true playa - playa.....

old naughty's picture

learned today: Don't pay the bankers one iota, JWA.

 

but, what baout the tanks?

 

and  I'm confused, do they spell day "ay"?

* iota, irony of the day, is of Greek etymology

darteaus's picture

They CAN'T walk away for a very simple reason - they spend more than take in, so they need additional credit

disabledvet's picture

"Gateway to the Carribbean."

Interesting the that Greece is the shield to Europe while Cuba is much the same to the USA.

"We'll just keep throwing off trillions into the money furnace of Wall Street and DC" of course.

Eventually there will be a DOLAR amount that sounds out these clowns though.

Hopefully it's not just a single dollar of course....

Make_Mine_A_Double's picture

Puerto Rico could be the next Asstrailia, or Kalifornia, or New Jersey, or Portugal, or France.

 

Or (insert Western crash test econ here)____________________

CHC's picture
CHC (not verified) Jul 20, 2015 7:01 PM

Greece is toast.  Too bad - they had a chance to break away from those vultures and strike out on a whole new course.  They chose slavery instead. 

Omen IV's picture

Chose slavery?

No criminal politicians end to end

Omen IV's picture

Chose slavery?

No criminal politicians end to end

thamnosma's picture

But, but, we want to be Euro-peons.

Troy Ounce's picture

 

Tsipras et all are weasels, did not have a plan B and are therefore criminally negligent. How The Fuck can you go into negotiations like that?

 

 

Kaiser Sousa's picture
National Security Action Memorandum No. 81 Source 

TO

Secretary of the Treasury

SUBJECT

U.S. Gold Position

I would like to have as soon as the Treasury has made an analysis an up-to-date study of our gold position. How much we are losing. How this compares to other years. Whether we can look for a better result in the next six months. What should we do about it.

I gathered the other day that one of the reasons for the flow of gold was the investment by Americans of dollars in Western Europe. Should I before Congress leaves announce that we are going to put this on a must basis of legislation next year that will make it retroactive to September 1st of this year. Would that help discourage a flow in the next four months?

John F. Kennedy

Grouchy Marx's picture

Reading quotes like that makes me wonder if the conspiracy theories don't have something to them...

Saying stuff like that could get you killed. 

Global Observer's picture

The game is not yet over. Tsipras played his cards beautifully and will come out the winner in a few months time. Here is my take.

There will be no 3rd "bail out" for Greece, because the EZ creditors don't want it; they don't want to be accountable for the mess Greece will be at the end of the programme. Till now they were hoping to pin the blame on Greece and causing the maximum possible damage on Greece after a debt default and force them to leave the eurozone i.e. make an example of Greece. Yanis Varoufakis discovered that the creditors were not interested in a deal, very early into the negotiations itself. So Tsipras' strategy has been to act tough till the end and then surrender which would catch the creditors by complete surprise. Now they have to find a different excuse to walk out of a "bail out" deal, because Tsipras will not provide them any. But find an excuse they must, because by now they understand they have been completely outplayed and their bluff called. So when they fail to agree on a 3rd "bail out", they can't try to make an example of Greece for their own failures. They can't force Greece out of the euro either. So it is then that he will implement his Plan B, the Montenegro option at the worst.

Ghordius's picture

you make it sound a bit as if Tsipras and Varoufakis snapped up the checkbooks from the pockets of their collegues. intriguing

the "Montenegro Option"? you mean use the EUR without being in any way officially connected to it? is it a positive or a negative option, in your view?

Global Observer's picture

 

the "Montenegro Option"? you mean use the EUR without being in any way officially connected to it? is it a positive or a negative option, in your view?

It is the worst case scenario for Greece when the creditors walk out of the talks. It is certainly better than the 3rd "bail out".

 

However, I don't think they will have to resort to it. When the creditors fail to come to an agreement, there will be a violent reaction from the market. Remember, that even to start negotiations on an ESM bailout, majority EZ parliaments have to acknowledge that the staibility of the euro is in doubt, if the concerned member country is not bailed out? Well, 10 of them did and it is public record. Angela Merkel stated that the alternative to bailing Greece out is chaos. A few months down the lane, they cannot pretend it is no longer true. Once it becomes evident that the eurozone is not capable of securing and keeping liquid the banks of member countries even when the government is willing to do anything demanded of it, capital flight from the other periphery eurozone countries will start in a big way. There is only one way they can arrest this capital flight, by delinking the liquidity provided to the banks in an EZ country, from the solvency of the government itself and getting rid of liquidity caps by country. It only takes a very simple procedure to do it and costs the member states nothing. Once this is done, Greek government can default on its debts and stay in default, but no capital controls need be imposed on Greek banks. It will transform the Eurozone and Yanis Varoufakis has been pleading for it to be implemented since 2011. Of course, those who want to use bank liquidity as a weapon to blackmail EZ member states into implementing the neo-liberal agenda won't let it happen. I suspect Angela conspired with Tsipras to build the case to do it.

 

If that happens, Greece will stay in the euro, the Greek banks will be liquid and the government can end austerity as long as there are tax revenues to support it, since it will be locked out of debt markets for a long time.

Goldilocks's picture

"Finally, we hope the Greek government is watching and learning, and taking appropriate measures so that it too can, at least once, prioritize its own people's needs over those of a global banking oligarchy."

..oh that's fucking rich!

TradingTroll's picture

It will all be declared odious debt because the people voted No.

falconflight's picture

The US FED-Gov't will intercede and PR will remain de facto solvent for as long they wish.  They control the means of production, and let's not forget who has the guns.  

kchrisc's picture

Thankfully for the Puerto Ricans, they don't sit on a gas pipeline route from Israel to Zion's new plunder target and war dog in Europe, and don't have any gold to be plundered.

Liberty is a demand. Tyranny is submission..

 

But if they did, I'd bet that somehow, someway, they'd have WMDs and Niger "yellow-cake."

 

 

GeorgeHayduke's picture

Looks like you've been paying close attention to how this game is actually played kchrisc. Judging from the few down votes, it also looks like some folks don't like the ugly underbelly of the bullshit story to be exposed so bluntly. Too bad.

kchrisc's picture

Thanks, but the goal is not "up-votes," but to engender people to think. I do hope that "up-votes" indicate that people are thinking, not necessarily agreeing, but thinking.

Like my harping on Zion. If I am wrong, and I am not, but people at least notice the tyranny that is the DC US, then we are much further along the road to "No!" and the Restoration of the American republic, Liberty, and prosperity.

Liberty is a demand. Tyranny is submission.

PoasterToaster's picture
PoasterToaster (not verified) Jul 20, 2015 7:13 PM

Governments borrow money?  Sounds like some kind of scam.

f16hoser's picture

Tsipras should be Hung from a Lamp Post. He sold-out his country. Sad really...

Kaiser Sousa's picture
Memorandum of Conference With President Eisenhower Source 

OTHERS PRESENT

Secretaries Anderson, Dillon

Generals Persons, Goodpaster

 

“Mr. Anderson then gave a report of the mission. He and Mr. Dillon had arrived on Saturday and had met with Ambassador Dowling on Sunday. Dowling, far from recommending a soft approach to the Germans, had recommended that the matter be put to them with total bluntness. Mr. Anderson said that in fact he and Mr. Dillon had softened one or two points of the presentation when they met with the Germans from what had been developed with Ambassador Dowling.

 

Mr. Anderson said they had met with the Chancellor on Monday.3 They had outlined the balance of payments situation to him and the problem of our gold outflow. They had made clear the necessity for actions to defend the dollar and had brought out that support costs in Germany represent a $600 million gold burden to us. They had stressed that we cannot run a $4 billion deficit in balance of payments annually. Mr. Anderson said it was quite clear that the Chancellor did not understand this problem at all well, in spite of repeated explanations. The Chancellor’s own people confirmed this, and said that the matter is not one for which he has an understanding.

Monetas's picture
Monetas (not verified) Jul 20, 2015 7:26 PM

"Fund it's citizen's needs" .... means .... take care of the people's people .... the government workers .... the Puerto Rican People's Party!

Monetas's picture
Monetas (not verified) Monetas Jul 20, 2015 7:37 PM

PPPPP .... Puerto Pobre People's People Party .... (with my word skills and inventiveness .... I could have had a top position in Goebbel's information ministry .... fortuneately, my services are reserved for .... Donald Trump and the American way) !

nevertheless's picture

 

Yes because in America and Greece, the tax payers pay the banks, and not the people, and we see how well that is working out. Do you love America’s continued decline towards third world status. Keep paying the banks, and let the people starve.

FPearl602's picture

Every one of you fuckers should go read Atlas Shrugged over and over and over because Rand was a Russian Jew that witnessed state confiscation before she arrived on the Amerikan shores and she fucking nailed it. In the West (and East) politics is a PROFESSION and it ain't about "public service"; it's about MONEY. Nice tidy $150k per year jobs with 65% paid for life as your pension for servitude to the state; if you blow or fuck the right person, you wind up with a nice little account in the Caymans where you keep your yacht, compliments of the vested interests whose bill you helped pass. 

It is ALWAYS about "following the money" but the dumb shits that pull levers in voting booths have three-pronged hooks in their cheeks after listening to these pseudo rock stars promise the world while they are lifting their wallets out of their ass-cheek blue jeans.

Fuck 'em. 

Kaiser Sousa's picture

lighten up homie....damn

 

actually - ur mother fucking right.....

Oldwood's picture

Where else can you get a job with that pay and benefits with zero accountability.

Winning till the taxpayers take your head.

nevertheless's picture

Are you talking about Greece, PR, or fucking WALL  STREET?