By David Dayen
The American Prospect
Vulture investors have descended on the commonwealth, taking advantage of a debt crisis that has impoverished citizens and created massive unemployment.
his is a distress call from a ship of 3.5 million American citizens that have been lost at sea,” Puerto Rico Governor Alejandro García Padilla said on December 1, begging the Senate Judiciary Committee to help protect his homeland from an unspooling disaster.
After issuing bonds for over a decade on everything not nailed down, Puerto Rico now carries $73 billion in debt, a sum that García Padilla had termed “not payable” in June. Successive governments have enacted punishing austerity measures to service the debt, despite a stubbornly depressed economy and poverty rates near 50 percent.
Now, after defaulting on smaller loans, it’s likely that much of the $957 million due January 1 will go unpaid, bringing more chaos and suffering at the hands of Puerto Rico’s creditors.
In many ways, the Puerto Rico situation is sui generis, resulting from a patchwork of laws and obligations on an entity that is not really a country and not really a U.S. state. But looked at another way, Puerto Rico is just the latest battlefield for a phalanx of hedge funds called “vultures,” which pick at the withered sinews of troubled governments.
In Greece, Argentina, Detroit, and now Puerto Rico, vultures have bought distressed debt on the cheap, and then used coercion, threats, and legal action to secure a massive windfall, compounding the effects on millions of citizens.
The legal wrangling masks an irony: As creditors demand that Puerto Rico pay back everything it owes, hedge fund managers have used the island as a tax haven to avoid their own responsibilities. Wealthy investors don’t just want to make money in Puerto Rico; they want to use their leverage to effectively buy an island playground.
Puerto Rico has labored under colonial rule since Christopher Columbus arrived in 1493 and claimed it for Spain. After the Spanish-American War in 1898, the United States acquired Puerto Rico in the Treaty of Paris, and ruled it as a territory. Since then, Puerto Ricans are considered natural-born citizens, but must abide by U.S. laws without a voting member in Congress.
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