Imagine this: opposing political partisans singing Kumbayah together over bankruptcy issues and laws!
It could happen. It’s because of this rule of thumb:
–There is no political constituency for bankruptcy issues – such issues are nonpartisan and apolitical.
Put another way, neither conservatives nor liberals nor moderates (nor any other political partisan) will rally round bankruptcy issues, like cash collateral, credit bidding, absolute priority or adequate protection. It doesn’t happen.
In today’s hyper-politicized climate, the foregoing may sound naïve – and incredibly so. But the foregoing is not naïve.
Granted, partisan sniping will occur on every political issue. That’s what politics is and what partisans do. And bankruptcy issues are not immune. But on the substance of issues, there is commonality in the bankruptcy realm.
Here’s proof. Consider the following statements on Puerto Rico’s financial crisis from such politically divergent figures as Justice Sonia Sotomayor of the U.S. Supreme Court (nominated by President Obama) and U.S. President Donald Trump.
From Justice Sotomayor
In a dissenting opinion issued on June 13, 2016, Justice Sotomayor argues that Puerto Rico needs a bankruptcy law to help manage its financial crisis. Here is some of what she writes:
“Puerto Rico and its municipalities are in the middle of a fiscal crisis.” Soon, they will be “unable to pay” for such things as “fuel to generate electricity” and for other “vital public services,” such as providing “safe drinking water,” maintaining roads, and operating public transportation.
“When debtors face untenable debt loads, bankruptcy is the primary tool the law uses to forge workable long-term solutions.” Puerto Rico and it’s municipalities need to have a bankruptcy option.
From President Trump
In early October of 2017, President Trump is reported to say this about “wiping out” Puerto Rico’s debt, in light of damage from Hurricane Maria:
Puerto Rico owes “a lot of money to your friends on Wall Street and we’re going to have to wipe that out.”
“You can say goodbye to that.”
Then, the White House is said to walk-back these comment. But any walk-back is minimal: while such comments should not be taken “word for word,” the White House clarifies, “We are not going to bail out” Puerto Rico’s creditors.
Both of these officials from the highest-levels of U.S. Government are saying the same thing. They’re saying Puerto Rico needs to adjust its finances under bankruptcy laws. That means wiping out, and never repaying, a bunch of debt.
Such is not a news flash. Nor is it controversial – except among creditors whose debts will be wiped out.
Another way to look at the commonality is this: no political group likes bankruptcy – not one. The reality, instead, is that opposing political partisans almost always agree on one thing:
–that bankruptcy debtors should be treated with disfavor and punished for the predicaments in which they find themselves: i.e., they should be treated harshly.
After all, the imprudent behaviors of spendthrift and undisciplined people should not be rewarded or enabled; or so the underlying, but usually unstated and falsely-stereotyped, assumption goes.
Every cloud and hurricane have a silver lining, we’re told. And a small tinge of lining for Puerto Rico is likely to arise from Hurricane Maria. The lining this: the opening of a flow of Federal money for disaster relief.
Another commonality for political partisans (in addition to bankruptcy issues) is disaster relief. Everyone is on board with disaster relief – much, of course, to everyone’s credit. So, Hurricane Maria changes the political narrative on Puerto Rico. The narrative shifts from bailing out a history of fiscal irresponsibility to providing disaster relief as a humanitarian necessity. That’s going from bad political theater to good.
Therefore, Hurricane Maria provides an opportunity for all partisans to cooperate on two nonpartisan/apolitical fronts: in providing both disaster relief and bankruptcy relief to Puerto Rico.
Solutions for Day-to-Day Services
All bankruptcy debtors (individuals, businesses and governing authorities) need two things to be economically viable in the future. They must address existing debt loads, and they must make ends meet thereafter. It does little good to wipe out a bunch of debt today, if tomorrow’s expenses still exceed tomorrow’s income.
The necessity and difficulty of making future ends meet is particularly acute for governing authorities. If they can’t provide essential services, their residents/taxpayers will have to leave. And if taxes are viewed as highway robbery (compared with alternative locations), their residents/taxpayers will move to a more favorable environment.
Therefore, the remedies for Puerto Rico need to simultaneously address both the problem of reducing debts to affordable levels and the problem of providing essential services while making ends meet.
The aftermath of Hurricane Maria provides an opportunity for everyone to work together to solve a broad range of disaster relief and bankruptcy issues in Puerto Rico. Here’s hoping everyone makes the best of this opportunity — and does so as expeditiously as possible.
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A report from Bloomberg this morning provides the following information on the source of Puerto Rico’s economic ills:
“Puerto Rico’s financial troubles date to 1996, when Congress said it would phase out a law that made the island a tax-free zone for U.S. pharmaceutical, textile, and other manufacturers operating there. The law had spurred growth for almost three decades. When it was phased out completely in 2006, the territory turned to the debt markets to fill the gap created by lost jobs and a dwindling population. Since 2008, about 400,000 people have left.”
Hmmmm . . . so, Congress may be responsible for creating some of Puerto Rico’s current problems?! That’s an interesting twist, which needs to be explored and elaborated upon!!