No, not Janet Yellen, the New York Times for Pete sakes!
First page, financial section, but below the fold. Mary Williams Walsh (not as good as Mary Kate Danaher, aka Maureen O'Hara who I would have followed anywhere and who left us last week...but a pretty name) wrote about the Puerto Rico debt crisis almost on cue. Thank you Mary Walsh! Copy!!
Now I know nothing about Puerto Rico. Nor do I know anything about its debt which apparently totals some $65 Billion. Finally, I know very little about Muni Bonds which was made abundantly clear a few years back when, with Mary Meeker (I should have known better), I thought we were in for a bad time involving those things. But I do know a bit about how markets tend to work and a bit about commercial law and a good deal about Bull Manure of which in my life I have seen a great deal. Ms. Walsh may as well, but of this knowledge there is no indication in her article. Then again, I love the name and given that she works for the New York Times which is less and less interested in fact, truth or reality unless it conforms to their political and philosophical view of the world, I'm prepared to give her a pass. Hey! A girl's gotta eat!
Anyway, being the latest dead beat in the Western Hemisphere, P.R. has come up with a novel approach in explaining how all this happened that's right out of a Freddie Prinz, the late and extremely funny comedian of Puerto Rican heritage..."Is not my Yob..."script: It's the fault of the Federal Government because Congress, citing Constitutional separation-of-powers doctrine and acting through the Tower Amendment (he was a Republican Senator from Texas by the way, which made him a Spawn of the Devil in the eyes of the NYT) refused to allow the SEC to oversee the offerings in the muni bond sector which allowed the Commonwealth to lie to it's investors as to its financial condition.. Now if you are thinking, "How's that again?" so was I when I first read it. It's right up there with, "I robbed the bank because my tough life growing up as an orphan after I murdered my parents, so I should be acquitted." No kidding, that's the argument, but wait, it gets better.
It seems that Congresswoman Nydia Velazquez of--surprise!--New York, has introduced a bill aimed at those creatures which were born into the financial world, mid-wived by my ol' pal Chuck Schumer and his "carried interest" idea (wonder if she checked with him, the Hedge Funds. She is apparently REALLY mad that the Hedgies, seeing an opportunity to make a huge profit with little down-side if things go right, went out and bought up a whole lot of the Munis in question at I suspect a tad less than par, financed no doubt at a pittance as a result of the Fed's no interest for no-bod-ee policy of the last 10 years. "If things go right" is an euphemism for "bail out" to which the Gentle Lady has of course no objection; her objection is to somebody making a profit out of the use of tax payer funds...especially hedge funds which are a political pinata and therefore fair game. "They should be working to resolve Puerto Rico's finances in a fair and orderly manner," says Ms Velazquez. I mean, how can one not agree?
Funny. The first thing that went through my mind was "How come nobody's in jail? But that's just me. I keep forgetting that to expect a modicum of honest an integrity in today's society is terribly old fashion. Then again, when I was a kid we had the expression, "Never buy a pig in a poke" and while to this day I have no idea as to what is a poke, I suspect in had something to do with doing your homework before spending money. One would think that an investor or an investment manager might do that especially since the latter gets paid for investment decisions. I guess I'm too old and therefore just can't understand this stuff. I mean, I never really understood why some guy in Iceland would invest in a bunch of securities backed by a pile of mortgages located in places in the United States that he never heard of much less visited. Silly me. Go figure.
The other thing I'm having trouble with is this concept that's been kicking around inside my head relation to negotiable instruments--you know, like a cheque or a bond or a letter of credit. It kinda forms the basis for all of banking, most of commerce and how one gets paid in the sale of transfer of goods. It goes back a loooong way in English Common Law which forms the basis for all of our laws...like, a 1000 years. It also IS the basis for the capital markets and the purchase and sale of financial instruments and obligations. It's no little thing: willing seller, willing buyer. Buying a bond is just like buying a house: I have a bid and you have an offer. You will sell at a price and I want to buy at another. We meet in the middle...willingly. I get what I want and you get...LIQUIDITY. Quite frankly, it's no one else's business as to the nature of those negotiations.
BUT, what about the poor starving people of Puerto Rico? They are being forced to pay interest on 100 cents when a holder in due course--the Hedgie--only paid 50 cents for their obligation? Terrible...unless you look at it from the standpoint of why, having lied to the original purchaser of their obligation, Puerto Rico doesn't offer to make up the loss to that person on the difference of what he original paid and the price he received from the Hedgie. I mean if we are talking morality, why not? Forget about throwing out the window 1000 years of jurisprudence. Or the fact that at the outset Puerto Rico KNEW that their obligations would trade AT THE MARKET from the moment of closing. But they had no choice say you. They needed the money. Well, in the extreme you only need if if you intend to spend it but is it too much to ask that the truth be told in the negotiations leading up to the borrowing. If the money is then unavailable, fix the problem. If still available--but at a price--pay the price. And, in the next election it might not be a bad idea for the poor starving people to fire their politicians, demand honesty of the next bunch and demand prison for those who failed deliberately in their duty to represent the people. If we focus on what caused the problem and punish those who caused it, perhaps it wouldn't happen again. Then again, we have representatives like Congresspeople Nydia Velazquez and Barnie Frank and Senators like Christopher Dodd. And the New York Times. Don't hold your breath.
My birthday tomorrow. I'm taking the day off unless the world needs saving.
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