Tag: debt crisis

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Puerto Rican debt crisis hits Congress

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By Peter Schroeder – 07/05/15 12:09 PM EDT

Advocates of the change say it would resolve a technical oversight from a decades-old bankruptcy law, while skeptics warn that it could throw into question billions of dollars in debt now owned by investors across the country.

Earlier this week, Puerto Rico’s governor declared that the nation’s $72 billion pile of debt was too much for it to handle. To avoid a “death spiral,” Gov. Alejandro Garcia Padilla said the commonwealth would have to break its promise to pay back some money owed.

But a quirk in the nation’s bankruptcy code is throwing Congress into the middle of the matter, as lawmakers will need to quickly pass a new law if Puerto Rico is going to gain access to the nation’s bankruptcy courts.

Puerto Rico’s nonvoting representative, Resident Commissioner Pedro Pierlusi (D) is working to build support for legislation that has simmered in Congress for months, but has taken on new urgency following the governor’s declarations.

Sens. Chuck Schumer (D-N.Y.) and Richard Blumenthal (D-Conn.) are working to build support for similar legislation in the Senate.

A 1984 update to the nation’s bankruptcy laws left Puerto Rico out of the picture, apparently by accident. Chapter 9 of the bankruptcy code gives states the power to allow agencies or municipalities to declare bankruptcy, as happened most recently in Detroit. But the law is silent on territories like Puerto Rico, leaving it on the outside looking in when it comes to public bankruptcies.

“As best we can tell, it’s a typographical error in the bankruptcy code,” said John Pottow, a bankruptcy expert and legal professor at the University of Michigan. “It should be noncontroversial.”

Giving that power to Puerto Rico would allow some of its subsidiaries, like a debt-laden power utility, to enter into bankruptcy court, giving the territory some breathing room on its finances.

Lawmakers pushing to address that change say it was a simple oversight, and Puerto Rico was always supposed to have the same ability as the states.

https://thehill.com/policy/finance/246820-puerto-rican-debt-crisis-hits-congress

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The next Greece may be in the U.S.

GREECE

Published: June 30, 2015 10:23 a.m. ET

When Chicago Public Schools announced on June 24 that it would borrow $1 billion to make a $600 million-plus pension payment due June 30 an eerie feeling spread across bond investors and taxpayers alike.

It was the same feeling that gripped investors when Moody’s Investors Service downgraded Chicago’s credit rating to junk based almost entirely on the city’s pension problems.

The fear was that elevated pension costs, in cities like Chicago, might push these public entities into insolvency, wiping out much of the holdings of municipal-bond investors.

Once a sleepy corner of the municipal bond market — often not even properly reflected on cities’ balance sheets — public pensions have recently turned into the biggest headache for taxpayers and municipal-bond investors, threatening to bring down the finances of U.S. cities and states.

In some places, like Puerto Rico, Illinois, New Jersey and Chicago, entire balance sheets of cities or states hang in the balance.

Detroit, as well as three Californian cities — Vallejo, Stockton and San Bernardino — had to declare bankruptcy because of their overwhelming pension costs.

In those cases, the courtroom turned into a brutal battlefield pitting bond investors trying to save the money they invested in those cities’ municipal bonds on one side. And on the other side have been public employees trying to save the dwindling pensions that were promised to them.

Recent cases have shown that bond investors are clearly losing this battle.

https://www.marketwatch.com/story/these-lurking-debts-may-turn-us-cities-states-into-greece-2015-06-30

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Greek crisis summit called after talks fail and bank fears grow – as it happened

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Greece is facing a full-blown banking crisis after a meeting of eurozone finance ministers broke down in acrimony and recrimination, forcing leaders to meet next week.

Greece is facing a full-blown banking crisis after a meeting of eurozone finance ministers broke down in acrimony and recrimination on Thursday evening, bringing the prospect of Greek exit from the eurozone a step nearer.

Some €2bn of deposits have been withdrawn from Greek banks so far this week – including a record €1bn yesterday – triggering fears that a breakdown in talks would spark a further flight of funds. The German leader Angela Merkel, French president François Hollande and Greek prime minister Alexis Tsipras agreed to stage an emergency EU summit on Monday as a last critical attempt to prevent Greece going bankrupt. A representative of the European Central Bank told the meeting it was unsure whether Greek banks would have the funds to be able to open on Monday.

Eurozone talks end without deal as Greek proposals rejectedRead more

As thousands of pro-EU protestors gathered outside the Athens parliament building, leaders of the eurozone and the International Monetary Fund aimed bitter criticism at the leftwing Greek government, accusing it of lying to its own people, misrepresenting and misleading other EU leaders, refusing to negotiate seriously, and taking Greece to the brink of catastrophe.

https://www.theguardian.com/business/live/2015/jun/18/greek-crisis-eurozone-finance-ministers-merkel-live

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Greek default fears rise as ‘11th-hour’ talks collapse

EURO_theridgewoodblog

Peter Spiegel in Brussels and Kerin Hope in Athens

Talks aimed at reaching an 11th-hour deal between Greek ministers and their bailout creditors collapsed on Sunday evening after a new economic reform proposal submitted by Athens was deemed inadequate to continue negotiations.

The breakdown is the clearest sign yet that differences between the two sides may be too wide to breach, increasing the possibility that Athens will not secure the €7.2bn in bailout aid it needs to avoid defaulting on its debts — including a €1.5bn loan repayment due to the International Monetary Fund in just two weeks.

Greek negotiators, including Nikos Pappas, aide-de-camp to Prime Minister Alexis Tsipras, left the European Commission only 45 minutes after entering.

A commission spokesman said there remained a “significant gap” between the sides, amounting to up to €2bn per year, and there was no longer time to reach a “positive assessment” of Greek efforts before a meeting of eurozone finance ministers on Thursday.

https://www.ft.com/cms/s/0/5530f788-1288-11e5-bcc2-00144feabdc0.html#axzz3d7H33YDo