TRUMP CORRECT: WALL STREET MUST TAKE HAIRCUT ON BAD LOANS TO PR

ON THE PLIGHT OF PUERTO RICO, WALL STREET AND BAD LOANS

DO NOT HELP PAY OFF BAD WALL STREET LOANS WITH US TAX DOLLARS

The President was right- when he said after his visit to hurricane devastate Puerto Rico:  "Wall Street bankers and investors will have to take a "hair cut" on their Puerto Rican investments." This off-the-cuff statement caused hurricane-like waves in the canyons of lower Manhattan, where accepting less than full return on a loan is considered "obscene" speech and is the only verbiage universally condemned and disdained.  These 'obscene" musings of  our businessman-president were immediately criticized.  But for the rest of us taxpayers, they should be taken very seriously and accepted as fact.

This is what must have gone through Mr. Trump's business-oriented mind, He reasoned this way:  how could the PR Commonwealth (a long-time territory of the USA) with an approximately $100 billion dollar GDP, annual revenue (2010) of $31 billion and expenses (2010) of $29 billion, with 12% of its work force unemployed, and a foundering economy---which also owes Wall Street investors about $70 billion dollars in loans (which even prior to Maria the island was struggling to pay back) make good on these outstanding debts?   The outcome was uncertain then.  But NOW after Maria leveled the island, causing massive destruction to its fragile infrastructure--estimated by many as  amounting to $90 billion dollars--any ability to repay those loans evaporated like morning dew on a dangling, red-dappled mango hanging from a tree over a sun-drenched cobbled street in old San Juan.  

The devastation of Maria should not change these facts.   Wall Street banks and investors took a risk when they accepted the government of Puerto Rico as a debtor.  They assumed they would get the seventy billion dollar principle of the loan amount  back,  plus a sizable profit.  This  profit was carefully calculated by their accountants and attorneys to be commensurate with the risk they were taking.   Risk-taking is why investors make a profit on the money they lend.  But in the case of Puerto Rico--obviously the bankers did not do their required "due diligence". They did not take into account--status of the tropical island workforce, their ability to pay, globalization effects, the high costs of living in PR, and the effects of man-induced weather intensification (climate change).  The "haircut' that the banks are due...is all their own responsibility.  There is no good reason why we should underwrite  their miscalculations regarding these loans.   That after-all is what risk taking and profit generation are all about.

The banks will have to take a haircut. We should not let them attempt  to pass off those bad loans on to the American taxpayer.

NO MONEY TO PAY BACK INVESTORS SHOULD BE TAKEN FROM USA TAX FUNDS

So what can the rest of us do.  Let us first say what we should not do.  We can not hand out federal  money to the PR government to solve their CASH FLOW problem.  Money is fungible.  

WE TO DO THAT IT would be equivalent to taking tax dollars OUT OF  the pockets of Joe and Jane in Wisconsin and handing it over to Jose and Anna in Ponce--who WILL PASS ON THESE FUNDS  as loan repayment into the coffers of the Wall Street investors.

In effect pouring hard earned US taxpayer's dollars into  the full coffers of the banks in lower Manhattan.

In terms of what we should do--after the bakers agree to accept a reasonable return on their loans.

We should make every effort to help the decent hardworking people of Puerto Rico rebuild after the devastation of Maria.

But that is another blog.