The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Puerto Rico:
Billionaires and Bankers against Working People

Aug 3, 2015

For banks and hedge funds, Puerto Rico’s debt crisis has been an enormous opportunity for super profits and plunder.

Declaring Puerto Rican debt to be a poor risk, the banks have driven Puerto Rico’s borrowing costs sky high. Interest rates on Puerto Rican government bonds are three or four times higher than other U.S. state and local bonds. On top of that, the banks have been charging hundreds of millions extra in short-term lending fees and bond insurance costs every year. Moreover, between 2012 and 2014, the banks got the Puerto Rican government to pay them close to a billion dollars to terminate toxic financial securities that the banks had sold.

With the crisis, vulture funds, financial companies that specialize in wringing huge profits out of distressed companies and governments, swooped down and bought up tens of billions of high interest government bonds at a fraction of their face value. Hedge fund manager John Paulson, best known for making billions off the 2008 subprime crash, led the charge, by buying up 100 million dollars of Puerto Rico’s junk bonds. He and other money managers made Puerto Rican debt the hottest trade in the hedge fund world.

A couple of billionaires also went on a buying spree around the island. In 2014, John Paulson spent more than 260 million dollars to buy three of the island’s largest resorts, and announced plans to develop half a billion dollars worth of “residences and resort amenities” to add to the existing beachfront condos and golf courses. Paulson’s fellow billionaire, Nicholas Prouty, spent more than half a billion dollars to turn San Juan’s marina into a bastion of the elite that includes an exclusive club and slips for “megayachts of 200 feet or larger.”

Puerto Rican officials have been bending over backwards to court these billionaires and bankers. In 2012, government officials voted to exempt the wealthy in Puerto Rico from paying state and local taxes on investment income. Considering that the wealthy in Puerto Rico are already exempted from federal income taxes, it means they avoid paying almost all taxes. And it’s the same for their companies, since the corporate income tax in Puerto Rico is a minuscule 4 per cent. Alberto Bacó, Puerto Rico’s secretary of development and commerce, advertises Puerto Rico as the “Singapore of the Caribbean.”

The bankers and the wealthy have already sucked the working population in Puerto Rico dry. Unemployment is more than twice the U.S. national average, and the island’s median household income is less than half the U.S. average. It is also $7,000 less than Detroit – which some of the same bankers and billionaires just put through its own debt crisis.

And that’s just for starters.

State officials say they want to cut the minimum wage below the federal rate of $7.25 an hour, as well as cut the few social programs that exist. The government is also closing 100 public schools, and officials say they want to close 560 more in the near future.

Government officials have also taken aim at teachers. A couple of years ago, they tried to convert teacher pensions to 401(k) plans – which would leave teachers with practically nothing to retire on, since they don’t get Social Security benefits. But after teachers went on a successful two day strike (even though it was considered illegal), the Puerto Rican Supreme Court ruled against the government’s pension reform.

But the teachers know the government is taking aim at them. As Mercedes Martínez, head of the Puerto Rican teachers’ union, told the New York Times (July 23), “The judicial system is not something that we can put our trust in.” She says they are girding for more battles this summer and fall.

We are talking about a class struggle,” Martínez said. “The rich people want to get richer and the poor people are getting poorer, unless they’re willing to take to the streets.”

Truer words were never spoken.