By Mark Melin. Originally published at ValueWalk.
The now retired judge who handled what is largely a recovery story in the Detroit bankruptcy says Puerto Rico needs this option to flourish, as he says “kicking the can down the road” is an option that is “no longer available.”
Puerto Rico debt issue only becomes more problematic when it is ignored
Debt of all sorts is always difficult to deal with. When that moment of truth occurs that loans to pay pervious loans will no longer work and the realization that SWAPs “solutions” proposed by the “best and brightest” might actually be best suited to line insurance seller’s pockets. When this inevitable moment occurs the tough choices to be made have been only made more difficult by ignoring the situation. That’s the compounding nature of debt.
Retired U.S. Bankruptcy Judge Steven Rhodes, with experience overseeing Detroit’s bankruptcy case, has identified the elephant in the room that all the financial wall paper in the world can’t hide. The island’s debt is unsustainable and relief is required.
Judge Rhodes, now serving as an adviser to Puerto Rico, says the time has come for those with an understanding of logical math to prevail. “There is a long standing pattern like we saw in Detroit of kicking the can down the road, and now that option is no longer available,” Rhodes told the Detroit Free Press. “The commonwealth is about to run out of money and has to make some very hard choices, just like Detroit did.”
Puerto Rico debt is more than originally estimated
Rhodes says the reported $72 billion debt problem is really much worse, as the U.S. territory faces debts that have eclipsed $105 billion.
Rhodes argues that bankruptcy is the only option and that Congress should amend the U.S. Bankruptcy Code. This might not be music to the ears of creditors who loaned and provided SWAPs insurance schemes to debtors who were leveraged beyond the ability to pay. Obviously there is not only one group responsible for a debt problem, the borrower has responsibility as well.
“There is a suggestion by some that bankruptcy would be a bailout,” he was quoted as saying. “It would not be a bailout for Puerto Rico any more than it is a bankruptcy relief in the past. I don’t see any way forward for Puerto Rico to address its issues without at least having that option.”
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