From Wolf Street, by Wolf Richter
“We’re going to protect our people.” Hedge funds reel.
Puerto Rico’s Governor Ricardo Rosselló took the momentous step on Wednesday to trigger the largest municipal bankruptcy-type process in the US, four times larger than the prior record, Detroit’s bankruptcy.
Puerto Rico’s population has declined by about 10% since 2004 to 3.4 million. Its economy has declined by as much since 2005. Unemployment is at 14%. Public deficits have ballooned. Puerto Rico and over a dozen agencies, after years of reckless spending amid an aiding and abetting bond market, piled up about $73 billion in debt. That this was a mega problem became official two years ago; bonds crashed, and bond insurers got clobbered.
As multiple defaults have rippled through Puerto Rico’s debt since then, hedge funds jumped into the fray and snapped up the beaten-down bonds. They figured since US states cannot…
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