Author Topic: Puerto Rico & taxpayer-subsidized hedge funds  (Read 8215 times)

Jack

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Puerto Rico & taxpayer-subsidized hedge funds
« on: December 21, 2015, 08:41:36 AM »
I just read this article, which details an incredibly fucked-up situation. I'll summarize:

  • Puerto Rico has been in a depression for the last decade or so
  • To keep the budget balanced, the government sold bonds.
  • The economic situation recently got worse, Puerto Rico's bond rating got downgraded, and hedge funds bought up the bonds.
  • Neither Puerto Rico itself, nor its public corporations are allowed to file for bankruptcy, unlike the rest of the United States
  • Puerto Rico has been lobbying Congress to pass a law to allow it to file bankruptcy
  • The hedge funds have been lobbying to oppose the law, on the grounds that allowing bankruptcy would constitute a "bailout" (but in fact such an event would cost American taxpayers nothing; it would only harm bondholders (i.e., the hedge funds).
  • Because of said lobbying, Republicans in Congress are now saying that instead of bankruptcy, Puerto Rico should restructure its government (i.e., implement Greek-style austerity) in exchange for a $3 billion actual taxpayer-funded bailout!
  • The net effect, as far as I can tell, would be a massive wealth transfer from American taxpayers to hedge fund owners, combined with increased human suffering in Puerto Rico.
« Last Edit: December 21, 2015, 09:12:49 AM by Jack »

hoping2retire35

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #1 on: December 21, 2015, 07:00:25 PM »
What happens if they just keep making some kind(not monthly/quarterly minimum) of payment?

bwall

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #2 on: December 21, 2015, 10:20:42 PM »
I just read this article, which details an incredibly fucked-up situation. I'll summarize:

  • Neither Puerto Rico itself, nor its public corporations are allowed to file for bankruptcy, unlike the rest of the United States
  • Puerto Rico has been lobbying Congress to pass a law to allow it to file bankruptcy
  • The hedge funds have been lobbying to oppose the law, on the grounds that allowing bankruptcy would constitute a "bailout" (but in fact such an event would cost American taxpayers nothing; it would only harm bondholders (i.e., the hedge funds).


OR

They could vote to become the 51st state in the Union. This would solve the bankruptcy issue while screwing the hedge funds who gambled. No need for Congress to intervene. Two birds, one stone.

Jack

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #3 on: December 22, 2015, 07:21:48 AM »
I just read this article, which details an incredibly fucked-up situation. I'll summarize:

  • Neither Puerto Rico itself, nor its public corporations are allowed to file for bankruptcy, unlike the rest of the United States
  • Puerto Rico has been lobbying Congress to pass a law to allow it to file bankruptcy
  • The hedge funds have been lobbying to oppose the law, on the grounds that allowing bankruptcy would constitute a "bailout" (but in fact such an event would cost American taxpayers nothing; it would only harm bondholders (i.e., the hedge funds).


OR

They could vote to become the 51st state in the Union. This would solve the bankruptcy issue while screwing the hedge funds who gambled. No need for Congress to intervene. Two birds, one stone.

Good point. I guess the corollary is that he hedge funds would then start an lobbying campaign against statehood (which requires the same kind of Congressional vote as the other two options, in addition to other stuff).

bwall

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #4 on: December 22, 2015, 12:59:35 PM »
I doubt they would ever lobby (in D.C.) against statehood. Much too crass. They might funnel tons of money into the 'no' campaign in P.R. though. Which would boost the economy somewhat there, at least until all the ad dollars have been spent.

bwall

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #5 on: December 22, 2015, 01:03:46 PM »
I thought all along that this whole debt issue in Puerto Rico was disguised to motivate them to become the 51st. state. They've had a few votes over the years with 'none of the above' usually winning---whatever that means.

Statehood would mean a huge increase in real estate prices in P.R. I believe lots of companies would relocate there for the sun and sandy beaches.

It would also signal growing weight to the Spanish speakers in our country. I think it will be interesting to watch.

Jack

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #6 on: December 22, 2015, 01:09:42 PM »
I thought all along that this whole debt issue in Puerto Rico was disguised to motivate them to become the 51st. state. They've had a few votes over the years with 'none of the above' usually winning---whatever that means.

Statehood would mean a huge increase in real estate prices in P.R. I believe lots of companies would relocate there for the sun and sandy beaches.

...Real estate that the hedge fund owners have bought (a detail in the article which I didn't realize was important to summarize until now). The plot thickens!

It's starting to sound more and more like the (manufactured) housing crisis, with statehood as an added wrinkle.

bwall

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #7 on: December 22, 2015, 04:08:32 PM »
So, they bought the bonds on the cheap, hoping to recover full value. And, they bought real estate to hedge their bet. It's a illiquid strategy, but who knows? It could all work out and it's not a bad place to park a few billion if you can be patient.

seattlecyclone

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #8 on: December 23, 2015, 03:45:48 AM »
I just read this article, which details an incredibly fucked-up situation. I'll summarize:

  • Neither Puerto Rico itself, nor its public corporations are allowed to file for bankruptcy, unlike the rest of the United States
  • Puerto Rico has been lobbying Congress to pass a law to allow it to file bankruptcy
  • The hedge funds have been lobbying to oppose the law, on the grounds that allowing bankruptcy would constitute a "bailout" (but in fact such an event would cost American taxpayers nothing; it would only harm bondholders (i.e., the hedge funds).


OR

They could vote to become the 51st state in the Union. This would solve the bankruptcy issue while screwing the hedge funds who gambled. No need for Congress to intervene. Two birds, one stone.

The people of Puerto Rico have (arguably) already voted to become a state in 2012. I say "arguably" because the devil is in the details. The Puerto Rican political parties are basically organized around the question of how their relationship to the US should play out. There are three factions: one wants statehood, another wants complete independence, and the other favors the status quo. The split between the three is something like 45/45/10, with independence being the minority option.

The most recent ballot questions seem designed to produce a pro-statehood result. Instead of asking a single question like "which do you prefer: statehood, independence, or the current status?", they instead went with a two-part question. The first question was "do you want to change the status, yes or no?", which would get the statehood and independence supporters voting the same way because they both want change. The second question was "If we're going to change the status, what do you want it to be?" In the second question, the statehood supporters strongly outnumber the independence supporters, so the result is no surprise.

The supporters of the status quo, knowing that the ballot was rigged against them, advocated abstaining from the second question entirely, which approximately 27% of voters did. The result has since been the subject of intense debate. The statehood supporters say that the result clearly favors their side because 61% of the people who answered the second question supported statehood, while the status quo supporters say the result supports their side because only 44% of the people who submitted ballots favored statehood on the second question.

Regardless of how you interpret the result, any vote by the people in Puerto Rico on this matter has no binding effect. Congress has the sole power to grant statehood, which they could theoretically do even if the people of Puerto Rico were strongly opposed to it.
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hoping2retire35

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #9 on: December 23, 2015, 09:43:29 AM »
hopefully no to statehood. This is my plan if I ever become multimillionaire or decamillionaire or lottery or whatever.

http://www.internationalman.com/articles/why-i-really-moved-to-puerto-rico-and-you-should-too

not to mention life in the Caribbean...

bwall

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #10 on: December 23, 2015, 11:14:42 AM »
hopefully no to statehood. This is my plan if I ever become multimillionaire or decamillionaire or lottery or whatever.

http://www.internationalman.com/articles/why-i-really-moved-to-puerto-rico-and-you-should-too


I don't think it is all that simple.

I believe that all US citizens worldwide must pay Federal taxes, even if they live in tax-free country. The only way to get around this is to revoke your US citizenship.

So, Puerto Rico offers tax advantages to the extent that you can save on your current state tax rate.

There might be a loophole for Puerto Rico as a territory, but I figure there is a reason people aren't flocking to live there.

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #11 on: December 23, 2015, 11:39:43 AM »
hopefully no to statehood. This is my plan if I ever become multimillionaire or decamillionaire or lottery or whatever.

http://www.internationalman.com/articles/why-i-really-moved-to-puerto-rico-and-you-should-too


I don't think it is all that simple.

I believe that all US citizens worldwide must pay Federal taxes, even if they live in tax-free country. The only way to get around this is to revoke your US citizenship.

So, Puerto Rico offers tax advantages to the extent that you can save on your current state tax rate.

There might be a loophole for Puerto Rico as a territory, but I figure there is a reason people aren't flocking to live there.

The tax loophole is real.  The normal section of the IRS Code doesn't apply to US Territories.  You are subject to local laws instead and PR has fashioned a retiree friendly tax structure to attract well heeled immigration.
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bwall

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #12 on: December 23, 2015, 12:28:10 PM »
Please tell me more.

I'm not convinced because, as I understand it, passive income (capital gains, dividends, rent) is not considered 'earned income'. Therefore, it would still be subject to taxation.

The link posted by Hoping2 was a guy trying to sell something, so I'm not sure how objective that is. Where can we find out more?

hoping2retire35

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #13 on: December 23, 2015, 09:19:42 PM »
Please tell me more.

I'm not convinced because, as I understand it, passive income (capital gains, dividends, rent) is not considered 'earned income'. Therefore, it would still be subject to taxation.

The link posted by Hoping2 was a guy trying to sell something, so I'm not sure how objective that is. Where can we find out more? But

Oh no my friend, it is real and glorious. If I had enough money To make sense I would go there.
I've read a lot more about this. My in laws want to go there if we go(our kids, their grandkids). Definitely on the back burner and watching.
« Last Edit: December 23, 2015, 09:22:34 PM by hoping2retire35 »

seattlecyclone

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #14 on: December 24, 2015, 05:11:37 PM »
I've visited Puerto Rico. It's a beautiful island, but there's also a lot of poverty, a lot of crime, and you had better be good at Spanish if you want to live there. Plus most Mustachians don't plan to have that much income subject to tax when we retire anyway. The tax benefits make more of a difference for people who spend more than most of us.
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hoping2retire35

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #15 on: December 24, 2015, 08:10:58 PM »
I've visited Puerto Rico. It's a beautiful island, but there's also a lot of poverty, a lot of crime, and you had better be good at Spanish if you want to live there. Plus most Mustachians don't plan to have that much income subject to tax when we retire anyway. The tax benefits make more of a difference for people who spend more than most of us.

Ditto, "if" I had enough money for it to make sense. Still want to takes va ca there.

bwall

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #16 on: January 05, 2016, 11:04:17 PM »
Thanks for the prodding, Hoping2 & Fin. Vel.

We booked our flight to P.R. today. We'll be going there to check out the island and verify the veracity of those claims! Meeting with accountants in P.R. planned.

hoping2retire35

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #17 on: January 06, 2016, 11:23:14 AM »
Thanks for the prodding, Hoping2 & Fin. Vel.

We booked our flight to P.R. today. We'll be going there to check out the island and verify the veracity of those claims! Meeting with accountants in P.R. planned.

Seriously? Would be kinda cool to know someone that did that. I mean you read all this stuff but never really know how it works out.

On another note our 10year anniversary is this summer and we got married in the Caribbean(USVI) so we would like to go back someday. I have found tickets in August for $250 RT each, and of course week long stays can be had for <$1000. So we could do the whole trip ~$2000. Plus it is a different culture and language but still American and I am guessing can get by with English(and our broken spanish).

bwall

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #18 on: April 29, 2016, 06:17:48 PM »
The tax loophole is real.  The normal section of the IRS Code doesn't apply to US Territories.  You are subject to local laws instead and PR has fashioned a retiree friendly tax structure to attract well heeled immigration.


Oh no my friend, it is real and glorious. If I had enough money To make sense I would go there.
I've read a lot more about this. My in laws want to go there if we go(our kids, their grandkids). Definitely on the back burner and watching.

Just a quick shout out to Hoping2 & Fin.Velo.

THANK YOU FOR THE ABOVE POSTS. I MOVED TO P.R. AND THERE IS A DIRECT POSITIVE CAUSAL RELATIONSHIP FROM THESE TWO POSTS AND ME BEING HERE.

That's right. Normally I'm dismissive of any attempt to avoid US taxes since my accountant has told me that 'all income is taxable world-wide for US citizens'. In fact, that was my knee-jerk reply which is upthread. But, as a result of those two posts by Hoping & Financial Velo, I dug deeper. Took a trip in late Jan, looked around and liked it.

As of Apr. 28, I'm a resident of P.R. I'm submitting the application for the benefits of Act 20 & 22 next week. Opened a bank account today. Wife and kid are coming next week.

Where is the tip jar around here? You guys saved me a few hundred k, maybe more. (I'll know for sure in a year or so.) Thank you.

hoping2retire35

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #19 on: May 03, 2016, 02:32:12 PM »
That is awesome. Give us the details next spring on how it works out.

nothing wrong with posting pictures of beautiful places ;)

FrugalZony

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #20 on: May 03, 2016, 07:52:09 PM »
John Oliver had a pretty insightful segment on this subject recently
https://www.youtube.com/watch?v=Tt-mpuR_QHQ
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Yaeger

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #21 on: May 03, 2016, 10:32:16 PM »
The hedge fund investors need to lose their money, we need to repeal the Jones Act (The Merchant Marine Act of 1920), and allow them to restructure their debt. I have no sympathy for the plight of Puerto Rico. The people who have voted in the same policies again and again, have voted in people in favor of generous public benefits, generous pensions, and unsustainable spending programs. The voters of PR created this hell.

Secondly, the US is in worse shape the PR. In 2012 PR had a median income of $19,429, today their debt per capita is $15,600. Where the US median income in 2012 is $51,939 with a debt per capita of $56,375. We'd be in worse financial straits than PR and Greece if we didn't have the ability to print money, devalue our currency to pay down debt. Think we're ever going to normalize interest rates? Think again.

No bailouts, any bailouts will likely to paid to the investors and not to correct the serious problems with the Puerto Rican government.

hoping2retire35

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Re: Puerto Rico & taxpayer-subsidized hedge funds
« Reply #22 on: May 04, 2016, 07:32:42 AM »
The hedge fund investors need to lose their money, we need to repeal the Jones Act (The Merchant Marine Act of 1920), and allow them to restructure their debt. I have no sympathy for the plight of Puerto Rico. The people who have voted in the same policies again and again, have voted in people in favor of generous public benefits, generous pensions, and unsustainable spending programs. The voters of PR created this hell.

Secondly, the US is in worse shape the PR. In 2012 PR had a median income of $19,429, today their debt per capita is $15,600. Where the US median income in 2012 is $51,939 with a debt per capita of $56,375. We'd be in worse financial straits than PR and Greece if we didn't have the ability to print money, devalue our currency to pay down debt. Think we're ever going to normalize interest rates? Think again.

No bailouts, any bailouts will likely to paid to the investors and not to correct the serious problems with the Puerto Rican government.

Despite that dude crying in Congress, I think you are right. A bailout would do nothing other than pay the investors. If PR defaults it means nothing other than they cannot get future loans (lack of market trust). or only at ridiculous rates. Unless you are a sovereign who can print and inflate your own currency going into debt rarely makes sense.

Honestly, if I was a PR pol I would just advocate complete default, don't pay a cent, though public say that the country needs like 10 years to regroup and rebuild the economy so there could be a 10 year moratorium on payments. Then the debt will be half what it is and then say that Pr will pay it off over the course of 40 years or whatever so it is not a complete disaster but in reality it is not that bad of a obligation.

OTOH, it could be a mini US recession, considering $70b just got basically defaulted on. probably not too bad since people could realize that it is really localized. But if I was a US congreessman I would advocate changing the law so that PR can/must delcare bankruptcy. eh, two sides to every coin.

EDIT dont listen to the jon oliver clip at work, had to turn off due to lol (squirrel lips).
« Last Edit: May 04, 2016, 07:34:46 AM by hoping2retire35 »