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Monday, December 28, 2015

Wall Street May Be Responsible For Puerto Rico’s Downfall


Robert Williams

The major Banks and Credit Rating Agencies have been using Puerto
Rico as a private piggy bank for almost a decade.

Wall Street for almost a decade has been providing billions of dollars
in municipal debt to Puerto Rico when it was completely unjustified.
Wall Street provided Puerto Rico Government Agencies new capital
based on income that by any standard should not be included in reve-
nues. The Banks and Credit Rating Agencies knew this but push th-
rough billions in new bonds and short term lines of credit anyway.

I took a look at a number of bond offerings in Puerto Rico. Each issue
was for approximately $650,000,000. In the Offering Memorandums,
Wall Street claimed their uncollectable receivables as income, leaving
the investors with the misleading belief that Puerto Rico could make
the payments on the bonds. They couldn’t. Puerto Rico in all cases
secured more capital from other sources (lines of credit) and made up
the shortfall in revenues up by using the lines of credit.

A Ponzi Scheme is a criminal activity where a group of investors are
brought in and promised attractive returns that never really exist. To
keep the first investors blind to the fact they were misled, the compa-
ny quickly raises more money from new investors to pay the old inves-
tors.  It is a house of cards and it requires continued borrowing to keep
it going.

The question is why would these major banks and the credit rating agen-
cies participate in a Ponzi Scheme?  The answer may be the attractive
fee income they earned.

Mr. Williams is the editorial writer for Commercial Solar Power, an industry leading 
utility scale energy company. His opinions are solely his own and may not reflect those
of The Puerto Rico Monitor.

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