• The MORE You Read Paul Ryan’s Puerto Rico Bill, The LESS You Like It

    Let’s be thankful there are some sane conservatives remaining in Washington, DC when it comes to the bailout-by-another-name Puerto Rico legislation: H.R. 5278, the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”). When the House Resources Committee held its full committee vote on May 25th, the vote was 29-10. All the “no” votes were courageous conservatives who would not be bullied by their leadership.

    On June 6, the always reliable Heritage Action issued a press release announcing they were key voting the bill and urged a “no” vote (See here: Heritage Action Key Vote Press Release). Thank God. KSE admits that this legislation isn’t a traditional cash bailout, but the changes it makes to bondholders’ rights to legal credit claims is just as bad, if not worse because it rearranges long-held standards in which creditors purchased PR’s debt. Heritage Action lays it out perfectly in their statement:

    “The debt restructuring contained in Title III of PROMESA allows, at the end of the process, for a Chapter 9-style proceeding in which an agreement can be imposed on all creditors even if only a small minority of creditors agree to the conditions. While the latest installment of the bill contains helpful language intended to ensure bondholders’ rights and priorities are respected, the fact remains that their legal claims will have been altered and disrupted unnecessarily by PROMESA.”

    Moreover, and equally as troubling, the GOP majority actually agreed to a legal stay so that creditors are prohibited from accessing the courts to enforce their property rights. Yes, you read that correctly. As you well know, the second you remove the mechanisms to force Puerto Rico to pay their debts via legal challenges is the second they will stop repaying their creditor debts. Period. You can rest assured that the government of Puerto Rico will spend all its dwindling resources on its bloated pensions, government workforce and other areas of their broken economy that created the situation they are in in the first place. The governor has already said as much. Now PR’s government has Congress’ buy-in and is getting a legal blanket to do nothing. What a joke because they aren’t going to fix anything and should be held accountable under the rule of law…their law. This wouldn’t happen if Congress just sat on their hands and said “you created this mess, you need to fix it.”

    In addition to the above, much of the lobbying on behalf of these changes has been done under dubious conditions. KSE covered much these efforts in this space on May 21st (See here: Puerto Rico..Who is Susheel Kirpalani?). After reading the latest version of PROMESA that cleared the House panel in late May, an equally shocking section of the bill came to my attention. Make sure you check out Clause (e) of section 104 (Powers of Oversight Board). You can see the full text of the legislation here: (Text of H.R. 5278 via Congress.gov). Clause (e) says:

    “(e) GIFTS, BEQUESTS, AND DEVISES.—The Oversight Board may accept, use, and dispose of gifts, bequests, or devises of services or property, both real and personal, for the purpose of aiding or facilitating the work of the Oversight Board. Gifts, bequests, or devises of money and proceeds from sales of other property received as gifts, bequests, or devises shall be deposited in such account as the Oversight Board may establish and shall be available for disbursement upon order of the Chair, consistent with the Oversight Board’s bylaws, or rules and procedures. All gifts, bequests or devises and the identities of the donors shall be publicly disclosed by the Oversight Board within 30 days of receipt.”

    In a nutshell, Paul Ryan’s bill would allow the federal control board members who decide Puerto Rico’s fate to receive gifts. You have got to be kidding me, right?! Just imagine what creditors will be offering for preferential treatment. What friends of Speaker Paul Ryan will make it onto the control board? I am sure Baupost Group’s founder, Seth Klarman, and client of Mr. Kirpalani on the Puerto Rico issue would like the job, and he’s already made a downpayment. According to CQ/Roll Call on May 5th, Mr. Klarman, “a regular political donor, including a Feb. 24 donation to Speaker Paul D. Ryan’s joint fundraising committee of $100,000, according to Federal Election Commission records.” This donation came just before the House Resources Committee began to work on this issue in earnest in March of this year. See donation here: (Seth Klarman Donation FEC.gov)

    This isn’t the Puerto Rico Oversight, Management and Economic Stability Act, it’s the Paul Ryan Oversight Management and Economic Stability Act because it’s like some outside force wrote this bill and just handed it to the Speaker and he jammed it through without reading it. Because of the way it was managed, and the velocity at which it moved, the Speaker owns it and his name should be associated with its title. All conservatives should vote “no” on this legislation for all the reasons mentioned above. In addition, because it lacks serious pro-growth initiatives the Senate should take steps, at a minimum, to remove the onerous provisions that impact long held existing practices when it comes to the bond structure and legal remedies and hold Puerto Rico accountable for their poor decision making. This legislation is horrible, and without a real pro-growth agenda forced on Puerto Rico’s government, nothing will change and they will be coming back with their hand out in due time.

    K Street Eyes

    K Street Eyes is an expert in all things shady and humorous.

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