Obama Urges Congress to Pass Law Letting Puerto Rico Declare Bankruptcy; Great Idea, Let Illinois Do the Same
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Puerto Rico is bankrupt. The key problem is that while municipalities can declare bankruptcy, states and territories cannot.
President Obama recognizes the problem. He says No Federal Bailout for Puerto Rico. Instead he urges Congress to pass a bill allowing Puerto Rico to declare bankruptcy.
The White House threw cold water Monday on the notion of bailing out Puerto Rico from its financial crisis, instead urging Congress to consider changing the law so the island can declare bankruptcy.Idea Long Overdue
On the heels of a dismal economic report, Puerto Rico's governor has warned that the commonwealth can't pay its $72 billion public debt, delivering a serious blow to Puerto Rico's recession-addled economy. But White House spokesman Josh Earnest said the federal government would provide financial expertise and access to existing resources — but not a bailout.
The Obama administration declined to offer Detroit a bailout, and the city declared bankruptcy under Chapter 9 of the Bankruptcy Code in 2013.
As a U.S. territory, Puerto Rico can't file for bankruptcy under that chapter, which is limited to municipalities such as Detroit. But Puerto Rican Gov. Alejandro Garcia Padilla has said he's considering asking Congress to change the law so that Puerto Rico's public agencies could declare bankruptcy under Chapter 9 — an idea that seemed to gain traction at the White House.
Earnest said the White House was encouraging Congress to explore possibilities to allow Puerto Rico to make use of Chapter 9, which would allow the commonwealth to restructure its debt amid a nearly decade-long economic slump. Garcia is seeking to defer debt payments while Puerto Rico negotiates with its creditors.
I welcome this action. But why limit the bill to Puerto Rico?
I say open this up to states like Illinois that will be doomed to the same fate eventually.
Mike "Mish" Shedlock