More than 30,000 public workers are out of work. The cost of everything from utilities to a college education has skyrocketed. Schools have been closed. Public health and pension benefits cut. And taxes for working families are up.
This is today’s reality in Puerto Rico. Add to that the fact that the island’s governor, Alejandro García Padilla, has declared that the commonwealth’s $72 billion debt is not payable. All this has come together to put a vibrant island, home to 3.5 million American citizens, in crisis.
Current federal law precludes Puerto Rico from filing for bankruptcy. Congress needs to act now to change that; if it won’t, the administration and Federal Reserve need to step in. In addition, any realistic resolution to this crisis must shield Puerto Rican families and the local economy from more suffering—while providing debt restructuring and relief, immediate federal investment and reforms, and a long-term economic growth strategy that creates living-wage jobs, upgrades infrastructure and improves opportunities for Puerto Rico’s working people.
At the same time, we must act to hold accountable the hedge funds that hold an estimated one-third of Puerto Rico’s debt, which they originally bought at pennies on the dollar with the hope that they would strike a payday when Congress refused to act.
Throughout this crisis, hedge funds such as Aurelius Capital Management, Brigade Capital Management and Monarch Alternative Capital have aimed to squeeze massive profits out of a community on the brink. They have lobbied hard in Washington for more austerity measures. While this isn’t particularly surprising —these “vulture funds” are known to use heavy-handed legal and bargaining tactics to extract maximum profit from failing companies and debt-ridden economies—it is time for these tactics to be brought to light.
Early last month, Rep. Velázquez introduced the Hedge Fund Sunshine Act, which would require hedge funds and other investors to disclose investments with at least 1 percent stake in stocks or corporate and municipal bonds. This legislation takes an important step toward increasing transparency for slippery players who have thus far been allowed to operate almost completely in the shadows.
In November, members of the board of trustees at the New York City Employees’ Retirement System (NYCERS), the nation’s largest municipal pension system, called on hedge fund managers to negotiate a “just and equitable” repayment plan for Puerto Rico.
You might be wondering why New York’s retirees are worried about what’s going on in Puerto Rico. Here’s why.
Over the years, public pension managers nationwide have invested in hedge funds because of Wall Street’s promise that they can close the gap between money promised and actual funds on hand—ensuring that future retirees are paid what they have earned and are owed. The hedge funds then turn around and use these investments to impale struggling economies like Puerto Rico, while pocketing obscene profits.
In the end, they fail to close pension gaps. The American Federation of Teachers recently authored a study which found that hedge funds cost 11 large public pension holdings an estimated $8 billion in lost revenue, while the hedge fund managers collected $7.1 billion in fees. And the retirees, along with the 3.5 million citizens of Puerto Rico, are left holding the bag.
Fortunately, some of these public pension managers are taking a stand. In letters to managers of 16 hedge funds, the NYCERS trustees—who oversee $53 billion in public pension funds and represent a large number of Puerto Rican members, retirees and beneficiaries—expressed concerns about efforts to further push the Puerto Rican economy into crisis in order to further line the pockets of hedge fund managers.
“Creating additional economic misery among the island’s population and threatening the commonwealth’s prospect for economic growth and revival is a bad bet for the long term,” the letters read.
What happens in Puerto Rico impacts all of us—not just those of us who are proud to claim its history and culture as our own. It’s time for these hedge fund managers to stop playing games with the future of the island. We need more public pension fund managers to demand accountability. And we need Congress to make sure that the people of Puerto Rico are able to climb the ladder of opportunity.
1
