- Saqib Bhattidirector of the ReFund America Project and a fellow at the Roosevelt Institute. He is co-author of the newest report, “Scooping and Tossing Puerto Rico’s Future.”
President Obama has appointed seven members to a federal control board that will run the finances of Puerto Rico’s nearly bankrupt government for at least the next five years and restructure nearly $70 billion in debt. The board is made up of three Democrats and four Republicans who will not only approve any budgets created by the island’s politicians, but also attempt to negotiate with the island’s nearly 20 creditors. On Wednesday, hundreds of protesters in Puerto Rico blocked a street in front of a hotel where bankers and business executives were gathering for a conference hosted by the Puerto Rico Chamber of Commerce. Meanwhile, a new report from the ReFund America Project has revealed firms like UBS, Citigroup, Goldman Sachs and Barclays Capital have collected $1.6 billion in underwriting fees from Puerto Rico since 2000 just for refinancing bonds to pay interest and fees on older bonds.
JUAN GONZÁLEZ: President Obama has appointed seven members to a federal control board that will run the finances of Puerto Rico’s nearly bankrupt government for at least the next five years and restructure nearly $70 billion in debt. The board is made up of three Democrats and four Republicans, who will not only approve any budgets created by the island’s politicians, but also attempt to negotiate with the island’s many creditors.
On Wednesday, hundreds of protesters in Puerto Rico blocked the street in front of a hotel where bankers and business executives were gathering for a conference hosted by the Puerto Rico Chamber of Commerce on the new PROMESA bill, as it’s called, the congressional legislation that was passed two months ago. Democracy Now! correspondent Juan Carlos Dávila was there in San Juan.
JUAN CARLOS DÁVILA: The black-and-white flag of Puerto Rico has become a symbol of resistance, resistance against U.S. colonialism. This flag has been adopted by the movement Se Acabaron Las Promesas, Promises Are Over, which called for a protest to shut down the first PROMESA conference on Wednesday morning.
XIOMARA CARO: My name is Xiomara Caro. I am a lawyer and communicator and an activist. And I am an organizer for the group Promises Are Over, Se Acabaron Las Promesas. And the reason we have started to organize in Puerto Rico—and this is a continuation of many other social movements—is Puerto Rico is right now in a political and economic crisis.
JUAN CARLOS DÁVILA: On Wednesday morning, protesters holding wooden shields faced off the police as they attempted to block the entrance of the Hilton Condado Plaza, where the Chamber of Commerce of Puerto Rico was expecting hundreds of businessmen and women to discuss the Puerto Rico Oversight Management and Economic Stability Act.
POLICE OFFICER: [translated] At this time and for your security, you must head to the sidewalk now.
GABRIEL DÍAZ RIVERA: [translated] My name is Gabriel Díaz Rivera. We have been here since 6:00 a.m. blocking the entrances to the Condado Plaza Hotel. This is the second warning they’ve given that they will remove us in order to protect the conference for the rich, who have been making our lives precarious and making the lives of working people of this country precarious, as well. And we will stand firm here, blocking the entrances, because this conference is not accepted. We are convinced that the fiscal control board is not accepted, and we are not going to accept it.
KARLA PESQUERA: [translated] My name is Karla Pesquera. We have managed to close the way to the participants in this first conference of PROMESA, the first conference to be held here in the Hilton Condado Plaza Hotel. Quite simply, we have blocked the passage. Many of them have tried to go through an entrance, but we managed to gain territory, and here we are preventing their passage.
JUAN CARLOS DÁVILA: Eventually, Puerto Rican police officers escorted some of the participants into the hotel past the protesters. René Reyes spoke about what happened.
RENÉ REYES: [translated] We are here offering resistance at the Dos Hermanos Bridge in front of the Condado Plaza Hotel, where the first PROMESA conference is being held. And I am seeing how the Puerto Rican police, specifically the special arrest unit, is protecting the people who are trying to enter the conference, violating the picket line of civil disobedience we have organized here outside the hotel.
JUAN CARLOS DÁVILA: One of the participants of the first PROMESA conference, who did not want to identify himself by name, spoke to the press and expressed his disappointment about the protest.
CONFERENCE PARTICIPANT: I came to see the PROMESA conference that’s going on. I’ve actually made a great sacrifice to come here. I’m not—I’m not rich. I’ve worked hard, and I’ve made—I’ve made a choice in my life to move away from my family to come here to try and create jobs, to invest in Puerto Rico.
JUAN CARLOS DÁVILA: Eventually, he was escorted by the police into the event.
EVELYN SEMIDEY: My name is Evelyn Semidey. A lawyer representing the Cámara de Comercio de Puerto Rico just served everyone, just served Jocelyn Velázquez y otros. This “y otros” means that she just served everyone on this side of the fence, on the other side of the fence, on that side of the fence. Anyone that is standing here just got served to be in court in five minutes.
JUAN CARLOS DÁVILA: Despite a court citation, the protesters continued their action, challenging the court order as they built barricades to protect themselves from the increasingly hostile police forces. Several unions and civil society groups collaborated with the Puerto Rican youth to build a barricade. The police then provoked the protesters, and the situation escalated.
AMY GOODMAN: That report by Democracy Now!'s Juan Carlos Dávila. This is Democracy Now! To talk more about the situation in Puerto Rico and the financial control board, whose members have just been named, we're joined by Saqib Bhatti, director of the ReFund America Project and fellow at Roosevelt Institute, co-author of a new report, “Scooping and Tossing Puerto Rico’s Future.” And, Juan, you just wrote a piece in the New York Daily News about the control board. Explain who was just chosen.
JUAN GONZÁLEZ: Well, you know, it’s been two months since Congress passed a law, the PROMESA law, creating the fiscal control board, but President Obama, until yesterday, had not named the seven members of the control board, because there’s been, for the last two months, an enormous amount of behind-the-scenes jockeying and negotiations between the White House and the members of Congress over who will be the members of this board, which will basically be running the island of Puerto Rico at least for five, possibly for 10, years. And it’s a complicated group. It had to be four Republicans that Obama chose from a list provided by Speaker Ryan and Majority Leader Mitch McConnell in the Senate, and then three that the Democrats chose, one from a list from Nancy Pelosi, another from a list from Harry Reid, the minority leader of the Senate, and the president got to pick one of his own. And because there was enormous pressure on the administration over the fact that this was an imposition of a control board, they agreed that they would try to come together to at least have a majority of the seven members to be of Puerto Rican origin. So, what ended up happening was a convoluted situation to how you put these seven together.
And so, Obama finally announced yesterday afternoon the members. They include two Puerto Ricans from the island, but both are conservative Republicans named by the Republicans. The Puerto Ricans that the Obama administration named are Puerto Ricans who basically live in the United States. One, Ana Matosantos is a—was a key aide to Governor Schwarzenegger and to Jerry Brown, a budget expert from California. Another, José González, is a Puerto Rican who is the president of the New York Federal Home Loan Bank, but who also has ties to financial institutions here in the United States and was the director of Banco Santander, chief executive of Banco Santander. And they chose also Arthur Gonzalez, who’s not very—he’s a Cuban American, who is not well known, but he was the chief judge of the U.S. Bankruptcy Court for the Southern District of New York. So, there are actually five Latinos on the seven-member board, four of them of Puerto Rican origin.
But it’s still a U.S.-imposed board. And in Puerto Rico, there’s enormous concern over how the—what this board will do to reduce living standards in Puerto Rico, to trim the budget, as well as to renegotiate the debt. And, of course, Wall Street is most concerned about how this debt gets renegotiated. And that’s why the report that I mentioned in my column yesterday that the ReFund America Project has put together is so important, “Scooping and Tossing Puerto Rico’s Future.” And I’d like Saqib Bhatti to talk about the main findings of your report, especially how much of this debt that Puerto Rico has is really illegitimate debt, a gouging by many of the Wall Street firms.
SAQIB BHATTI: Juan, we’ve been doing a series of reports looking at the legitimacy of Puerto Rico’s debt. And what we’ve found is that over the course of the various reports we put out, thus far we’ve identified $37 billion in debt that we believe to be illegitimate.
In this report, in particular, we look at Puerto Rico’s “scoop and toss” deals. That’s basically when banks convince Puerto Rico to keep refinancing the same debt over and over again in order to avoid making payments. This is called scoop and toss because you’re scooping up the debt that’s due today and tossing it years into the future, kicking the can down the road. But banks did this because they got to charge exorbitant fees out of it. And so, you know—and with Puerto Rico’s “scoop and toss” deals since 2000, banks like UBS and Santander charged $1.6 billion in issuance fees. And this $1.6 billion comes to be counted as part of Puerto Rico’s debt. And we think that’s illegitimate.
Similarly, there’s another $1.6 billion that these “scoop and toss” deals were part of, where they actually took out money to pay interest on other debt. And so, what they did is, in effect, interest payments came due, they didn’t have the money to pay it, so they put it on the credit card. And so, they’ll be paying interest on the interest. And so, in this report, we identified, again, $1.6 billion in fees, $1.6 billion in this capitalized interest, so it’s $3.2 billion in illegitimate debt just from the “scoop and toss” deals. In our previous report, we’ve identified a series of payday loans that Puerto Rico has entered into. So, altogether, the total thus far is $37 billion. And we know that number will keep going up as we look at—as we issue subsequent reports.
JUAN GONZÁLEZ: Well, one of the things that I was—most struck me about your report was the percentage that these banks were charging Puerto Rico in fees, compared to what the normal percentage in the securities industry is, that I think you had one example there of Barclays was a lead underwriter on a 2011 bond where they charged 9 percent of the total amount of money raised as their fees, when the normal fees are—nationwide, are 1 to 2 percent. So they were gouging Puerto Rico just on the fees of putting together the deal.
SAQIB BHATTI: That’s exactly right. One of the biggest problems with these things is that the reason why banks really pushed them was because they made huge fees off of them. As you said, nationally, we did a report last year that showed that the average for issuance fees on bonds is actually about 1.02 percent. In Puerto Rico, the average is 2.7 percent—almost three times as high as the national average. And again, there was that instance that you mentioned where Barclays charged 9 percent.
And what’s interesting about this is that this actually, just a couple of years ago, would have been illegal in Puerto Rico. Puerto Rican law did not allow bond issuance fees to be more than 2 percent until 2009. In 2009, there was a law that was passed, Public Law 7, which has also led to harsh austerity measures, massive layoffs on the island of government workers. And the other thing it did is it actually lifted some of the protections that Puerto Rican taxpayers enjoyed against Wall Street. And so, a particular thing it did is it allowed fees to be more than 2 percent. Prior to the passage of Public Law 7, these high fees could not have happened. But now we’re seeing Puerto Rico be charged through the nose. And it’s paying—frankly, it paid higher than cities, states, that actually had weaker credit ratings. So, while Detroit was slipping toward bankruptcy, its credit rating was junk; it was still paying lower fees than Puerto Rico was a couple years ago. And that’s outrageous.
AMY GOODMAN: Well, Saqib Bhatti, we will leave it there today, and we’ll link to your report, director of the ReFund America Project, fellow at the Roosevelt Institute. The report, “Scooping and Tossing Puerto Rico’s Future.” And, Juan, we’ll link to your report, your article at the New York Daily News.