Wall Street (Gasp!) Takes Advantage

Given the dicey state of the Puerto Rican economy you can well imagine the after-market for Puerto Rican Municipal Bonds, despite the attraction of triple tax-exempt status, was pretty much in the toilet. Who wants to buy something that has no value? Up jumped the vulture funds on Wall Street. They were in possession of a couple of arcane morsels of information the less educated investment community wasn’t aware of. Or maybe knew but didn’t have the balls to act on.

Way back in 1984 Strom Thurmond added a series of housekeeping amendments to a ho-hum bill that would allegedly clean up and clarify existing bankruptcy law. One of those minor tweaks defined the term “State.” It specified that all States and municipalities would be eligible for debt protection under Chapter 9 of the bankruptcy law except Washington D. C. and Puerto Rico. Which meant it would be henceforth illegal for Puerto Rican municipalities to declare bankruptcy.

Nobody voted against the amendments. In fact, it appears that no other Senator really took the time to analyze the language of the amendments. There’s even speculation that old Strom himself didn’t pay attention to the verbiage. He’d copied the text from an earlier House Bill that never got off the ground. That’s easy to understand. After all, it was an obscure bill, and nobody cares all that much about housekeeping. Besides, it was late in the day and dinner was on the table.

The second salient point had to do with the clause in the boilerplate of the bonds that said we promise to pay our creditors first. Before we pay our policemen, our teachers, our firemen, our retired employees or our health care professionals. Before we rebuild schools or put up shelters for the poor or fund Medicaid or fix the potholes in our highways that are in a sorry state of disrepair. We’ll pay our debts come hell or hurricane or high water. Or recession or unemployment or the mass migration of our indigenous citizens northward. That’s how serious we are about paying back our debt.

So, the vulture funds bought up the junk bonds for pennies on the dollar and called in the debt. Because there’s an issue of privacy surrounding who owes how much to whom, nobody really knows to this day exactly who these greedy bastards are. But the whole odious scheme had the stink of Wall Street avarice all over it.

Tax Breaks, Tom Foolery, Big Pharma to the Rescue

Here’s a crash course in what philosophers call Greed and what politicians call Capitalism. Profit: Good. More Profit: Better. Less Profit: Not so good. Loss: Unthinkable unless the loss leads to More Profit down the road. Spreadsheet: A computer-based, computational vehicle whereby you can forecast maximum profitability by manipulating dependent variables and make decisions based on quantifiable objectives. Workforce: a dependent variable. The Welfare of the Workforce: Huh? Well maybe if you improved the welfare of your workforce it might lead to increased productivity. By how much? Well I can’t rightly say but it stands to reason. That’s not particularly quantifiable is it?

So how do you attract industry to an erstwhile agrarian island? Luis Muñoz Marin, first duly elected governor of Puerto Rico, came up with a plan called Operation Bootstrap. First, you make the island attractive to manufacturing by building roads and an electric grid that will support the voracious needs of manufacturing. How do you fund those expensive infrastructure improvements? By selling tax-free municipal bonds, of course. And how do you make those bonds attractive to buyers? You throw in a clause that says bond holders get paid first. Luis Muñoz Marin had a college education.

Next, you show prospective manufacturing corporations a pliable, underpaid workforce whose cultural zeitgeist revolves around pleasing the overlord. Finally, you offer the prospects incentives in the form of tax breaks that compensate for the added cost of importing raw goods and shipping out the finished product. Voila! You’ve transformed a bucolic paradise into an urban ghetto. Well, not quite but you get the idea.

The government offered tax breaks to manufacturers and the manufacturers, particularly Big Pharma, went wild. They packed up their factories and hurried on down to set up shop. But here’s the funny thing about tax incentives. The government giveth and the government taketh away. When the workforce up north saw what was happening, they hollered foul! And the government expired those nifty tax incentives over a ten-year period beginning in 1996, to level the playing field you might say.

Puerto Rican government officials weren’t unduly concerned. The reasoning was once the corporations had spent all that time and money relocating their factories to the enchanted island, they’d be reluctant to pull up stakes and abandon their plants. Ah, but the government hadn’t counted on the nefarious power of the Spreadsheet.

The corporations cranked the numbers and discovered that if you ponied up the money to build new factories up north (or in a more profitable clime) you could beef up the assembly lines with more automation and less workforce. Machines are fat dumb and happy as long as they’re well-oiled and regularly maintained, unlike that pesky workforce who eventually insist on equal representation and social benefits. Damn the ghost of Eugene V. Debs. During the decade from 1996 to 2006 Puerto Rico lost nearly forty percent of its manufacturing job base.

Here’s another problem. The workforce figured out Spreadsheets too. They discovered the workforce up north was being paid twice as much as the workforce on the island. Consequently, they packed their bags and headed north. From 2004 to 2014 the population of Puerto Rico declined by eleven percent, from 3.9 million to 3.4 million. Meanwhile the government was nearly $70 billion in debt, had an unemployment rate twice as high as the U.S. average, a forty-five percent poverty rate, nearly insolvent pension systems (see bond holders get paid first discussion above) and a chronically underfunded Medicaid insurance program for the poor. They shoulda renamed the plan from Operation Bootstrap to Operation Rat Trap.

Back in 1886 Leo Tolstoy wrote a short story entitled “How Much Land Does a Man Need?” The gist of the story is this. A peasant is promised a plot of land equal to the amount of acreage he can walk around in a single day, sunrise to sunset. The deal is he must return to the starting point before sunset or he’ll forfeit everything. He marks the boundaries of his estate with a shovel as he travels. Each time he starts to turn and head for home he sees another plot of land he can’t possibly live without. Finally, the sun is sinking lower in the west. The peasant panics. He flings away his spade and starts to run. He collapses and dies just before he hits the finish line. The moral of the story? Question: how much land does a man need? Answer: a plot six feet deep and exactly wide enough to accommodate a coffin. Tolstoy evidently wasn’t an ardent devotee of Capitalism.

Tourism is a Fickle Bitch

We talked about Cuba a while back. There was a reason. In the 1950s the Cuban Revolution blew that island wide open. Fidel Castro and his band of independentistas ripped up the fabric of injustice and authoritarian leadership in favor of a communistic form of government. The United States had recently won World War II, single-handedly I might point out (tongue firmly affixed in cheek!), and we were now deeply involved in a Cold War with Russia. Well, the USSR but most Americans still thought of them as Russkies. East versus West. Atheistic Commie Pinkos versus God-fearing Americans. Us versus Them. What better time to make a bold, political distinction between the capitalistically-inclined, pacifistic Puerto Ricans and the brash young, poverty-stricken, freedom-fighters who’d gone to the dark side? Especially from a touristic point of view. Where would you rather spend your annual vacation? A tropical island where luxury and self-indulgence reign supreme or an island rocked by hand-to-hand combat in the streets where entire neighborhoods go boom in the night?

Puerto Rican officials were canny, however. They realized tourism giveth and tourism taketh away. It giveth the big bucks and it taketh away the cultural dignity of the people. Other Caribbean islands, such as the Virgin Islands and Bahamas, relied on tourism for up to eighty percent of their revenue. The Puerto Rican powers that be decided to limit Puerto Rican dependence on tourism to five to ten percent of revenue. For the rest they counted on attracting industry to the island through the magic of tax incentives and a pliable work force.

Puerto Rican tourism grew from ten-thousand folks a year in the early fifties to over five-hundred-thousand by the mid-sixties and over a million by the early seventies. The government accomplished this by building a new airport, named after the first elected governor of Puerto Rico, Luis Muñoz Marín. The Muñoz government legalized casino gambling on the island but limited it to hotels with over 200 rooms, of which there were only two when the legislation passed. They invited Pablo Casals to come live on the island which was the birthplace of his mother. The wheels of government were grinding at a relatively breakneck pace. Unfortunately, the pesky natives who lived in the slums weren’t necessarily in favor of inviting all those snobby northerners in for tea and crumpets. Sometimes you just get tired of being looked-down-the-nose at.

There were four distinct political philosophies in Puerto Rico at the time. At one end of the spectrum were those who wanted legitimate statehood. At the other end were those who favored total independence. Reference Cuba above. A third segment of the population, by far the most vociferous, favored Commonwealth status. And a fourth faction, decidedly in the minority, was tickled pink with the way things were. Commonwealth status won and the rest of the population became disgruntled.

With Commonwealth status came limited self-government. Puerto Rican officials acquired the power to tax, regulate and subsidize the Commonwealth’s economy. Washington still retained control over the island’s judiciary and military. But it was better than nothing. At least on paper.

Now the Puerto Rican government was able to float bonds to fund the burgeoning economy they envisioned. That was a good thing. It put Puerto Ricans in control of their own destiny. But it was also a bad thing, depending on the benevolent nature of the bond holders. Go read up on the Sword of Damocles. Now imagine the fragile horsehair from which the deadly sword dangles represents the good will of the folks on Wall Street. I rest my case.

Sound Bites, Cat Fights and Political Malfeasance

Here’s a conundrum for you to gnaw on after breakfast. It’s an indisputable fact that folks born on the island of Puerto Rico were Spanish Citizens prior to 1898. Between 1898 and 1900 the citizenship status of the island’s residents was a little murky. The smoke hadn’t settled since the Spanish-American War. In 1900 the Congress of these here United States clarified (?) the situation by passing legislation declaring those folks who lived on the island were Puerto Rican Citizens. Up to that point in time there was no such animal as a Puerto Rican Citizen.

Then in 1917 Congress clarified it again (?) by passing legislation declaring Puerto Ricans to be US citizens. But they stipulated that each individual Puerto Rican had to decide whether to become an American Citizen or to retain their Puerto Rican Citizenship. All the while their citizenship status was muddied by the fact that Puerto Rico was defined as an unincorporated territory. Incorporated territory-hood was reserved for political entities (like Hawaii and Alaska) who were destined for statehood. That should have been clue number one.

In 1932 it looked like Puerto Rico was going to make the cut. Several bills appeared to be in the works that would eventually lead to Puerto Rican statehood. Remember we were in the middle of the Great Depression and the US Treasury need the money. Then in 1940 legislation was passed that made birth in Puerto Rico equal to birth in the United States! If you were a native-born Puerto Rican you were, by definition, an American Citizen. But Puerto Rico was still an unincorporated territory.

Then in 1952 the US government clarified (?) the situation again by declaring Puerto Rico to be a Commonwealth. But their definition of a Commonwealth, particularly when it came to Puerto Rico, sure sounded a lot like the tired, old definition of an unincorporated territory.

In a nutshell that’s how the Sovereign Nation views Puerto Ricans. But what about Puerto Ricans themselves? Do they view themselves as American Citizens or Puerto Rican Citizens or Ibero-American Citizens? Of course, there isn’t a single correct answer. The truth is Puerto Ricans have a strong national heritage they fiercely defend and embrace. There are even rumored to be small enclaves of conservative Puerto Ricans who owe allegiance to their Arawakan ancestry. Nor have the blustering politicos in Washington done much to convince them of the error of their ways.

In closing let me point out that there are eleven consulates and one Embassy in Puerto Rico. Embassies, by definition, are only located in a Sovereign Nation’s capital. The Spanish Embassy in Puerto Rico retains its Embassy status for whatever reason. Does that mean they have special privileges or special powers? Do they still consider Puerto Rico an independent political entity? As Shakespeare might have said: What’s in a name? A rose by any other name would smell as sweet. But if you called it a porcupine, you’d best watch out for all them pesky quills.

Bottom line appears to be this. Puerto Ricans are American citizens if they want to be. If they don’t want to be, they can be Puerto Rican citizens. If they decide to be Puerto Rican citizens, they can get a Spanish passport by dint of their Ibero-American status. If you were born in Wichita, Kansas, you’re a by-God American citizen. If you were born in Hato Rey, Puerto Rico, you can be whatever the Hell you want.

The Wacky World of Caribbean Chicanery

I know this is supposed to be all about Puerto Rican history but to be perfectly honest, the first half of the twentieth century was not kind to Puerto Rico. There was massive unemployment, a great depression, abject poverty and a succession of tyrannical governors who cared more for the sugar crops and rum (both legal and a moonshine version called “ron caña”) the island produced than for her indigenous people. The depression spanned the years 1929-1939. It wasn’t until 1942 that the first native born Puerto Rican was named governor of the island. So, let’s talk about Cuba.

Cuba was one of the spoils of war ceded to the USA by Spain in 1898 as a Protectorate after the debacle that was the Spanish-American War. And after all it was the revolution in Cuba that set off the Spanish American War.

Cuba gained its Independence in 1902. Even so the powers that be in Washington DC decided it was in the best interests of both Cuba and the United States for the USA to maintain a military presence in the country. Stop me if this is beginning to sound familiar. The Cuban Revolution had seriously depleted the Cuban Coffers. The economy was in the toilet. Corruption and repression were rampant. In 1933 students took matters into their own hands. One of their professors, a guy named Grau, led a movement to unseat the fat cats in Havana. As usual the USA backed the wrong horse in the race. This particular horse was named Fulgencio Batista.

Batista was a fixture in the halls of authority for the next twenty years, sometimes in office but more often the power behind the official throne. The economy was on the uptick but at a terrible cost to the reputation of the country. During that period Cuba had become party hostess to all manner of seedy ventures and deliberate debauchery. Indeed, Cuba had earned the sobriquet “Bordello of the Caribbean.” Now I’m not saying the American Mob ran the country but Meyer Lansky had a reserved table at the Breakfast Buffet in the Capitol Rotunda in Havana.

Finally, in 1952 the people said enough! A lawyer named Fidel Castro threw his hat in the ring. Fulgencio stomped all over the hat. So, Fidel grew a beard, bought himself a gun and the rest is history.