Instead of Greece and the E.U. $73 Billion in bad loans made to Puerto Rico's government is threatening to cause chaos for the municipal bond market in the US.
Puerto Rico says it cannot pay its debt, setting off potential crisis in the U.S.
By Michael Fletcher
The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States.
Puerto Rico’s move could roil financial markets already dealing with the turmoil of the renewed debt crisis in Greece. It also raises questions about the once-staid municipal bond market, which states and cities count on to pay upfront costs for public improvements such as roads, parks and hospitals.
For many years, those bonds were considered safe investments — but those assumptions have been shifting in recent years as a small but steady string of U.S. municipalities, including Detroit, as well as Stockton and Vallejo in California, have tumbled into bankruptcy.
Puerto Rico’s governor, Alejandro Garcia Padilla, will seek concessions from creditors, which range from mutual funds in the United States to large hedge funds that have been buying Puerto Rican debt at high interest rates, in an effort to stretch out loan payments and drive down borrowing costs that are hamstringing Puerto Rico’s struggling economy.
Of course institutional investors aren't know for their empathy or understanding.
Financial markets are already falling in anticipation of a Greek default.
World stock markets tumble as Greece crisis deepens