Thursday, October 1, 2015

Modern Pirates Attack Puerto Rico

Puerto Rico is in the middle of a debt crisis that is destroying its economy, and this crisis didn’t just appear from nowhere. Huge investment banks and hedge fund vultures saw a big opportunity to profit from abusive lending to Puerto Rico, and pushed its government institutions to take on more debt that they would never be able to repay. Now, they want Puerto Rico’s people to foot the bill and guarantee their profits. It’s predatory lending at its worst, and on an international scale.

A banker named Antonio Weiss helped manufacture this crisis when he worked at investment bank Lazard Frères, and he was rewarded with a $21.2 million golden parachute. Now he’s at the US Treasury Department, and he’s been put in charge of leading the Treasury’s response to the crisis – despite the fact that his former employer has a huge financial interest in what happens.

Several groups of hedge funds have bought up large chunks of Puerto Rican debt at deep discounts and have also pushed the island to borrow at extremely favorable, possibly criminal, terms for creditors. 

Hedge funds hold an extraordinary amount of Puerto Rico’s debt – perhaps almost 50% of it. And now, in order to guarantee massive profits on their investments in Puerto Rico’s debt, hedge fund managers are pushing implementation of austerity measures that would greatly benefit the super-wealthy and hurt everyday people in Puerto Rico.

A debt crisis has been unfolding in Puerto Rico for several years, as high levels of borrowing, privatization, corporate welfare, and a declining economy have made it impossible for the island to manage its debt. 

The island’s government is caught between the needs of its people and the demands of creditors – powerful lenders seeking payments who will ultimately push for punishing structural reforms and austerity.

Please join us in demanding that Treasury Secretary Jack Lew remove Antonio Weiss from any role in responding to Puerto Rico’s debt crisis.

Known as “vulture funds,” these investors have followed a similar game plan in other debt crises, in countries such as Greece and Argentina. The spoils they ultimately seek are not just bond payments, but structural reforms and privatization schemes that give them extraordinary wealth and power – at the expense of everyone else.

They spend heavily in order to promote policies that drive inequality and wealth concentration – low tax rates for the wealthy and for big business, budget and service cuts for everyone else, and privatization schemes that turn public assets into hedge fund profits. And then they reinvest a portion of the profits with the same individuals and institutions that helped them implement their chosen agenda, from politicians and lawyers to advocacy groups and think tanks. And the cycle goes around again and again.

Hedge funds are aided in this endeavor by a group of investment banks, which have been marketing Puerto Rico’s debt to them in a hard-sell pitch for the last several years. One of the leaders in this practice is Lazard Frères, and its involvement in Puerto Rico is deep and nefarious:

Lazard held a 2013 marketing session with 75 hedge funds solely to market debt investment opportunities in Puerto Rico.

Lazard traded in Puerto Rican debt.
Lazard has reportedly invested in Puerto Rican debt.
Former Lazard partners incentivized Puerto Rico to underwrite more debt with Lazard.
Lazard partners have come under scrutiny from law enforcement officials for unethical and/or illegal business practices related to debt underwriting, including in Puerto Rico, for bribery, kickbacks and conflicts of interest.

Just over a year ago, Antonio Weiss was still a partner at Lazard, making more than $7 million a year. 

When Weiss was nominated for a position at the US Treasury, Lazard agreed to advance him $21.2 million ahead of schedule. Weiss’ nomination to the Treasury position failed because of outrage over this golden parachute, but he was then given an advisory position that didn’t require congressional approval. 

Now, just over a year later, Weiss is leading up the Treasury Department’s task force on Puerto Rico.

It’s an obscene conflict of interest. The US Treasury Department will play a significant role in shaping what happens with Puerto Rico’s debt. And whatever happens will have a huge impact on the lives of everyday people in Puerto Rico. The person leading the US Treasury’s efforts should not be someone who is personally profiting from investments in Puerto Rico’s debt, and who has many friends and former colleagues that are doing the same.

Thanks and ¡adelante!

— Luis, Mariana, Erick, Arturo, and the

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