Tuesday, June 30, 2015

Neither A Borrower Nor A Borrower Be

You lend money at a risk premium. Borrowers pay that risk premium for a reason. That reason is that they might stop being able to pay. Then you eat the loan. That was how it was supposed to work, anyway.
Puerto Rico Gov. Alejandro GarcĂ­a Padilla on Monday portrayed his territory’s economic condition as even more dire than previously revealed and in a televised address appealed to Washington to make unprecedented, “concrete” changes in bankruptcy rules to help rescue the island’s finances.

Groaning under at least $73 billion in debt, Puerto Rico — which is being called “America’s Greece” — is staggering down a path toward default, a scenario that could ripple across cities and states that depend on bonds for building everything from schools to stadiums.

The banksters are supposed to be genius financial intermediaries, properly pricing risk and making loans accordingly. It seems that they aren't very good at their jobs? I suppose it depends on whether that really is their job.