It’s almost a law: Whenever an entity of any kind gets in trouble, be it a domestic carmaker or a foreign government, the final backstop is inevitably the U.S. taxpayer. So it is in Puerto Rico.
Now that credit rating agency Standard & Poor’s has ended the suspense by announcing that it is cutting Puerto Rico’s $70 billion worth of general obligation bonds to junk status, questions about the island’s economic future abound.
Will Fitch and Moody’s follow suit as they warned they probably would back in December? If the country can’t arrange other financing to cover its budget shortfalls as it has been doing since 2000, what will happen? With 70 percent of triple-tax-exempt bond funds in the United States holding some Puerto Rican debt, how much money will their investors lose? What will happen when investment managers who can no longer legally hold junk bond debt in their portfolios try to sell what they already have? To whom? For how much?
What about the hapless 3.6 million taxpayers on that balmy tropical isle? Will they be required to suffer further mulcting? What about the American taxpayers? Will the Obama administration bail it out with their taxes?
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