Puerto Rico's default

[GandK]

CNN, today: Puerto Rico makes historic default

I figured it was coming, but this makes me very nervous.

[jacob]

Why?

I would be nervous if I had lots of muni-bonds since state leaders (Greece, Puerto Rico, Detroit, ... not Chicago though, yet) have shown a desire to rewrite the terms and make creditors quite junior to pretty much everyone else. In the short run this benefits those who receive ongoing funds, e.g. pensioners, fire, police, school, etc. In the long run it means that it gets harder to run that economy on borrowed money. Which is probably a good thing (given the clear demonstration of an inability to deal with debt) although it does mean that for that area either taxes go up or standard of living goes down to a more reasonable level.

[GandK]

Because (a) they're rewriting the rules of repayment after the fact, (b) they apparently think that's an OK thing to do, (c) they're not cutting costs in any substantial way yet to deal with the long term debt problem, (d) there's no end in sight, and most disturbingly, (e) the federal government is preventing the resulting lawsuits.

I don't own these bonds, but this situation - especially the intervention by the feds - is wrong. And it sets a terrible precedent for future debts.