“Esto
es de lo peor que he visto”, comentó Zamansky, quien ha visto todo tipo de casos, incluyendo
el sonado caso de Bernard Madoff.
“This is the
worst I’ve ever seen,” Zamansky commented, who has seen all kinds of cases,
including the famous case of Bernard Madoff.
And what is
Jake Zamansky,
a security and investment fraud attorney, talking about? Well, the case of the Puerto Rican
branch of UBS, which has been selling Puerto Rican bonds to its clients for
years now.
And what’s
wrong with that? Aren’t bonds supposed to be a safe investment?
It seems
not—especially in the case of Puerto Rico, whose credit rating is one
step above junk bond rating, and whose government is seriously broke. How
seriously broke? Well, how serious is 70 billion bucks? Our pension program is
37.3 billion underfunded.
“Of
course,” said my friend Tony, “that’s just a guess-timate. Because you know
what? There’s no actuarial work or studies done on the plan….”
My years
with Mr. Fernández have taught me about actuaries; they’re statisticians who
predict how much money a plan will need based on the number of people in the
plan, the age, expected life span, etc. And if you don’t have that info? You’re
operating completely in the dark.
This caused
the governor,
last month, to scurry
up to New York to tell Moody’s and the other credit rating houses that all
was well on the island, and that he / they had raised taxes and had a solid,
solid plan to deal with the mess.
Did they?
Well, it’s true that they had raised taxes—but what had they not done? The one
thing that would really bring howls: cut the size of the government.
They did,
however, take on the retirement system, and high time, since one of the senators…well,
let
him speak for himself:
"No
retirement system in the world is as broken as ours," Senate President
Eduardo Bhatia said on Thursday, before the overhaul legislation was approved
by both houses of the Caribbean island's legislature.
The
overhaul was bitterly protested, and went to the local Supreme Court, which
upheld it. So now the protests have died down, but it’s anybody’s guess when
the money will run out….
Now then,
into this gloomy picture—oh, and I have told you the unemployment rate
is about 15% and the per capita household income is half that of the poorest
state, haven’t I?—steps UBS, which is one of the three biggest brokerage houses
on the island.
And because
of a unique feature in the law, Puerto Rico bonds happen to be rather
attractive, at least potentially. Why? Here’s
Bloomberg—and who
should know but they?—on the subject:
Interest
on debt issued by Puerto Rican governments is typically tax-free across the
U.S., and yields on some issues topped 10 percent in recent weeks amid doubt
about whether investors will be repaid. The bonds’ high yields and tax-exempt
status make them popular with retail investors, according to the statement.
Nice, hunh?
Not so
nice, said the Commonwealth of Massachusetts Secretary William F. Gavin in
the same Bloomberg
article:
“Puerto Rico is currently
on the verge of insolvency and many of its obligations are at or near junk
rating,” according to the statement. “The risks associated with its municipal
debt obligation are disproportionally high.”
‘Well,’ you
are perhaps thinking, ‘let the rich suffer. I, for one, only have the shirt on
my back, the roof over my head, and the rice and beans in my stomach. So,
however bad the losses in the bond market may have been, it’s hardly my
problem….’
Wish that were
true. But first, you should know that the losses were 2.2 billion in the month
of September alone. Nor is it just the wealthy affected.
In fact,
here’s Zamansky again:
“He
atendido por lo menos a 150 personas y escucho, esencialmente, lo mismo. Son
retirados, personas que son inversionistas conservadores y que se le dijo que
invirtieran todo o una gran parte de su dinero en estos fondos cerrados y en
bonos de Puerto Rico”, sostuvo el abogado. “A más de la mitad de estas personas
se les instó a que tomaran prestado”.
“I’ve taken
care of at least 150 people and have heard, essentially, the same tyhing. They
are retired, people who are conservative investors and were told to invest all
or a great part of their money in these closed funds and bonds of Puerto Rico,”
he stated. “And more than half of these people were told to take out a loan
to do so.”
The problem?
Was UBS informing these people of the risks of investing in Puerto Rico? No
bond is guaranteed if the government goes broke. And the advisability of
offering or urging a line of credit or a loan to investors?
The Government
Will Decide Whether to Sue UBS—reads the headline
in The New Day, our
local paper.
In the
meantime, Zamansky and other lawyers are sitting in hotels, interviewing
hundreds of mostly middle class retirees, many of whom have suffered
significant losses. How significant? Some people are so old that they’re in
nursing homes, and now the families are having to take them out of them:
there’s no money left.
The
handwriting has been on the wall for a long time, of course. A few years back,
a Reuter’s blog came
out and said it bluntly: Puerto
Rico is America’s Greece. If our folly and foolishness had hurt the rich, I
might cheer. But the idea of hard-working, prudent, conservative people losing
their life savings?
…heart
breaking.
