Should Puerto Rico Default?

“Donald Trump caused a stir this week by suggesting that Puerto Rico’s massive $73 billion public debt should be “wiped out.”

“Trump implied that large investment banks like Goldman Sachs will need to take a haircut and, indeed, Goldman and other investment banks and hedge funds own about $17 billion of Puerto Rico’s debt (one hedge fund, the Baupost Group, holds $1 billion all by itself). The rest is held by a variety of mutual funds and other institutional and individual investors (most Puerto Rican bonds are rated as “junk,” so US pension funds cannot hold them.) In other words, all sorts of investors would be hurt by default (and have already been hurt — Puerto Rican debt already trades at a 50% discount and prices fell even further to 37 cents on the dollar after Trump’s statement.)”