Yes, I know, pointing out that Bernie Sanders is an economic ignoramus is not a heavy lift; economic ignorance is the whole point of socialism. (As Hayek reminded us, “If socialists understood economics, they wouldn’t be socialists.”) But just as we have too many kinds of deodorant (said Sanders), we may as well have too many observations of Sanders’s abyss. The market demands it!
Thanks to a tip from a sharp-eyed Power Line reader, I went back to a New York Times story about a recent Senate hearing on Puerto Rico’s debt crisis. If you’ve been following the news, you’ll know that Puerto Rico is bidding to be the Greece of the western hemisphere, but since it is a U.S. territory it is Washington rather than the E.U. that is being looked to for a bailout. Naturally the Obama administration is working on a bailout plan.
Toward the end of the Times story, the fun really gets rolling:
Democratic senators at the hearing made it clear that they were deeply concerned about some hedge funds betting on Puerto Rico’s crisis and the possibility that they were seeking to influence the rescue plan in order to maximize profits.
Imagine that! Creditors wanting to have some say in restructuring a debt burden! It’s like this has never happened before or something. Dogs and cats, living together! Real “end of days” stuff.
And sure enough, Bernie is leading the hit parade.
Mr. Sanders said that what he termed “vulture funds” had been buying up Puerto Rico’s debt for as little as 30 cents on the dollar.
“Why should they get 100 percent of their investment when they are paying 30 to 70 percent for their bonds?” he said.
Mr. Weiss said that some debt securities were yielding 11 percent.
“Whoa!” Mr. Sanders exclaimed. “They are receiving 11 percent and children in Puerto Rico are going hungry. That, for me, is not an equation that works.”
Where to begin? “Why should they get 100 percent of their investment when they are paying 30 to 70 percent on their bonds?” Well, a fellow named Alexander Hamilton explained that once, after “speculators” had bought up much of the debt issued by the Continental Congress and U.S. government under the Articles of Confederation, often for pennies on the dollar. Hamilton pointed out that if the U.S. didn’t honor the debt, no one would ever lend money to the U.S. again. “Full faith and credit” isn’t worth much if lenders think you won’t honor your debts.
Sanders objects that some investors are “receiving 11 percent” while children are going hungry. Actually investors won’t receive anything if Puerto Rico defaults. More likely they’ll receive market rates of return if the debt is restructured, which makes Puerto Rico bonds a normal investment. But what about the widows and orphans and union pension funds that bought Puerto Rico bonds at full face value (and a lower coupon rate)? Does Mr. Sanders care about them? Or should they be screwed just to satisfy Bernie Sanders’s lust to punish Wall Street?
This subject might make for a series of good questions for Sanders at the next Democratic debate. Should President George Washington have defaulted on the U.S. debt in the 1790s? What about 1981, when U.S. long-term bonds had a coupon rate of 13 percent, while they were hungry children (some of them in Vermont)? Better still, if the U.S. hits a debt crisis some time in the near future, would President Sanders recommend defaulting on U.S. sovereign debt because some banks have taken the risk to buy our debt at a discount? Just how would he distinguish “vultures” from other debt investors? (Actually, I know the answer to this last question: the same way the Obama administration distinguished between GM bondholders and union claimants in the auto industry bailout. Socialism always ends in gangster government.)