A Perfect Debt Storm in Puerto Rico

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Oct. 7 (Bloomberg) -- Julie Hyman discusses Puerto Rican debt on Bloomberg Television's "Street Smart." (Source: Bloomberg)


You're looking at debt in puerto rican bonds and the one thing we would have to compare it to if you are talking about a potential default is detroit.

This is $70 billion.

3.5 times the size of detroit and detroit has no way out of it at this point.

Detroit is passed the point of no return.

In the case of puerto rico, there is talk of restructuring the debt somehow.

There is talk of the united states coming and helping out but it would not be a direct bailout.

Perhaps there are other ways of assisting.

How did they get into this problem to begin with?

It's a situation where you have a deteriorating economy.

Some of the same issues we are seeing in the united states more broadly, but in a microcosm and worse.

Exposure to puerto rico is very, very high.

Three quarters of municipal debt funds in the u.s. have exposure to puerto rico.

Some are trading for as little as $.60 on the dollar.

You are seeing broad exposure here.

A municipal debt fund in particular -- they are sold as something relatively safe.

This used to be the issue with sovereign debt funds.

So you think it is a great deal.

At puerto rico is tax exempt, not subject to income tax when we talk about these funds, so you think you are in the clear and have a deteriorating situation.

If the it's downgraded to junk, you have some serious problem's on your hands and investors are not necessarily clear about the risks in some of these.

And unemployment is about 13.9% question mark exactly.

And there are particular banks are very exposed.

Ubs has touted itself as managing money for half of the island's millionaires.

It has more offices there than most of the other banks.

Some banks in particular might he a little more exposed than some of the funds not only have high exposure to puerto rican debt, but they are also very leveraged.

So you get a snowball situation.

You mentioned ubs.

Ubs has a lot of offices in puerto rico.

Remember we had the story about don paulson relocating to puerto rico because -- it is audrey go, it's nice.

It is a nice place to retire.

You have a high degree of wealth attracted to the island.

It is a social media surge.

This text has been automatically generated. It may not be 100% accurate.


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