Enrique Kike Cruz interviews Larry McDonald on NotiUno 630am

| January 9, 2014 | 9 Comments

Today, Enrique Kike Cruz gave both the analyst Larry McDonald and President of the PR Senate Eduardo Bhatia the opportunity to speak after their clash on twitter.

Cruz started out giving McDonald the word to introduce himself and Larry made a point that he had been an employee of the meanwhile non-existent investment bank Lehman brothers, but afterwards took great risk in writing the book “A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers.” He said, “I was taking great, great risk, R-I-S-K in publishing that book”, as to emphasize that he was not part of the Lehman-leaders responsible for the bank’s demise. McDonald is currently active as speaker/writer and risk advisor for the investment firm Newedge. Just recently, on January 3rd, he had published an article on his forbes.com-blog with the headline: “Could a Puerto Rico Default Hammer the $3.7 Trillion U.S. Muni Bond Market in 2014?”

Cruz wanted to hear from McDonald about his opinion on going into the bond market now (Feb 2014) with a new bond sale and also hear what he had to say about money being moved from commercial banks to the Government Development Bank.
 

 
Larry McDonald said that he is seeing these days, the “hottest bond market” he has seen in his career. And while other countries, where bond investors have trust in the steps the governments are taking, the lowest interest rates in a long time are being paid – while Puerto Rico is set to pay very high interest. As an example, he mentioned the Greece budget cuts, which “were obviously extreme” but Greek bonds went from 12.x% interest to 7.7% – Puerto Rico bonds went the opposite way, “something’s wrong here”, he said, emphasizing that the markets do not rely on the steps the PR Government has taken.

“Even though the Government says they have done all these wonderful things, the Bond market is clearly not listening”

As far as the move of money from private banks to the Government Development Bank is concerned, he can see that maybe the FDIC could have problems with such a move, but he didn’t explain this further.

Eduardo Bhatia started out saying that naturally the points of view of a bonds analyst and a public official must be different but, contrary to the tone on twitter, alluded several times to the openness for dialogue. His point was basically that Puerto Rico just started a few months ago to do the right things and make some very serious adjustments. And in essence said: Give us time!

Referring to the article of McDonald, Bhatia insisted once more “your article had a number of factual mistakes and they should be corrected.” But with this one he couldn’t really score. McDonald made clear, that there was no relation between “bad articles” and price of bonds but that the trust of the markets, the bond-buyers into a Government and its steps would determine the price of bonds/interest. And that was clearly not looking good for Puerto Rico at the moment. Bhatia tried once more to say that the comparison of debt levels between California and Puerto Rico in McDonald’s article was wrong, but McDonald stopped this in the tracks saying that “you can fit 50 PRs into California”, which would mean that if you’d really compare it “Apples to Apples” (as Bhatia said before), PR would have 50x $70 billion debt, a whopping $3.5 trillion.

Larry McDonald once more made the point that every day 94 people are leaving PR – and that those are tax payers. And that that happens as a consequence of overtaxing people for years. “When you try to do too much at once, it can push people away.”

Bhatia said that “no other US State Government has taken similar steps” and that Puerto Rico is taking very serious steps to deal with its problems.
 

 
McDonald countered that once more saying that “if the ship isn’t turned around aggressively over the next year, not just with tax increases but with spending cuts”, then there’s going to be more trouble.

In short, President of the PR Senate Eduardo Bhatia defending that they have been doing the best they can, analyst Larry McDonald saying that the markets don’t trust the steps taken by the current Government and that being proven by the rising interest for PR bonds.

 

Participants:

Larry McDonald, twitter.com/convertbond – website Larry McDonald

Eduardo Bhatia, twitter.com/eduardobhatia – website Eduardo Bhatia

Enrique Kike Cruz, twitter.com/kikecruznotiuno – http://notiuno.com

Thanks to Enrique Kike Cruz and Notiuno for providing the mp3-files with the audio-recording of the show!
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Category: Current Affairs

  • Jose from PR

    Mr Bhatia lies when he tries to isolate the PR Utilities and Commonwealth owned corporations from the Government. The nature and power of the governor in PR means that HE THE GOVERNOR HAS CONTROL OF THE CORPORATIONS. This year the Governor with the support of the Mr. Bhatia amended all the corporation enacting laws and took by assault the control of the corporate boards. It is a total lie that the public corporations in PR enjoy independence from the whims and mismanagement of the governor and Mr. Bhatia.

    • http://www.henryfreeman.com/ H.A. Freeman

      I think it’s problematic to say that a politician is lying. I think and assume that many of them are doing the best they can and know to solve the problem at hand. Though the system is against them. Being a politician shouldn’t be a career or fulltime job, in my opinion. That’s not even needed anymore in 2014. Especially in Puerto Rico, the major problem that stops all positive developments is, that there are two major political machineries who mainly do keep themselves alive – which maybe counterproductive to real progress for the country and its people. Part of this is a too rough communication between politicians of all colors (and the PR society in general), making a real debate hardly impossible. A real debate focusses on the topic, not on the people. I would even commend Mr. Bhatia that he had that 1st twitter-outburst and wrote what he thought and that he dialed into the show of Kike Cruz. I don’t care if he is red, blue or purple or whatever he did to become elected. We need to look forward and take it from here and make sure we do contribute to a better Puerto Rico right now – or there maybe nothing left, no people, no money, no nothing.

      • Jose from PR

        Sir, For me it is not problematic to say that a politician is lying. Particulary if the politician are from the PPD. For 76 years this party lied to the people of PR and the US investors and they are ready to do it again in order to retain power at all cost. I know this first hand because I have lived all my life in this island and know the politicians very well. I suffer under the systematic plundering of the PPD political machinery whose only goal is to preserve themselves in power. The current administration and their leadership are so self centered and deceiving that they dare to deny the political will of the voters when they do not recognize the results of the last plebiscite where, with a voter turnout of over 74% , the majority of voters 54% voted to end the current colonial status. They are using all state resources to oppose this vote. The PPD has no respect for Democracy. Their only goal is to preserve power at all cost and they have no limit in their willingness to lie and destroy by all means the opposition.

        • http://www.henryfreeman.com/ H.A. Freeman

          I understand your point and still I believe that the needed positive change cannot be created with the same thinking and mindset, with which the problems have been created. And, lastly, the politicians are only a concentrate of what is the overall population. Every misbehaviour of politicians can be found among the citizens who elected them… Just food for thought. The same way you say this or that party has been abusing or doing something for so many years, people would have had the chance to step up. Now it is just more visible with all the media available. I also agree that the colonial status has to end, because what hasn’t worked for the past 50 years, will not suddenly start working.
          But once more: for anything to get better, people need to let go of the past and undress from their blue or red suits… We would all want to have a better Puerto Rico, wouldn’t we? We can talk all day long about what would be necessary to do. However the first really action on the way to improve things is (in my opinion) to change how we think, interact, communicate and debate.

          • Jose from PR

            Thanks for your prompt reaction. I agree that the voters are responsible for the politician they put in power. But that does’nt mean that we have to lie down and put up with what is going on. Thanks to the media many people in PR are opening their eyes and minds to the truth. A thruth which was always there but they were unwilling to see. We can’t let go of the past. It is not so easy. You can’t forget the past when you have a social/political group that is willing to do anything to stay in power. One has to keep he flame burning to remind people of the truth and guide us to the end of the tunnel. Of course we want a better PR, but it has to be better FOR ALL not only for a political/social elite. The US has to step up for its responsibilty of this mess. For 115 year we have been loyal US citizens. Our men and women have served in all wars and conflicts without being able to vote for the CinC or Congresional Representation. We don’t pay IRS but we pay a BLOOD TAX. We did’nt ask for the US to occupy PR in 1898 you invited yourself and stayed. While the going was good Wall St and DC supported and exploted the colonial relationship. Remember everybody likes triple exempt bonds. Now the islanders are to be blamed for this mess. No, no way, you are part of the problem.

          • http://www.henryfreeman.com/ H.A. Freeman

            Two things I don’t get from your reply:
            1. Who blames “the islanders” (exclusively) fort his mess? Isn’t it obvious that such a complex problem cannot have one single cause?
            2. You mean “you” as in… who?

            As a last remark, PR needs to collectively let go of that old thinking. Not forget, but forgive – and move on.

          • Jose from PR

            1. I don’t see or hear in any US forum or commentary any mention of the responsibility of the US Investors/investment houses. It sounds that this mess is our exclusive creation. The stateside analysis is focused on treating PR as separate from the US when, as you know, we are a Territory/colony of the US.
            2. Sorry! there are several YOU in the though. The first one can be substituted by “One can’t forget” the last two refer to the US Govt/Wall St. Hope this clarifies the though.

            Collective leting go of old thinking requires leadership and that is lacking. There is nothing to forgive because there is no bad blood or bad feelings. We can’t forget.

  • Jose from PR

    Mr. Bhatia party the PPD won the elections in 2012 by lying their way to power. They made so many irresponsible promises and lies that they were surprised when they won by 11,000 votes. Their surprise was so big that they did not have a plan to govern.

  • SIXgunBANDIDO

    The Problem With Bonds, Taxes & IVU Is The Same… Corruption. Both
    Parties Have Created Fortunes For Politicians & Friends. Say Red,
    Say Blue, Say Green.. All Political Parties Have Benefited Thru The
    Years. Our Self Serving Politicians Have, Are, And Will Bankrupt The
    System Because There Is No Independent Agency Keeping Tabs On Government
    Over Spending, Which In My Books Is Clearly A Deplorable Treason To The
    People Of The (Colonial) Nation Of PR. In The End… As The Criminals (
    Politicians & Elites) Who Are Driving PR To Default Will NEVER Be
    Charged… The Crimes Will Go On And On… And Changes In Tax Brackets,
    Increased IVU And Even Better Methods Of Collecting Them Will NOT
    Work… As The Money Will Continue To Flow To The Same Corrupt Pockets
    As Have Always Been. PR Will Default… Come Rossello, Come Garcia
    Padilla, Come Anyone… The System is Corrupt To The Core… And Lets
    Not Even Talk About The Brain Drain And Emigration Of The Middle Class.