Puerto Rico just went into default for the first time.  The commonwealth didn’t pay $58 million in debt due today to creditors of its Public Finance Corporation. The debt is mostly owned by ordinary Puerto Ricans through credit unions.  The island is struggling with about $70 billion in total outstanding debt, and its economy is in recession.
For 25 years, Puerto Rico has been caught in a debilitating economic spiral. Decades of recession and slow economic growth forced a succession of governments to take out loans to cover budget deficits.

“What we have been doing is basically borrowing to survive today,” Marxuach says. “Unfortunately, our debt levels have gotten to a point where the rating agencies have downgraded our credit to below investment grade.”

With a junk status rating, Puerto Rico is trying to negotiate a new bond sale with Wall Street investors.

Simon Johnson writes: Nearly seven years after the global financial crisis erupted, and more than five years after the passage of the Dodd-Frank financial-reform legislation in the United States, the cause of the crisis – the existence of banks that are “too big to fail” – has yet to be uprooted. As long as that remains the case, another disaster is only a matter of time.

The term “too big to fail” dates back several decades, but it entered wide usage in the aftermath of the collapse of Lehman Brothers in September 2008. As problems spread throughout the financial system, the US authorities decided that some banks and other financial companies were so large relative to the economy that they were “systemically important” and could not be allowed to go bankrupt. Lehman failed, but AIG, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and others were all rescued through various forms of massive – and unprecedented – government support.

The official line at the time was “never again,” which made sense in political and economic terms. These large financial firms were provided a scale of assistance that was not generally available to the nonfinancial corporate sector – and certainly not to families who found that the value of their assets (their homes) was below the value of their liabilities (their mortgages).

If large, complex financial institutions continue to have an implicit government guarantee, many people – on both the right and the left – would agree that this is both unfair to other parts of the private sector and an inducement for big banks to engage again in excessive risk-taking. In the jargon of economics, this is “moral hazard.” But no special training is needed to know that it is unwise and dangerous when bank executives get the upside (huge bonuses) when things go well and everyone else bears the downside risks (bailouts and recession).   Regulate Banks for Success

Jean Pisani Ferry writes.  When Wolfgang Schäuble, Germany’s finance minister, recently tabled the option of a Greek exit from the euro, he wanted to signal that no member could abstain from the monetary union’s strict disciplines. In fact, his initiative triggered a much broader discussion of the principles underpinning the euro, its governance, and the very rationale for its existence.

The new dispute over Greece has convinced many policymakers of the necessity to return to the drawing board. Meanwhile, citizens wonder why they share this currency, whether it makes sense, and if agreement can be reached on its future.

For currencies, as for countries, founding myths matter. The conventional wisdom is that the euro was the political price Germany paid for French acquiescence to its reunification. In fact, German reunification only provided the final impetus for a project conceived in the 1980s to resolve a longstanding dilemma. European governments were both strongly averse to floating exchange rates, which they assumed would be incompatible with a single market, and unwilling to perpetuate a Bundesbank-dominated monetary regime. A truly European currency built on German principles appeared to be the best way forward.

In retrospect, German reunification was more a curse than a blessing. When exchange rates were locked in 1999, Germany’s was overvalued, and its economy was struggling; France’s was undervalued, and its economy was booming. During the ensuing decade, imbalances slowly grew between a resurgent Germany and countries where low interest rates had triggered credit booms. And when the global financial crisis erupted in 2008, conditions were ripe for a perfect storm.

No one can say how Europe would have evolved without the euro. Would the fixed-exchange-rate system have endured or collapsed? Would the Deutschemark have been overvalued? Would states have reintroduced trade barriers, ending the single market? Would a real-estate bubble have developed in Spain? Would governments have reformed more or less?

Establishing a counterfactual baseline against which the euro’s impact could be assessed is impossible. But that is no excuse for complacency. Over the last 15 years, the eurozone’s economic performance has been disappointing, and its policy system must answer for this.

What really matters is whether a common European currency still makes sense for the future. This question is often evaded, because the cost of exiting is deemed too high to consider .How the EU Can Survive

The Rocky Road to Globalization

Siv O’Neall writes: The Greek crisis is very much the work of the so-called ‘free market’ where anything goes. Big banks, led by Goldman Sachs and other vicious speculators pounced on unhappy Greece already in crisis situation due to slack governments, tax evasion and a high level of corruption. The unscrupulous vultures had now secretly stored away booties at the expense of the Greek people.

After all this and five years of austerity suffered by the largely innocent Greek people the EU is now firmly requesting that jobless and hungry Greeks tighten their belts even more. How can you be more jobless than jobless and how can you be hungrier than hungry, unless you are dead. Greece is now a dying nation.

One point is important to mention in the context of the Greek disaster. I doubt if the IMF should even be included any more in this now so popular term ‘Troika’. Very recently, before and after the July 5 referendum, Christine Lagarde, the managing director of the IMF has been saying more and more openly that Greece must get significant debt relief. What is this – the IMF with a human face? It has actually come to an open war between Lagarde and the German chancellor Angela Merkel, the new iron lady.

Why are the members of Eurogroup (whoever they are… Big question.) all saying that no other viable basis exists for a solution to the Greek crisis? Austerity, more austerity is all the EU can come up with. The billions in the past two bailouts went to the lenders, the banks, and the Greek government got a nickel to throw to its hungry people.

The Troika screaming and the media picking it up and repeating: “Blame the Greeks” (some of them were indeed to blame and slack governments were also guilty) – but above all don’t blame the banks and speculators who were responsible for the shenanigans that took place before 2010. Hide it all under the rug and let’s just go on pretending we believe in what we are screaming so loud – so say the leading members of the EU, with Angela Merkel and Jean-Claude Juncker screaming the loudest.

The European Commission (the EC, the EU, or call it the Troika if you like) is completely set on removing all sovereign power from the individual European countries.  The national governments do not have clean hands, but at least we voted for them and we have to take part of the blame if there is something rotten in our nation.

We, the real left in France and all over Europe, have known from the beginning that Europe was as undemocratic as the U.S. wanted it to be. It was a U.S. dream to make Europe a united vassal. Their dream came true. With a bang. Only the unelected officers of the European Commission have any say whatsoever. The only elected body in the EU is the Parliament, which has no power at all, a symbolic right to utter a word here and there is all. The Parliament is the carnation in the buttonhole.

Merkel and all the dictator-presidents of the European Commission didn’t think we would ever discover the hidden truth about this Europe of the very very few. Be they Barroso or Juncker, they melt into one as far as taking all power away from the individual countries and from the people.

Matt Levine notes:

Deutsche Bank, like a lot of big banks, had a culture in which it was viewed as okay to manipulate Libor submissions to help its derivatives positions and/or to make itself look healthier. They were fined $2.5 billion.  The size of the fine was more closely related to the number and dumbness of the electronic chats than it was to any particular economic analysis.

Deutsch Bank accidentally lost some of its chats, which means that, if it paid $X million per embarrassing chat, it probably underpaid. Of course, lots and lots and lots and lots and lots of bad conversations are never preserved electronically, because they happen in person (or on unrecorded phone calls), and it seems weird to worry too much about these lost chats.

WIll Deutsch Bank be further fined for the lost chats?

Lead in water   The competition between political parties rushing to test for tainted tap water descended into another fight yesterday in the run-up to the district council elections in November.

A number of Hong Kong’s housing estates found themselves at the centre of a tainted water scandal after tests commissioned by the Democratic Party in June 2015 showed that samples taken from tap water in Kai Ching Estate in Kowloon City contained amounts of lead exceeding WHO standards. Subsequent tests by the government showed water samples from at least two other public estates, in Kwai Chung and Sha Tin, also contained excessive lead.

James Surowiecki talks to eonomist Yannis Ioannides:  There has been a demand for reforms in Greece, but reforms work best when the level of trust is high. The Greek state has a poor reputation among its citizens.  It’s one reason why there is such a high rate of tax evasion.  Opening up the Greek economy would benefit ordinary citizens.  Current regulations serve mainly the wealthy.

Most import, the Greeks have to begin to produce again and export.  Tsipras should focus not on what the Europeans are not going to do, but on what the Greeks can do.  Tsipras should make it easier for young Greeks to find jobs and start businesses.

Tsipras did not run on this platform, but he should lead on it.