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Posts tagged ‘Wall Street’

Insurers Dubious About New Obamacare Fix for January Health Plans.


Image: Insurers Dubious About New Obamacare Fix for January Health PlansKen Statz, a health insurance broker, at his office in Brecksville, Ohio on Dec. 3. Statz said he had been stymied in his efforts to enroll clients through HealthCare.gov.

Insurance companies are struggling with a new request by the Obama administration to make sure people receive medical benefits under healthcare reform come Jan. 1, even if they miss a sign-up deadline set for next Monday.The government has sought to reassure consumers, already frustrated by technical problems that stalled access to its HealthCare.gov enrollment website in October and November, that those who need coverage starting on New Year’s Day will be able to sign up.

Last week, the administration appealed to the insurance industry to accept people who sought benefits past the Dec. 23 enrollment deadline for Jan. 1, and to consider approving retroactive coverage for consumers who signed up during the month of January.

So far, the answer has amounted to a big “maybe.”

Insurers are worried that some consumers will sign up for retroactive January plans only if they have incurred a hefty medical bill. It is unclear what the costs of that would be or how many shoppers might take advantage of the policy.

“It creates a situation where someone might be able to apply for insurance when they have already had services” such as in the emergency room, said Mary Beth Chambers, spokeswoman for Blue Cross Blue Shield of Kansas. “It’s like calling for homeowners insurance when your house is already on fire.”

Chambers said that such cases would probably be “few and far between.”

BCBS of Kansas, the largest insurer in a state where about 14 percent of the population is uninsured, has decided to give people until Jan. 10 to pay their premiums and receive retroactive coverage beginning Jan. 1. They are still hewing to the Dec. 23 enrollment deadline while they study the feasibility of allowing retroactive sign-ups as late as Jan. 31.

Some of these changes and the technical problems associated with the rollout of the Affordable Care Act, commonly called Obamacare, could lead to people facing a gap in coverage next month. It could also create new political problems for President Barack Obama over his signature domestic policy, which opposition Republicans have tried to derail for years.

Aetna Inc, one of the biggest players on the exchange, is going to extend the payment date until Jan. 8, make service workflow changes to support the deadline shift to Dec. 23 from Dec. 15 and already planned to ensure customers will not miss important appointments, such as cancer treatments. But it said some of the administration’s suggestions would require systems changes and more service support people, which was not viable.

“We are concerned that changing the rules at this late date and allowing for this degree of variability will lead to significant consumer confusion about the marketplace,” Aetna spokeswoman Cynthia Michener said.

Cigna Chief Executive David Cordani said the company will decide this week which measures to pursue. The company, which has only a small business catering to individuals, said that its employer-based plans already offer similar programs to ensure continuity of coverage.

Other insurers, including Molina Healthcare Inc which is selling Obamacare plans in 9 states, have said they will be extending the payment deadline but are stopping there.

The request has raised concerns among some Wall Street analysts over a steady stream of changing regulations. Moody’s, which reviews credit ratings of companies, said the additional conditions are a negative influence on insurers’ business, requiring administrative changes to track new customers, and will be confusing for doctors and consumers.

Enrollment in Obamacare plans has picked up in December, due to fixes for HealthCare.gov, which serves 36 states, and as consumers nationwide anticipate the Dec. 23 deadline for Jan. 1 benefits. The Congressional Budget Office has estimated that 7 million people will sign up for coverage by the time enrollment for all of 2014 ends on March 31.But the pace of enrollments so far – 365,000 people by the end of November – has cast doubt on the government’s ability to reach that many people in the program’s first year.

Wall Street analysts have lowered their estimates for enrollment to almost half the CBO estimate, or less. Insurers have tempered their expectations as well. For the larger players like Aetna, WellPoint and Humana, the exchange market is just a fraction of their total membership, which range from more than 10 million people to 40 million at UnitedHealth Group Inc.

More than 150 million people receive insurance through their employers and 100 million others have health coverage through government programs – Medicare for the elderly and Medicaid for the poor.

Brian Hale, a senior vice president for health policy at Jackson Hewitt Tax Service in Nashville, Tennessee, said that he believes the number of people trying to sign up for Jan. 1 Obamacare coverage is a fraction of the 10 to 20 million people in the market for individual insurance this year.

Out of that, the number who may be truly displaced is “a much smaller number of people then it’s been made out to be,” Hale said.

Ron Williams, the former CEO of Aetna who now advises private equity firm Clayton, Dubilier & Rice, said he believed insurers could allow for retroactive coverage for a few more days in January and still mitigate the risk of high costs.

“There is some risk there; it is a limited risk,” Williams said.

Funding under the healthcare law may help cover some of that risk, or the costs that come when very sick people sign up at a disproportionate rate versus healthy people.

Vantage Health Plan in Louisiana is planning to extend the deadline for people to enroll for Jan. 1 coverage, but has not decided how long to do so, according to Billy Justice, Vantage’s marketing and sales director.

Justice said that the law prohibits insurers from denying coverage to someone with a prior illness “and there should be risk adjustments at the end of the year for insurance companies that get the highest risk.”

© 2013 Thomson/Reuters. All rights reserved.

Source: Newsmax.com

Keeping the Lights on Monday through Saturday.


Tom Ehrich

The scenario is common and vexing.

A church building erected generations ago to serve a different era sits idle six days a week and still consumes 50 percent or more of the church budget. Maintenance gets deferred, comforts are reduced, staff that is needed when the church is open are laid off, and nothing gets better.

Frustrated church leaders wonder if they should jettison the beloved structure and join newer congregations in strip malls and schools. They don’t raise the idea, of course, because their primary donors are older parishioners for whom the building is a treasure.

Some leaders dig in their heels, put the building first, and say “No” to any new expenses that would endanger the facilities budget, thus preventing initiatives that might build membership and justify bricks-and-mortar.

A prominent English vicar offers another solution, grounded in church architecture itself.

In the Middle Ages, says the Rev. Desmond Tillyer, formerly of St. Peter‘s Eaton Square, in the Belgravia section of London, churches had two parts: a chancel reserved for sacred uses, and a nave used for worship but even more for secular purposes.

“In the nave,” says Tillyer, “the people gathered for Mass, but it was also a parish hall, a place for community rites of passage, e.g.celebrations of wedding feasts and funeral wakes, also sometimes the local market or the local court house, and ultimately the final place of refuge into which the people brought their families and livestock if the village were attacked.”

Many New York City churches served exactly that last function during the 9/11 attacks. They set up feeding stations for first-responders, posted photos of the missing, provided space for grief counseling, distributed water to ash-covered citizens fleeing Wall Street, and formed pastoral partnerships with firehouses that had lost comrades.

English churches got stiff during the Protestant Reformation, says Tillyer, when Puritans banned secular activities in churches and Roman Catholic counter-reformers followed suit.

But churches are becoming community centers once again, Tillyer says. “Naves have become shops, Post Offices, welcoming facilities, including cafes and information centers, places for lunch clubs to meet … art galleries opened, medical centers, meeting places for youth clubs, study groups.”

Some alterations of facilities needed to be made, but grateful government agencies shared the expense.

At St. Peter’s, they removed pews and communion rails to provide concert and meeting space. They adapted the crypt for a nursery school and non-church tenants. The parish hall was converted for sharing with government agencies, social events and commercial rentals.

“The result,” says Tillyer, “was not only an immediate intermeshing of church and community, but also income for the church so that the mission and ministry of the church could be further enhanced.”

Churches in America have a different relationship with government and would need to work around tax-exemption issues. But I have seen that done. The larger obstacles are resistance among members unaccustomed to sharing their space, and worry about outsiders causing damage, clutter and odors.

Even so, many congregations have taken steps toward becoming community centers. In my neighborhood, a United Methodist church building is in use seven days a week: as home for three separate congregations (Methodist, Presbyterian and Jewish), a seniors program, a feeding ministry, a community orchestra and chorus, a community theater, programs for children, and English-as-a-second-language classes for immigrants.

Yes, the facilities look worn. But worn is better than empty.

Tom Ehrich is a writer, church consultant and Episcopal priest based in New York. He is the author of Just Wondering, Jesus, and the founder of the Church Wellness Project,www.churchwellness.com. His Web site is http://www.morningwalkmedia.com.

c. 2009 Religion News Service. Used with permission.

Original publication date: September 16, 2009

US ‘Robbed’ JPMorgan, Payback for Criticism of Obama.


Image: US 'Robbed' JPMorgan, Payback for Criticism of Obama

Sunday’s New York Post page one headline about JPMorgan’s fine screamed “Uncle Scam” with the sub headline “U.S. Robs Bank of $13B.”

Wall Street went into a tizzy this weekend with the news that one of the nation’s biggest banks agreed to fork over to the federal government $13 billion in fines related to its mortgage securities business.

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The Post quoted bank analyst Dick Bove of Rafferty Capital as saying the deal “is a basic and fundamental attack on capitalism.”

“It is possible that the government is taking away the property of the JPMorgan shareholders without the shareholders having committed any crime or having any say in the expropriation of these funds,” Bove told the New York Post.

The deal, announced Saturday, settles civil penalties with the U.S. Justice Department, but doesn’t stop any potential criminal prosecution. The Federal Housing Finance Agency sued JPMorgan and 17 other banks for faulty mortgage bonds two years ago.

Wall Street insiders were furious about the deal, noting that 80 percent of the mortgages being probed were actually acquired from the failing banks Washington Mutual and Bear Stearns. JPMorgan reportedly took over the risky portfolio at the request of the U.S. government in the wake of the 2008-09 financial meltdown.

“I just think that these banks like JPMorgan are being whacked like a pinata,” hedge-fund manager Doug Kass, told the Post. “Ultimately, the earnings power of banks is being regulated out of them from the [Securities and Exchange Commission], from the Department of Justice.”

The settlement deal was sealed this past Friday night in a telephone call between Attorney General Eric Holder and JPMorgan CEO Jamie Dimon.

Politico noted that Dimon was once considered “one of President Barack Obama’s most prominent Wall Street friends.” A Democrat and one-time Obama donor, he was also a frequent visitor to the White House and praised by Obama himself as the “one of the smartest bankers we got.”

But that relationship went into meltdown as Dimon began criticizing Obama’s handling of the economy in the run-up to the 2012 election.

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Last year Dimon told Fortune magazine that “we have the royal straight flush,” suggesting that “the debt-ceiling crisis, the failure to do Simpson-Bowles, [and] what I consider the constant attack on business” by the Obama administration had stymied the recovery.

© 2013 Newsmax. All rights reserved.

Morici: Obama Targeted JPMorgan – Why?.


JPMorgan Chase’s record $13 billion tentative settlement with the Justice Department concerning misrepresented residential mortgage-backed securities does not absolve from criminal charges senior bank officials or the bank as an institution.

JPMorgan could be dismembered if several senior officers are found guilty of criminal charges or the bank as an institution engaged in fraud or other criminal activities. The resulting crippling or breakup of JPMorgan would have grave consequences for major corporations and the broader economy that rely on the institution as their primary banker, and those firms’ CFOs would do well to start shopping their business elsewhere.

Also, other Wall Street institutions, such as Goldman Sachs, marketed similarly shaky securities. It must be asked: Why has all this taken five years? Why was JPMorgan singled out for such harsh treatment? Does this episode have parallels to the federal suit against Standard & Poor’s, which downgraded U.S. debt in 2011 and then was singled out among bond rating agencies by the Administration?

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Much of JPMorgan’s legal problems stem from its acquisitions of Bear Stearns and Washington Mutual, whereas Goldman Sachs’ mortgage securities problems were manufactured within its own confines.

Again why is JPMorgan treated so much more harshly, and without regard for the broader macroeconomic effects?

Much of Wall Street backed Barack Obama’s bid for the presidency in 2008, and subsequently maintained distance for the 2012 campaign. Goldman Sachs has continued close ties to the administration and the Federal Reserve.

All this raises serious questions about the exercise of prosecutorial discretion by Eric Holder‘s Justice Department.

© 2013 Newsmax. All rights reserved.

By Peter Morici Twitter @pmorici1

S&P 500 Reaches All-Time High After Debt Deal.


Image: S&P 500 Reaches All-Time High After Debt Deal

The stock market hit an all-time high Thursday as investors put the government shutdown and debt ceiling crisis behind them and focused on corporate earnings.

The Standard & Poor’s 500 index rose 11.61 points, or 0.7 percent, to close at 1,733.15 — a record close.

The market rose throughout the day as investors got back to focusing on corporate earnings and economic data. American Express and Verizon rose the most in the Dow Jones Industrial Average after reporting earnings that beat expectations from financial analysts.

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The Dow ended the day down two points, or 0.01 percent, to 15,371.65. The index of 30 big U.S. companies was held back by declines in IBM, Goldman Sachs and UnitedHealth.

IBM’s third-quarter revenue fell and missed Wall Street’s forecast by more than $1 billion. The stock closed down $11.90, or 6 percent, to $174.80. Earlier, it had touched its lowest level of the past year — $172.57

Goldman Sachs also weighed down the index. The investment bank’s revenue fell sharply as trading in bonds and other securities slowed. Goldman fell $3.93, or 2.4 percent, to $158.32.

The focus on earnings is a change of pace for Wall Street, which had been absorbed in Washington’s political drama over the last month.

Now that the U.S. has avoided the possibility of default, at least for a few months, earnings news is expected to dominate trading for the next couple weeks. So far, only 79 companies in the S&P 500 have reported third-quarter results, according to S&P Capital IQ. Analysts expect earnings at those companies to increase 3.3 percent over the same period a year ago.

“I don’t think we can completely close the door on the debt ceiling chapter just yet, but we can get back to the stuff that really matters,” said Jonathan Corpina, who manages trading on the floor of the New York Stock Exchange for Meridian Equity Partners.

Other indexes also posted big gains. The Nasdaq composite closed up 23.71 points, or 0.6 percent, to 3,863.15.

The Russell 2000 index, which is made up of primarily smaller, riskier companies, also hit an all-time high. It closed up 9.85 points, or 0.9 percent, to 1,102.27 and has risen nearly 30 percent this year.

Market analysts think the 16-day partial shutdown of the government caused billions of dollars of damage to the economy. Government employees were furloughed, contracts were delayed, and tourism declined at national parks.

Analysts at Wells Fargo said the shutdown likely lowered economic growth by 0.5 percentage point.

There remain broader concerns that Democrats and Republicans won’t be able to draw up a longer-term budget. The deal approved late Wednesday only permits the Treasury Department to borrow through Feb. 7 and fund the government through Jan. 15.

“The agreement represents another temporary fix that pushes fiscal uncertainty into the early months of next year,” Wells Fargo analysts said.

Despite the worries, signs of normalcy returned to financial markets Thursday.

The one-month Treasury bill was back to trading at a yield of 0.01 percent, about where it was a month ago, and down sharply from 0.35 percent on Tuesday.

Usually a staid, conservative security, the one-month T-bill was subjected to a wave of selling at the beginning of the month. Investors feared the T-bill would be the first piece of government debt to be affected by a U.S. default if the debt ceiling was breached and the federal government could no longer pay its obligations.

The yield on the more closely-watched 10-year Treasury note fell to 2.60 percent from 2.67 percent Wednesday.

Among other stock moves:

— Verizon rose $1.65, or 4 percent, to $48.90. The telecommunications company earned an adjusted 77 cents per share for the recent quarter, beating expectations of financial analysts.

— UnitedHealth Group dropped $3.82, or 5 percent, to $71.37. The health insurance giant narrowed its 2013 profit forecast, instead of raising it, giving some analysts pause.

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© Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Source: NEWSmax.com

Dow Soars 205 Points After Senate Forges US Debt Deal.


Image: Dow Soars 205 Points After Senate Forges US Debt Deal

Traders work on the floor of the New York Stock Exchange on Oct. 16.

Wall Street finally got the deal it’s been waiting for.

A last-minute agreement to keep the U.S. from defaulting on its debt and reopen the government sent the stock market soaring Wednesday, lifting the Standard & Poor’s 500 index close to a record high.

The deal was reached just hours before a deadline to raise the nation’s $16.7 trillion debt limit. Senate leaders agreed to extend government borrowing through Feb. 7 and to fund the government through Jan. 15.

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The agreement follows a month of political gridlock that threatened to make America a deadbeat and derail global markets, which depend on the U.S. to pay its bills. American government debt is widely considered the world’s safest investment.

Markets stayed largely calm throughout the drama in Washington, with the S&P 500 actually gaining 2.4 percent since the shutdown began Oct. 1, after House Republicans demanded changes to President Barack Obama’s health care law before passing a budget.

Wall Street gambled that politicians wouldn’t let the U.S. default, a calamity economists said could paralyze lending and push the economy into another recession.

“We knew it was going to be dramatic, but the consequences of a U.S. default are just so severe that the base case was always that a compromise was going to be reached,” said Tom Franks, a managing director at TIAA CREF, a large retirement funds manager.

Congress was racing to pass the legislation before the Thursday deadline.

If the deal wraps up soon, investors can turn their attention back to economic basics like third-quarter earnings. Overall earnings at companies in the S&P 500 index are forecast to grow 3.1 percent from a year earlier, according to data from S&P Capital IQ. That’s slower than the growth of 4.9 percent in the second quarter and 5.2 percent in the first quarter.

It will be harder for Wall Street to get an up-to-date view of the economy because the partial government shutdown that began Oct. 1 has kept agencies from releasing key reports on trends like hiring. In general, though, the economy has been expanding this year.

Despite broad confidence that the political parties would strike a deal, the Dow Jones Industrial Average went through rough patches over the last month, at one point falling as much as 900 points below an all-time high reached on Sept. 18. The Dow has seen seven triple-digit moves in the last 10 trading days.

On Wednesday, the Dow Jones climbed 205.82 points, or 1.4 percent, to 15,373.83. The S&P 500 gained 23.48, or 1.4 percent, at 1,721.54. That’s only four points below its record close of 1,725.52 set Sept. 18.

The Nasdaq composite climbed 45.42, or 1.2 percent, to 3,839.43.

The feeling among stock traders in recent days was that panicking and pulling money out of stocks could mean missing out on a rally after Washington came to an agreement. Investors have also become inured to Washington’s habit of reaching budget and debt deals at the last minute.

“Investors have become, unfortunately, accustomed to some of the dysfunction,” said Eric Wiegand, a senior portfolio manager at U.S. Bank. “It’s become more the norm than the exception.”

In the summer of 2011, the S&P 500 index plunged 17 percent between early July and early August as lawmakers argued over raising the debt limit, and Standard & Poor’s cut the U.S. credit rating from AAA, its highest ranking. The market later recovered.

Stocks also slumped in the last two weeks of 2012 as investors fretted that the U.S. could go over the “fiscal cliff” as lawmakers argued over a series of automatic government spending cuts. Stocks rebounded and began a strong rally that has propelled the S&P 500 up almost 21 percent this year.

Some were glad that investors could now turn their focus back to the traditional drivers of the market rather than worrying whether the latest dispatch from Washington would shake stocks.

“It’s a little bit silly in the short term for markets to go down so much on press conferences and then to go up so much on rumors,” said Brad Sorensen, director of market and sector research at the Schwab Center for Financial Research. “We’ve urged investors to pull back a little bit and look at the longer term.”

The market for U.S. Treasury bills reflected relief among bond investors. The yield on the one-month T-bill dropped to 0.13 percent from 0.40 percent Wednesday morning, an extraordinarily large move. The decline means that investors consider the bill, which would have come due around the time a default may have occurred, to be less risky.

The yield on the 10-year Treasury note edged down to 2.67 percent from 2.74 percent Tuesday. Yields on longer-term U.S. government debt haven’t moved as much as those on short-term debt because investors believed that the government would work out a longer-term solution.

Among stocks making big moves:

— Bank of America rose 32 cents, or 2.2 percent, to $14.56 after the second-largest U.S. bank reported a surge in third-quarter earnings.

Stanley Black & Decker plunged $12.70, or 14.3 percent, to $76.75 after the company lowered its profit forecast for the year, citing slower growth in emerging markets and a hit from the U.S. government shutdown.

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© Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Source: NEWSmax.com

Big Trouble in Paradise: Puerto Rico Faces $87B Collapse.


Image: Big Trouble in Paradise: Puerto Rico Faces $87B Collapse

(Landov)

Puerto Rico’s island paradise may be teetering on the precipice of a financial collapse that would make Detroit’s implosion look modest by comparison, economists and analysts warn.

Detroit, a city of about 700,000, went bankrupt after piling up $18 billion in debt. Puerto Rico, by contrast, has 3.7 million residents — and faces a whopping $87 billion in debt and unfunded pension liabilities.

“The Puerto Rican economy is near collapse,” prominent Puerto Rican economist Gustavo Vélez tells Newsmax. “The government is running out of money and there is no end in sight.”

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Puerto Rico Senate President Eduardo Bhatia told bond analysts in New York on Monday that the Obama administration is “wondering how they can help Puerto Rico send a very strong signal of stability right now.”

He added that island officials are expecting “an announcement” soon from administration officials. But that appears to be at odds with a Bloomberg report that a U.S. Treasury Department spokeswoman said no plan is afoot to bail out the island’s economy.

In September, UBS AG and other U.S. brokerage firms warned some 40,000 U.S. investors and brokers to stay away from the bonds that Puerto Rico uses to finance its deficit. Not long afterwards, the island’s bond yield – the amount it has to offer to lure investors – rose to 9.29 percent, surpassing even that of Greece. Predictably, Internet headlines began referring to the beautiful tourist haven in the Caribbean as “America’s Greece.”

Puerto Rico, however, probably still has some time to work out its finances. Unlike Greece, very little of its debt is short term. But the New York Times reports Puerto Rico Gov. Alejandro Garcia Padilla and other officials are engaging in intense shuttle diplomacy between New York, Washington, and the Caribbean. Their objective: To convince bankers, credit analysts, and political leaders that the island is on a path toward restoring financial stability.

Since assuming office in January, Gov. Padilla has taken several austerity measures. State employees’ contributions to their pension plans were increased from 8.275 to 10 percent.
The retirement age was increased. Utility rates were hiked sharply to bring in more revenue, and new taxes have been imposed as well. So far, financial markets appear almost indifferent to the tough belt-tightening measures, leaving island officials frustrated.

Unlike Detroit, a declaration of bankruptcy for Puerto Rico may not be an option due to its status as a territory, rather than a state. The Times reports the Northern Mariana Islands tried to seek bankruptcy protection in 2012, but that effort was rejected by the courts. The way out of the legal limbo for Puerto Rico would be a financial plan of support enacted by the U.S. Congress. But that would assume Congress is better equipped to deal with Puerto Rico’s budget impasse than it has been dealing with its own.

The Times reports that the President’s Task Force on Puerto Rico has been discussing whether the U.S. Constitution gives Congress the power to impose special fiscal controls. One idea would be for Congress to designate a financial control board led by an official with the power to overrule its local, politically elected leaders. But the legality of such a move has reportedly not yet been established.

Puerto Rico leaders, meanwhile, object to the aspersions cast upon their ability to plug their fiscal liabilities, and insist the island is not on the verge of bankruptcy.

Alan Schankel, a managing director for the Janney Montgomery Scott investment firm, tells Newsmax that Puerto Rico will probably avoid a default in the near term. But, he adds, “this outcome isn’t assured.”

“The one assurance we make, is that volatility is likely to continue in the near term — and perhaps beyond,” he says.

Puerto Rico’s unemployment rate hit 13.2 percent in September. A fourth of the island’s residents receive entitlements such as food stamps or income assistance. Tax revenues, meanwhile, have steadily dwindled.

So how did Puerto Rico lose its status as one of the richest spots in the Caribbean? Economists cite the decline of its once-powerful manufacturing sector.

Fifty years ago, Puerto Rico relied primarily on exports of coffee, sugar cane, and rum. The tourist industry, of course, brought in revenue as well.

But the island’s biggest boost arguably came in 1976, when Congress effectively exempted Puerto Rico-based companies from paying federal income taxes. The goal was to boost the territory’s economy, and it worked. The tax breaks, coupled with the island’s proximity to the United States, made it a prime destination for multinationals.

Companies lured by low taxes, gentle tropic breezes, and reliably sunny weather made Puerto Rico a mecca of manufacturing. But the boom would be short-lived.

In the 1990s, critics attacked the tax breaks as too expensive. After an intense lobbying battle in 1996, Congress repealed the tax abatement, which was phased out over a decade.

As those tax breaks disappeared, much of Puerto Rico’s tax base disappeared with it. But Puerto Rico’s entitlements and liabilities, which rapidly expanded during the boom years, remained unchanged.

“The effect was immediate and crushing,” says Vélez. “Our economic model was developed around these tax breaks, and after they were allowed to lapse, investment just stopped, and that model just disappeared.”

As a result, hundreds of thousands of Puerto Ricans lost their jobs. About 100,000 Americans of Puerto Rican origin have relocated to the mainland in search of better opportunities, according to Vélez.

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That Puerto Rico, whose name ironically translates to “rich port,” has avoided calamity as long as it has may be thanks to its attractiveness to investors. As a territory, Puerto Rico can offer bonds that pay tax-exempt interest across the country. It offers special legal protections to investors and a high rate of return. Investors gobbled up Puerto Rico’s bonds – to the tune of some $70 billion. But after markets were spooked by the signal earlier this summer from the Federal Reserve that it would not continue to prop up the bond markets interminably, Puerto Rico effectively found itself unable to sell its debt for less than outrageous prices.

Today, its credit is hovering at just one notch above junk-bond status, with the Wall Street agencies putting it on a negative watch for more possible downgrades. Considering the austerity steps the island has already taken, Puerto Rico officials are more than a little frustrated with the credit-rating analysts on Wall Street.

“I disagree with them and believe they are treating Puerto Rico unjustly,” Gov. Padilla said earlier this week.

If the credit-worthiness of the Commonwealth’s debt is downgraded yet again, it could trigger another run on its solvency. The New York Times reports that Puerto Rico has engaged in financial deals known as interest-rate swaps. These contracts force it to come up with additional cash as collateral, should its credit fall to junk-bond status. That could push the island’s balance sheet closer to the brink.

Padilla has tried to reassure investors that he can put the island back on an even financial keel, and the island’s 2014 budget includes over $1 billion in expected new taxes.

Puerto Rico’s Government Development Bank has stated: “We are confident that no major debt issuer will default on its debt.”

But skeptics aren’t so sure. The latest report to the federal officials who keep a watchful eye on the municipal securities market revealed that the commonwealth ran a $39 billion deficit in 2012. That was a $5.4 billion increase over 2011.

And if higher taxes create too big a drag on the Puerto Rican economy, the deficit could get even worse.

“The problem isn’t that taxes aren’t high enough,” says Vélez. “The problem is that the government has done nothing about spending, and there is no strategy that grows the economy and expands the tax base.”

Until that happens, Vélez warns, “the people of Puerto Rico are going to continue to struggle.”

Perhaps the biggest question stemming from Puerto Rico’s financial crisis is how it will affect the island’s ongoing bid to become the 51st state in the union.

Statehood is a near perennial question in Puerto Rico. In a nonbinding referendum conducted last year, 54 percent of Puerto Rican voters said they favored changing Puerto Rico’s current status as a commonwealth. But Puerto Rico Gov. Alejandro Garcia Padilla says that vote was invalid because the referendum referred to Puerto Rico’s “present form of territorial status” rather than describing it as a “commonwealth.”

There have been four plebiscites on statehood since 1967, and there may soon be another. President Obama has requested $2.5 million to pay for a new statehood referendum.
But given Puerto Rico’s deep financial turmoil, its leaders are busy just trying to avert insolvency.

“Right now we are aren’t even thinking about statehood,” leading Puerto Rican economist Gustavo Vélez tells Newsmax. “Right now the government is just trying to meet payroll.”

© 2013 Newsmax. All rights reserved.
By David A. Patten and Matthew Lysiak

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