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Conclusion of the article: "The pope called for “economics at the service of man.” My prayer is that Puerto Rico could be a model for the Holy Father’s vision." Ditto. And not just for Puerto Rico.
From Scott's Time Article: "The Bible itself provides us with a concept that seems perfect for the situation our island finds itself in now: the Jubilee. The book of Leviticus introduces us to the Jubilee year, which occurs every 50 years and involves debt forgiveness and liberation for the slaves and oppressed.... The Catholic Church’s Jubilee movement for debt relief is an inter-faith effort that has won more than $115 billion for debt relief for the poor around the globe. I applaud the Jubilee USA Network, which is fighting for debt forgiveness for Puerto Rico" Link to Jubilee Network: jubileeusa.org/ourwork I wonder how many religious investors in muni bonds would be willing to get behind this concept?
@Maurice, You flatter me. The definition of Jubilee is not from me but from Scott's article written by Puerto Rico's Arch Bishop Roberto González Nieves. Nor was Nieves or the Jubilee network calling for debt forgiveness for everyone but for the poor and oppressed.
There's an interesting conflict here between Christian and financial ideology which seems difficult to resolve for truly religious investors. The way capital markets are structured, lenders charge the most interest to those least able to pay their debt back, i.e., the poor while charging the least interest to those most able to pay their debt back, i.e, the rich. From an investor perspective that makes complete sense as the poor have greater credit risk. But when does that lending become usury from a religious perspective? When does it seem exploitation of a person incapable of paying the debt?
@OJ, I suppose that's the reason the Islamic-oriented Amana Funds don't own banks. But some of these Christian-oriented funds do. I wonder what their thinking is on it.
From Scott's Time Article: "The Bible itself provides us with a concept that seems perfect for the situation our island finds itself in now: the Jubilee. The book of Leviticus introduces us to the Jubilee year, which occurs every 50 years and involves debt forgiveness and liberation for the slaves and oppressed.... The Catholic Church’s Jubilee movement for debt relief is an inter-faith effort that has won more than $115 billion for debt relief for the poor around the globe. I applaud the Jubilee USA Network, which is fighting for debt forgiveness for Puerto Rico" Link to Jubilee Network: jubileeusa.org/ourwork
Far be it for me to say that the Archbishop is wrong about a religious term, but my understanding was that debt forgiveness came every seven years (Sabbaticals), and that the Jubilee was in a sense a roll-up of seven Sabbaticals.
[I]magine that all debts are forgiven every seven years. This is another aspect of the Torah-mandated Sabbatical Year. ... At this very moment we are in the middle of a Sabbatical Year. The Jewish year 5775, which began in September, 2014, and runs through September 13, 2015, is ...a Sabbatical Year.
I wonder how many religious investors in muni bonds would be willing to get behind this concept?
As a holder of a couple of PR bonds, let me respond both pragmatically (as an investor) and from a religious perspective (and thus show how little I know in this sphere).
Pragmatically, I would not be willing to give up 100% of value. One can make a moral case for complete forgiveness, but not an economic one (i.e. the most I can lose with any course of action is 100%). I would, however, be willing to take a 50% haircut. (Or more if that were deemed necessary to give PR needed breathing room.) Note that PR bonds (or at least mine) are still priced well above 50% of par. It makes more sense (economically) to stabilize the situation at a cost than to stand pat and stand a higher chance of losing 100%. (This is a variant of the conservative argument that the market deplores uncertainty; in this particular situation it seems to make some sense.)
From a religious perspective, there are workarounds to avoid debt forgiveness. Apparently Hillel devised a procedure ("prosbul"), whereby a court would take over the debt collection. Since a court is not a person, it would not be obligated to forgive the debt. "Though the procedure was criticized as an evident circumvention of the Law, it was retained to benefit those in urgent need of financial help." (See link above.)
So depending on its use, such a workaround can be helpful or hurtful. Perhaps some similar legal fiction addresses your question of how to resolve Christian lenders preying on the poor.
Rabbi Lerner raises an interesting moral hazard question regarding debt forgiveness: "Will you avoid paying an outstanding debt before the end of the seven years? Or do you feel a commitment to pay back your loans as part of your desire to live with integrity? Do you feel differently about different kinds of debt?"
It seems fairly clear to me. You don't loan people money when you know damn well they will most likely not be able to pay it back. If you want to get all scriptural about it, perhaps we could address the flip-side of it, viz. it is immoral to ask someone to loan you money if you know damn well you most likely will be unable to pay the loan back, as stipulated in the covenant of the loan.
So, why did Oppenheimer, Franklin, et al. loan money to Puerto Rico--- a small country of only 3.2M people (most of them basically eking out life on subsistence income)--- when they knew damn well the debt burden, post-loans, would be something like $78 B? And what kind of delusional mind overseeing PR financial matters would dare to even ask for it? Just because a big financial firm loans the money doesn't mean it isn't de facto predatory lending, any less than a payday lender does it or some of these f*king "title loan" operations do it now in the States.
So, yes please, default, Puerto Rico. You have demonstrated that you are unworthy of being a responsible debtor; for quite a while you'll need to make ends meet with what your economy can generate, paycheck to paycheck, so to speak. As for Oppenheimer et al., you guys can just suck it and explain your stupidity to your shareholders--- your HY muni funds may go to zero, as they should, because you have clearly demonstrated you are professionally irresponsible in managing OPM.... IMO.
@heezsafe- I pretty much agree with your post. In fact, it's basically the same observation that I made about Greece a few weeks ago. If a loaning entity wants to take a long shot on speculative repayment from an obviously problematical borrower, they are free to make that choice. Just shut up when it doesn't work out all that well.
The fact that the Oppenheimer fund is $5 billion despite its record from the 2008 crash shows that a lot of people are hungry for yield: morningstar.com/funds/XNAS/ORNYX/quote.html
Gordon Gekko in the film, Wall Street said "for the lack of better words, greed is good". That sums up what is coming to Oppenheimer who jack up the yields to attract yield hungry and naive investors. And now both Oppenheimer and the investors are in trouble. Don't think PR (as a commonwealth to US) can file Chapter Seven in similar situation that Detroit went through.
Oppenheimer/Rochester has always been a rather reckless manager of muni funds. Lewis wrote of its 2008 crash; I'd posted a link to an article stating that they had two settlement agreements (for different sets of funds) with investors over that crash (inappropriate holdings in the funds).
For example, OPTAX says it won't invest more than 25% in junk bonds, yet M* classifies it as a junk bond fund. This is not just because it holds PR bonds; PR was rated investment grade until early 2014; M* shows its portfolio as junk going back to 2012.
Franklin, as I've explained before, is a different matter. Its only fund with a chart topping percentage of PR bonds is FPRTX, whose mandate is to hold munis that are tax exempt in all states, i.e. munis of territories. If it doesn't hold PR, what's it going to hold, Guam? Guam's debt to population ratio is not quite as high as PR's but similar - 160K people (5% of PR), and $2.6B debt (3.6% of PR). In 2014, Guam was rated BB-
Based on ratings and debt/population, one would hardly say Guam's bonds were screaming "buy me". Yet Guam was the best performing muni region (states and territories) in 2014. Franklin's portfolio, given its double tax free mandate, is defensible.
If you want to discuss morality, I suggest separating business loans from personal loans. Just as countries' economics are different than those discussed around a family's kitchen table, so too are considerations in making loans. On the personal loan level, if you really are interested in scripture, an interesting interpretation on the imperative to make loans can be found here: Can You Spare a Loan?
When it comes to money and investing, I think most people are atheists five days a week, then get religion on Saturday or Sunday.
@LewisBraham I think you should send that notion over to the Pew Research Center; there would be no end to the string of studies they could do in pursuit of the truth on this. But there is one thing I'm pretty sure they will find: Lenders tend to lose their religion on days when they make their loans, and Borrowers tend to have their faith reborn on days when they default (a deeper belief in the rightness of Debt Jubilees arrives one day later, usually "after a great deal of prayer").
Comments
Ditto. And not just for Puerto Rico.
Link to Jubilee Network: jubileeusa.org/ourwork
I wonder how many religious investors in muni bonds would be willing to get behind this concept?
Pragmatically, I would not be willing to give up 100% of value. One can make a moral case for complete forgiveness, but not an economic one (i.e. the most I can lose with any course of action is 100%). I would, however, be willing to take a 50% haircut. (Or more if that were deemed necessary to give PR needed breathing room.) Note that PR bonds (or at least mine) are still priced well above 50% of par. It makes more sense (economically) to stabilize the situation at a cost than to stand pat and stand a higher chance of losing 100%. (This is a variant of the conservative argument that the market deplores uncertainty; in this particular situation it seems to make some sense.)
From a religious perspective, there are workarounds to avoid debt forgiveness. Apparently Hillel devised a procedure ("prosbul"), whereby a court would take over the debt collection. Since a court is not a person, it would not be obligated to forgive the debt. "Though the procedure was criticized as an evident circumvention of the Law, it was retained to benefit those in urgent need of financial help." (See link above.)
So depending on its use, such a workaround can be helpful or hurtful. Perhaps some similar legal fiction addresses your question of how to resolve Christian lenders preying on the poor.
Rabbi Lerner raises an interesting moral hazard question regarding debt forgiveness: "Will you avoid paying an outstanding debt before the end of the seven years? Or do you feel a commitment to pay back your loans as part of your desire to live with integrity? Do you feel differently about different kinds of debt?"
So, why did Oppenheimer, Franklin, et al. loan money to Puerto Rico--- a small country of only 3.2M people (most of them basically eking out life on subsistence income)--- when they knew damn well the debt burden, post-loans, would be something like $78 B? And what kind of delusional mind overseeing PR financial matters would dare to even ask for it? Just because a big financial firm loans the money doesn't mean it isn't de facto predatory lending, any less than a payday lender does it or some of these f*king "title loan" operations do it now in the States.
So, yes please, default, Puerto Rico. You have demonstrated that you are unworthy of being a responsible debtor; for quite a while you'll need to make ends meet with what your economy can generate, paycheck to paycheck, so to speak. As for Oppenheimer et al., you guys can just suck it and explain your stupidity to your shareholders--- your HY muni funds may go to zero, as they should, because you have clearly demonstrated you are professionally irresponsible in managing OPM.... IMO.
For example, OPTAX says it won't invest more than 25% in junk bonds, yet M* classifies it as a junk bond fund. This is not just because it holds PR bonds; PR was rated investment grade until early 2014; M* shows its portfolio as junk going back to 2012.
Franklin, as I've explained before, is a different matter. Its only fund with a chart topping percentage of PR bonds is FPRTX, whose mandate is to hold munis that are tax exempt in all states, i.e. munis of territories. If it doesn't hold PR, what's it going to hold, Guam? Guam's debt to population ratio is not quite as high as PR's but similar - 160K people (5% of PR), and $2.6B debt (3.6% of PR). In 2014, Guam was rated BB-
Based on ratings and debt/population, one would hardly say Guam's bonds were screaming "buy me". Yet Guam was the best performing muni region (states and territories) in 2014. Franklin's portfolio, given its double tax free mandate, is defensible.
If you want to discuss morality, I suggest separating business loans from personal loans. Just as countries' economics are different than those discussed around a family's kitchen table, so too are considerations in making loans. On the personal loan level, if you really are interested in scripture, an interesting interpretation on the imperative to make loans can be found here: Can You Spare a Loan?
Lenders tend to lose their religion on days when they make their loans, and Borrowers tend to have their faith reborn on days when they default (a deeper belief in the rightness of Debt Jubilees arrives one day later, usually "after a great deal of prayer").