First rule of holes–stop digging (boldface mine):
Puerto Rico’s governor, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions.
The governor, Alejandro García Padilla, and senior members of his staff said in an interview last week that they would probably seek significant concessions from as many as all of the island’s creditors, which could include deferring some debt payments for as long as five years or extending the timetable for repayment.
“The debt is not payable,” Mr. García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”
Given that Puerto Rico uses the dollar–and thus can’t print more–how did anyone think an economy with a GDP of $103.1 billion–smaller than the state of Massachusetts–why didn’t someone realize that after, oh let’s say $50 billion of debt, these debts were never going to be paid back.
Atrios is right: it makes you wonder whether the bond sellers’ actual job is to price risk appropriately.