When President Ronald Reagan attempted to reform and simplify our tax code in 1985 and 1986, he ran head-long into lobbyists and special interests who came out of the woodwork to protect their designated provisions in the tax code. The process was detailed in a book called “Showdown at Gucci Gulch.” The book showed the sausage-making that went into crafting the bill that was finally enacted. From a conservative perspective, the bill ended up being a sort of Frankenstein monster which lowered rates – a conservative goal – but kept and expanded many special interest provisions that permeate the tax code today.
Today’s version of “Gucci Gulch” is taking place over the fight to reform Puerto Rico’s economy and to bring it back from the verge of bankruptcy. The House of Representatives sent out to establish a control board – similar to the one used when Washington, DC, faced a similar crisis. It is certainly a better option that Chapter 9 bankruptcy which would allow the liberal big spenders to walk away from their debt or a bailout. That’s why some hedge funds and lobbyists are working to undermine and kill the bill before Congress. They get a better deal with a bailout than they do a control board.
For instance, President Obama’s former Chief Restructuring Officer at the Department of Treasury Jim Millstein’s firm MillCo Advisors could make hundreds of millions off the debt crisis. The New York Post reported the former Obama official – who left the government agency in 2011 – was slated to make as $52.4 million off of the contracts it has with the island and could make more if the Obama plan goes through. According to the Office of the Comptroller, Puerto Rico– which is $72 billion in debt – has around $34 million in contracts with the firm – a number that could skyrocket if they continue to amend and extend their contracts.
Anita Dunn, the former Obama official best known for proclaiming Mao Zedong as once of her political heroes, has been hired by the island (and their taxpayers) to push, not for a control board but for bankruptcy.
Hedge Funds like Canyon Capital, Aurelius Capital Management and others own about $4.5 billion in general obligation bonds and are working Capitol Hill to see legislation stalled or defeated. If they win, the taxpayers will lose as inevitably the islands leaders will demand a bailout from the taxpayers.
House Speaker Paul Ryan had promised the House would propose legislation that would help Puerto Rico to arrive at “a responsible solution” to their debt crisis. The House Committee on Natural Resources Committee Chairman Rob Bishop (R-UT) released H.R. 4900, the “Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).” “This is the constitutionally-sound solution that will provide real, long-lasting reform to the Commonwealth while respecting the rights of all parties and creditors. It is the Island’s best shot to mitigate its financial collapse and future calls for a bailout, which would be untenable. Congress must act now to avoid a humanitarian crisis that will severely impact 3.5 million Americans living in Puerto Rico and millions of Americans on the mainland,” Rep. Bishop said.
Some hedge funds and members of Congress are playing a dangerous game of chicken. The House bill prevents bankruptcy and a bailout. It isn’t a perfect piece of legislation by any stretch but it is better than the alternative. Conservatives should work to ensure that Millstein, Anita Dunn and the other Obama cronies who are working to kill the effort in the House can’t keep riding the Puerto Rico gravy train.
Gucci Gulch showed that legislating is not easy but a final product can be achieved with the right leadership. In this case, a final product must be accomplished as the alternatives are much worse.