Skeel, who sat on Puerto Rico's oversight board, is talking with Felix Salmon about the partisan split behind PROMESA. The idea both parties hate is letting US states declare bankruptcy.
…states that clearly aren't using bankruptcy. It might not go down. But my intuition is that if you throw in a new variable like a bankruptcy option, you're going to have a bit more separation among the states between the ones that are perceived as risky and the ones that are perceived as not risky.
…maximum recovery for creditors and Democrats wanting kind of the opposite sort of minimum recovery for creditors? If you are going to declare bankruptcy, then we want to be as harsh on creditors as possible so that we can free up as much cash for the taxpayers and for the people of the community.
That was generally the divide going into ProMesa. And I think it is still generally true. So with ProMesa itself, Republicans were absolutely insistent on an oversight board because they thought an oversight board would tighten things up and would help to get the budget balanced. Democrats were absolutely insistent on the ability to restructure the debt. And so I think there is that kind of divide. And you see more or less the same thing in debates about state bankruptcy as well. I mean, the one thing they have in common, Republicans and Democrats, is they both hate the idea. The Democrats hate the idea because they're afraid that pensions will get affected in a bankruptcy. The Republicans hate the idea because they're afraid that bonds will get written down in a bankruptcy.
And so this is obviously a reasonable fear. In the end, the people who held Puerto Rico’s bonds did see their, did have to take a substantial haircut. And so it's reasonable to sort of say, well, yeah, obviously they wouldn't have wanted this legislation to pass because as soon as it did, it was…
It's another great question because it's all gotten so complicated politically over the last 10 years or so. But historically, I think there was a sense that Republicans are a bit more attuned to the market and markets generally, bond market in particular, and most of the giving from bondholders…
And then at one point, you say that once you declare bankruptcy, then there's the possibility of wiping out the debt entirely. And you call that possibility, quote, the illusory dream of the debt audit crowd. Why is it like once you've declared bankruptcy? If I declare personal bankruptcy or if a…