I have spent the last several weeks studying the Puerto Rican debt crisis, trying to understand how the situation got so bad. It appears that Puerto Rican officials have been essentially running an open ponzi scheme, selling lucrative bonds to an eager municipal bond market. Much of that borrowing went to close significant structural budget gaps, caused in part by required debt service payments to other creditors. To make matters worse, at the same time, the Puerto Rican government neglected to fund its public employee pension systems, allowing payments to retirees to nearly liquidate its investment reserves.
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