[Editorial] The Fear of Clowns in Promesa
Coulrophobia, the fear of clowns, seemingly evokes many of the maladaptive tendencies that are present in the current proceedings of the Financial Oversight & Management Board enabled by the Puerto Rico Oversight, Management & Economic Stability Act (Promesa). Much in the same fashion that some children fear the exaggerated features in clown costumes, there are creditors in Promesa’s circus who cringe at the exaggeration of debt sustainability. The significant aberrations in a clown’s face push some folks into what researchers call the uncanny valley—“something real enough to cause consternation, but not realistic enough to be pleasant.” When the “uncanny valley” phenomenon surfaces in debt restructuring it likely elicits algophobia—fear of pain, as in the pain of haircuts to the debt that is likely if Promesa’s restructuring forces creditors go straight to Title III.
Thus, the announcement that Proskauer Rose had been retained by Promesa’s board must have caused considerable consternation to some creditor groups who have very clear recollections of the role that the law firm played in the drafting of the Debt Compliance & Recovery Act. The intellectual author of the Recovery Act, Proskauer Rose LLP Partner Martin Bienenstock told Caribbean Business that the law provided a better legal framework than Chapter 9 bankruptcy proceedings because it allowed creditors relief and a quicker path to market access.
We said it before: In the federal realm of complex bankruptcy proceedings, one person’s recovery statute is another’s “bait and switch” attempt at subterfuge. So, the Proskauer Rose hire must have conjured the ghost of Justice Steven Rhodes, the man who oversaw Detroit’s bankruptcy proceedings—more than one creditor alleges cram-down haircuts in proceedings that have been described as a kangaroo court. Fear of pain, indeed.
Time was when Puerto Rico had access to Chapter 9 bankruptcy proceedings. Sadly, the island was removed from its protections, say members of Congress today, much as penicillin was discovered—by accident. They say that Puerto Rico was collateral damage in the run-up to bankruptcy reform. Nothing in U.S. Congress happens by accident and there is plenty of anecdotal evidence suggesting that Puerto Rico was stripped of access to Chapter 9, because it would make the island’s sterling credits more valuable still.
So, here we are stuck with each other, months after Promesa passed against all odds. Now creditors are concerned that the oversight board is irresponsible in discharging its responsibilities, because it is moving at a glacial pace and, worse still, because it is consorting with the usual suspects that got us in this mess in the first place.
The most recent board meeting held at El Conquistador Resort in Fajardo, was a surreal parade of financials presented by Conway Mackenzie. The firm that helped to fudge the numbers can see clearly now.
As the fuse to this powder keg burns, the board is subject to political gamesmanship on Capitol Hill. One high-level source on the Hill with ties to the GOP told Caribbean Business that there is a narrative the Democrats are trying to sell that they are for the pensioners and the workers. That is why they nominated former Federal Judge Arthur J. González to sit on the board; he in turn allegedly pushed for the hiring of Proskauer Rose, perhaps to send a message that it is time to share the pain.
That is the ultimate exercise in cynicism; if the Dems on the Hill wanted to serve Puerto Rico well they could have pressured U.S. Treasury into providing a bankruptcy remote entity or pushed the Federal Reserve to buy Puerto Rico bonds. Instead, we are stuck with a board that has sent democracy back to the Stone Age with economic development a Paleolithic relic to match.