Mar 3, 2019

Where capitalism gets its green light

Washington monument as a stoplight

Illustration: Aïda Amer/Axios

The U.S. government sued to prevent AT&T from acquiring Time Warner, lost, appealed the case, and, this week, lost again. There will be no more appeals.

The big picture: When corporations and financiers want to do something, they just go ahead and do it. The government can't stop them — it can only sue to stop them, in a court of law. And what the government wants, it doesn't always get.

Puerto Rico provides the most striking example of a situation where the interest of the people is regularly being overruled by a court thousands of miles away.

  • When Puerto Rico defaulted on substantially all of its debt in 2016, the government tried to cobble together a solution that would respect the interests of the bondholders while ensuring the best outcome for the island as a whole. The result was that it gave control of the island to an unelected oversight board, the majority of which was appointed by House Republicans. Puerto Ricans were (and are) understandably unhappy about this, but there was nothing they could do.
  • The oversight board has made a series of decisions that most Puerto Ricans consider far too creditor-friendly. Those decisions were then approved by the island's bankruptcy judge, Laura Taylor Swain. But still the creditors weren't happy, and they have repeatedly appealed Swain's decisions to the First Circuit Court of Appeals in Boston. Every time, the creditors have won, and Swain has been overruled.
  • In the most recent case, the oversight board itself has been ruled illegal, in a case where, once again, the First Circuit overruled Judge Swain.

The bottom line: Capital is insatiable, and it generally has the law on its side. In Puerto Rico, the equities of the case would be far less generous to creditors than even the oversight board and Judge Swain have been. But bonds come with contractual rights that even a government-appointed oversight board can't circumvent.

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