The earth still shakes. People, especially those who live near the epicenters, have anxiety and fear. The electrical system is weak and blackouts are reported. More than two years after the destruction brought by Hurricane Maria, Puerto Rico faces another challenge brought by nature.
On January 7th, an earthquake of 6.4 on the Richter scale shook the country, followed by multiple aftershocks that, at the time of this publication, have not stopped. Towns in the southwest are the most affected, with hundreds of families having lost their homes. Frightened people have organized themselves in outdoor camps for fear that their houses will collapse. President Trump approved the declaration of Puerto Rico as a disaster zone, authorizing the disbursement of funds from the Federal Emergency Management Agency to help people who lost their homes.
Again, the disorganization and inefficiency of the government amidst disaster can be seen. Years of austerity policies and massive cuts in public spending by the oversight board have left the country defenseless to respond to emergencies like this. Nature wreaks havoc, but the crisis is political. People do not trust government agencies.
On the other hand, if the deterioration of the country’s infrastructure had been accumulating for years, Hurricane María pushed things over the edge and raised the problem to critical levels. The earthquake is another blow in a country that has not yet fully recovered from the ravages of the hurricane.
While thousands of people live in camps and shelters, it is unacceptable that hundreds of homes are vacant, particularly homes obtained by banks through foreclosures. At the center of this story is Popular, the bank with the largest number of foreclosures on the island.
As if this were not enough, the government and the oversight board have $8.7 billion reserve that can be used for a just recovery if a substantial part of the debt is canceled. This money is in several bank accounts, including an account held by Popular.
The Housing Crisis and the Role of Banco Popular
The government estimates that around 800 homes were affected and over 6,400 people were displaced by the earthquake. Could the hundreds of vacant residences that were repossessed by the banks be used to house them?
The housing crisis that is arising from this tragedy occurs in the context of a country with thousands of unused structures and residences. Many of these residences are unoccupied as a result of the foreclosures that the banks carry out year after year. Thousands of families have lost their homes because they cannot pay their mortgages, victims of a declining economy and a merciless financial system. According to the Office of the Commissioner of Financial Institutions (OCIF), a government entity responsible for regulating private financial institutions, there were a total of 44,788 foreclosures from 2008 to November 2019.
The greatest perpetrator of this tragedy is Popular, the largest financial institution in Puerto Rico. According to the OCIF, Popular executed a total of 19,066 mortgages during these same years – that is, around 42.5% of all foreclosures in those 11 years.
How many of these repossessed homes still belong to financial institutions? The most up-to-date statistics we found are from September 2019. By that date, the OCIF reported that the financial institutions under its jurisdiction owned 2,952 residential properties. Of those, Popular owned 824 homes, more than a quarter of available homes.
The discussion of housing alternatives for those affected by the earthquake should take these vacant residences into consideration. A failure to look for creative alternatives at this critical moment would be an insult to the thousands of people who are homeless. Popular must assume its responsibility as a local company and seriously consider how these homes can help overcome the serious housing crisis Puerto Rico faces.
An $8.7 Billion Reserve and a Popular Bank Account
After the earthquake of January 7, 2020, significant damage was reported in the Costa Sur plant, which belongs to the Puerto Rico Electric Power Authority and generates around 25% of the total energy generated in the country. The beginning of the school year has filled thousands of families with uncertainty, as they are unsure whether schools have the capacity to withstand another earthquake. Bridges and dams are also sources of concern.
As in Hurricane María, the local government centers the discussion around funds and the need for the federal government to disburse emergency money that can offer support to those most in need, and which can fund reconstruction work. Here, history repeats itself: the federal government takes time to approve the emergency declaration and imposes restrictions on the use of funds.
While this is happening in the public debate, the existence of a $8.7 billion reserve that the government has is not discussed. Nor is it discussed that one of the custodians of that reserve is Popular. This is a reserve of Puerto Rico’s Treasury Department, where all the revenues that enter the General Fund are kept. The money for the budget allocations for all government agencies also comes from here.
This reserve has been growing over time since, among other things, all the savings from austerity measures are deposited in it. The brutal cuts help inflate the reserve: it had $1.8 billion in December 2018, but now it has $8.7 billion – funds that are the product of the sacrifices that people have been forced to make by the government. To understand the magnitude of this $8.7 billion reserve: it is the same size as the entire government budget in 2017.
Bondholders, mainly vulture funds, are litigating or negotiating in federal bankruptcy court to seize this money. Its future is at stake in the negotiations to achieve the central government’s debt adjustment plan. This plan of adjustment is the last step to pull the government out of bankruptcy. It consists of a new agreement with bondholders, and with creditors in general, to establish the new payment terms and the legal stipulations that will govern the agreement.
In other words: the more debt is canceled, and the less money directed towards the payment of the debt, the more money in this reserve can be used for a fair and dignified reconstruction and recovery.
In September 2019, the oversight board filed an adjustment plan that contained, among other things, the payment of allegedly illegal debt and an 8.5% pension cut for over 65,000 retirees. However, legal complications with a significant group of bondholders, plus the campaign in defense of pensions organized by various union and pension groups, led both the House of Representatives and the Senate to pass resolutions against the adjustment plan. The oversight board had to postpone its plans, and the legal process continues.
The agreement between Puerto Rico’s Treasury Department and Popular to have Popular custody a part of the reserve began on December 22, 2017. Section 7 stipulates that the bank will not pay the corresponding interest of the money to the Treasury Department. In other words, the government authorized an agreement that involved the loss of millions of dollars of uncollected interest that could be used now to deal with the emergency. The agreement was signed by Raúl Maldonado, the former Secretary of the Treasury who denounced an alleged “institutional mafia” in the Treasury Department and admitted being the person who leaked the infamous chat that triggered the mobilizations that caused the resignation of Governor Ricardo Rosselló during the summer of 2019.
The government lost out on millions of dollars from not charging interest, including on the account it has with Banco Popular.
After multiple complaints, the government finally announced that it would collect the interest revenues. According to Omar Marrero, the executive director of Puerto Rico’s fiscal agency, between July and November 2019, the government collected $49 million for the interest generated. In just one month, from November 23 to December 27, interest generated $10 million in revenue to the government.
We know about the family ties between the chairman of the oversight board, José Carrión III, and the Carrión dynasty, founders and owners of Popular, including Richard Carrión, the chairman of the bank’s board of directors.
With the recent earthquakes, Puerto Rico has suffered its biggest disaster since Hurricane Maria. Popular has been one of the silent perpetrators of the crisis Puerto Rico is experiencing. This situation is not only an affront to people who lost everything, but it represents another example of how corporations profit from the suffering of Puerto Rico’s people. The time is now for Popular to assume its responsibility and provide housing for those who need it, and to return any money its received from the government accounts that could be used to pay the debt.