June 2 was the Day Against Banks in Puerto Rico.
Organizers of the Day Against Banks were protesting the role played by banks in creating the debt crisis and the crushing austerity measures that resulted from it.
Organizers called on people to take collective actions against banks including closing bank accounts en masse, flooding customer service call centers with complaints about practices of banks, participating in agitprop performances in bank lobbies, and other actions to disrupt business as usual at the banks.
The debt crisis was years in the making and banks were at its center.
Puerto Rico has never recovered from a recession that began in 2007 after the US government ended a tax benefit to corporations that made Puerto Rico an attractive site for business investment.
According to a report issued in December by Hedge Clippers and Committee for Better Banks–two groups with strong ties to the US labor movement–banks, especially Santander, took advantage of Puerto Rico’s troubles to enrich themselves at the expense of the people.
Since the recession began, living conditions for most Puerto Ricans have deteriorated. The US Census Bureau estimates that more than 45 percent of the island’s residents live in poverty.
But during the same period, banks skimmed hundreds of millions of dollars in fees and commissions by encouraging the Puerto Rican government to engage in risky financial deals.
In 2008, Puerto Rico’s newly elected governor Luis Fortuño looked to banks to help Puerto Rico get out of its recession.
He appointed Carlos M. García, the CEO and President of Santander Bank in Puerto Rico, to lead the Government Development Bank (GDB), the government’s financial advisor.
García brought with him other Santander executives to the GDB.
During their tenure, they advised the government to borrow heavily to pay off Puerto Rico’s bond debt and devised new debt instruments to do so.
One of their creations was called COFINA, a bond that was secured by setting aside a portion of revenue from a sales tax created and implemented by the Fortuño government.
That money should have gone toward providing services for people; instead, it was diverted into a fund used to guarantee payment on COFINA bonds.
In 2009 alone, Puerto Rico issued $5.3 billion worth of COFINA bonds used largely to refinance previously existing debt.
Some of the COFINA bonds were Capital Appreciation Bonds (CAP), which some experts have called abusive because their interest rates are so high. States such as California and Texas have restricted their use.
The compound interest rate on these bonds was between 6.875 percent and 7.125 percent.
One of these CAB deals underwritten by Santander in 2009 raised $139 million, but its final payout will be $730 million, more than five times the amount borrowed.
GDB also recommended using interest rate swaps as a hedge against future interest rate increases that would affect some of the bonds sold by the government.
But when interest rates declined, the government was forced to pay a $400 million to banks and other bond holders in penalties to get out of the interest swaps contracts. If it had not done so, the government would have lost even more money.
While the government and the Puerto Rican people were getting burned by bad bond deals, the banks that engineered the deals took home hefty fees and commissions.
Banks like Santander played the middle man in the sale of bonds by underwriting the bond sales.
Santander was the underwriter for $61.2 billion worth of bonds. Puerto Rico paid Santander and other banks more than $1 billion in underwriting fees and other fees for these deals.
While Santander and other banks enriched themselves, things got desperately worse for Puerto Rican workers.
The unemployment rate increased to 15 percent by 2015 and the island lost nearly 300,000 jobs.
Wages that were already low, remained low. The median household income is just under $19,000 a year.
But prices on basic necessities–water, power, food, and other consumer goods have increased.
The island is facing foreclosure crisis causing many people to lose their home.
And now the situation could get much worse.
After the Puerto Rican government in 2015 announced that it could no longer service the interest on its $70 billion public debt, the US government took action to protect banks and other investor bondholders.
The US was able to do so because Puerto Rico is still a colony of the US.
Legislation passed by the US Congress created the Puerto Rico Financial Control Board to oversee the island’s debt restructuring and ensure that investor interests are protected.
To do so, the board has recommended harsh austerity measures including a 10 percent cut to pensions, cuts in public workers pay, $550 million in cuts to Puerto Rico’s health care system, and cuts to public education including higher education.
In calling for the Day Against Banks, organizers of the action said that they want banks to feel some of the pain that ordinary Puerto Ricans feel every day.
“The time has come for the banks to feel the heat of a people tired of abuses,” reads an announcement calling for the Day Against Banks.