White House walks back Trump’s Puerto Rico comments as Wall Street reels

President Donald Trump is pictured. | Getty

The president has no direct power over the territory’s debt, though he can fire members of the unpopular federal board that was set up to oversee the island’s finances and nominate others. | Getty

Trump had suggested the U.S. would help wipe out the U.S. territory’s debt

NEW YORK — On Tuesday night, President Donald Trump casually told Geraldo Rivera on Fox News that the United States would have to wipe out $75 billion in debt owed by Puerto Rico to bondholders around the world.

Wall Street promptly freaked out, sending Puerto Rican bonds into a tailspin and leading the White House to move swiftly to clean up Trump’s seemingly offhand remarks.

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On Wednesday, The Trump administration indicated it has no current plans to take the unprecedented, politically dangerous and probably illegal step of wiping out the owners of Puerto Rico’s bonds in the wake of Hurricane Maria’s devastation. Trump’s own budget chief quickly walked the president’s comments back.

“I wouldn’t take it word for word with that,” OMB Director Mick Mulvaney said on CNN. “We are not going to deal right now with those fundamental difficulties that Puerto Rico had before the storm.”

Added Mulvaney: “Puerto Rico’s going to have to figure out how to fix the errors that it’s made for the last generation on its own finances.”

Numerous senior administration officials and a White House spokesman did not respond to requests on Wednesday morning for further comment on Trump’s remarks.

Mulvaney was cleaning up after a remarkable Trump interview that sent Wall Street bond traders and holders of Puerto Rico’s debt scrambling overnight Tuesday. The island’s general obligation bonds dropped from 56 cents on the dollar to just 36 cents early on Wednesday as investors tried to figure out exactly what the White House might actually do.

The chaos on Wall Street came after Trump told Fox of Puerto Rico: “They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You can say goodbye to that.”

Seemingly in populist, bash-Wall-Street mode, Trump singled out Goldman Sachs, which has produced many of the administration’s top economic officials, as a big holder of Puerto Rican debt. “I don’t know if it’s Goldman Sachs, but whoever it is, you can wave goodbye to that.”

Goldman officials said on Wednesday that the bank does hold Puerto Rican debt, but it is mostly in client accounts. Other big bond mutual fund holders of the island’s debt include OppenheimerFunds, Franklin Templeton, BlackRock and T. Rowe Price. This means that a good portion of the debt is held in mutual funds for average investors. The debt is cheap, yields around 8 percent and is exempt from local, state and federal taxes, making it an attractive target for investment funds.

Trump’s comments aside, there is already a process in place for dealing with Puerto Rico’s crushing debt burden.

Congress passed a law last year to grant the commonwealth what essentially amounts to a super-bankruptcy, in an effort to allow Puerto Rico to begin its recovery from that debt, which includes over $50 billion in unfunded pension liabilities to workers in addition to the more than $70 billion owed to bondholders.

The law was subject to attack ads accusing Republicans who drafted it of a “bailout” of the commonwealth, though no money went toward Puerto Rico’s debt.

The president has no direct power over the territory’s debt, though he can fire members of the unpopular federal board that was set up to oversee the island’s finances and nominate others.

But that could throw into turmoil the work that’s being done by the board and the commonwealth government toward reforming Puerto Rico’s finances.

The board already took the most drastic action it can on the debt, filing for a judge to essentially enter all of it into the special bankruptcy process that Congress created. The board has also started an investigation into whether any of Puerto Rico’s bond sales violated the law and may be invalid.

In a letter to congressional leadership sent late Tuesday night, the board asked for quick federal action, including the authorization of a short-term, low-interest loan to keep Puerto Rico’s government functioning.

The board urged “the maximum federal assistance to Puerto Rico to help it respond to and to recover from Hurricanes Irma and Maria.”

The letter said: “This federal assistance should come in the form of grants and reimbursements to assist Puerto Rico in responding to the catastrophic damage it has suffered, and pursuant to an emergency liquidity program, low-interest loans to assist Puerto Rico in responding to its cashflow deficiencies.”

“Immediate and bold assistance is urgently needed to minimize loss of life, support critical emergency response efforts, and provide tools to support the island’s recovery.”

Wall Street analysts mostly dismissed Trump’s comments to Fox, suggesting the president mostly wanted to show sympathy for Puerto Rico after days of criticism for his response to the powerful hurricane.

“Our view is that President Trump’s comments regarding bondholders should be taken seriously, but not literally,” Compass Point Research and Trading’s Isaac Boltansky wrote in a note to clients. “These statements were meant to empathize with Puerto Rico and possibly even catalyze negotiations, but they fall far short of a feasible plan.”

Said David Kotok, chief investment officer at Cumberland Advisors: “No idea what [Trump] means. It certainly threw a curve at markets. There is a federal oversight system already in place. The pre-hurricane debt needs restructuring and this is widely known. Trump is an enigma.”

Some Democrats embraced Trump’s remarks, saying Washington should move to forgive Puerto Rico’s debt, underscoring how challenging the comments could be for Trump on the right, where a bailout for the island would be highly unpopular.

“If ever there was a case for a full debt write-off, it’s Puerto Rico,” former Treasury Secretary Larry Summers wrote on Twitter.

Other Democrats privately compared Trump’s remarks to those by former President Barack Obama when he ripped Chrysler stock owners during the 2009 financial crisis. “He sounds a lot like Obama did back then,” one former senior Obama administration official said on Wednesday.

“I am not sure Trump isn’t ultimately correct, though,” said Jim Paulsen, chief investment officer at the Leuthold Group. “Most likely, some Puerto Rico debt will have to be forgiven or written off.”

He added: “This was probably the case before the hurricane, but given the damage, it is most surely the case now. This, of course, would have many implications for current Puerto Rico bonds and their future ability to raise capital.”

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San Juan mayor wears ‘nasty’ shirt during TV interview

San Juan Mayor Carmen Yulín Cruz wore a T-shirt displaying the word “nasty” during a television interview Wednesday, after President Trump repeatedly used the term to describe her.

Cruz said the shirt was meant to reference Trump’s remarks as she discussed it during an interview with Jorge Ramos on Univision’s “Al Punto.”

“What is truly nasty is that anyone would turn their back on the Puerto Rican people,” Cruz said during the interview, which was conducted in Spanish.

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Trump and Cruz have been in a high-profile feud since the weekend, when Cruz criticized the administration’s response to Hurricane Maria’s devastation in Puerto Rico, and Trump responded by questioning her own leadership.

Trump also said Cruz had been put up to criticizing him by Democrats.

“The Mayor of San Juan, who was very complimentary only a few days ago, has now been told by the Democrats that you must be nasty to Trump,” Trump tweeted Saturday.

Trump also used the term in a Fox News interview that aired Tuesday night, saying the mayor was “very nice at the very beginning” but said “she went a little bit on the nasty side and I said I guess she’s running for office, and it turns out I’m right.”

On Tuesday during Trump’s visit to Puerto Rico, the two shook hands at the airport but the president did not call on Cruz for remarks as he met federal and local officials for televised remarks.

Cruz hasn’t let up on her criticism of the president, though she has praised White House staff for their handling of the crisis repeatedly.

Cruz had praised White House staffers in a pair of tweets after Trump’s trip to Puerto Rico Tuesday.

“They REALLY understood the disconnect between how things are supposed to happen and how they really happen,” she tweeted. “Hopefully the newly open channels of communication with WH staff will put in motion what is needed to accomplish our goal: save lives.” 

Trump’s use of the word “nasty” harkens back to the 2016 campaign, when he called Democratic rival Hillary ClintonHillary Diane Rodham ClintonChris Murphy’s profile rises with gun tragedies DNC, RNC step up cyber protections Gun proposal picks up GOP support MORE a “nasty woman” during a presidential debate.

Supporters of Clinton embraced the term, with many people marching in the “women’s march” the day after the inauguration identifying themselves as “nasty.”

Cruz has been using most of her TV appearances to promote messages amid relief efforts. She wore a shirt that read “help us, we are dying” during a CNN appearance last Friday.

—Rafael Bernal contributed 

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Judge accepts Trump pardon of Arpaio

Joe Arpaio is pictured here. | Getty Images

Sheriff Joe Arpaio was awaiting a potential sentence of up to a year in prison when Trump pardoned him on Aug. 25. | Robyn Beck/Getty Images

Court ends criminal case, but issues no immediate ruling on request to wipe out rulings

Acceding to a controversial pardon from President Donald Trump, a federal judge has dismissed the criminal contempt of court case against former Arizona Sheriff Joe Arpaio for defying a court order to stop profiling Latinos, multiple local news reports said.

U.S. District Judge Susan Bolton tossed out the case against the 85-year-old ex-lawman with prejudice, meaning it cannot be reinstituted.

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However, the judge issued no immediate ruling on Arpaio’s request that all rulings in the case be formally vacated. She took that issue under advisement, the Associated Press reported.

Arpaio was not present at the hearing.

Several liberal groups and a set of more than 30 Democratic members of Congress had argued that Trump’s pardon was invalid and Bolton should ignore it.

However, the Justice Department agreed with Trump’s attorneys that the pardon should end the case and that Arpaio is entitled to have all the court’s rulings in the matter set aside.

In July, following a bench trial, Bolton found Arpaio guilty of defying another federal judge’s order to end ethnic profiling of Latinos.

Arpaio was awaiting a potential sentence of up to a year in prison when Trump pardoned him on Aug. 25. In a formal statement, the president cited Arpaio’s long service to law enforcement and the community. However, in other settings, Trump complained that the veteran lawman had been treated “unbelievably unfairly” and should have been entitled to a jury trial.

Bolton is an appointee of President Bill Clinton. The judge who issued the order Arpaio was accused of defying, Murray Snow, is an appointee of President George W. Bush.

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Abortion scandal puts GOP congressman on the ropes

Embattled Rep. Tim Murphy is weighing his political future as pressure mounts on the Pennsylvania Republican to resign.

Murphy met privately with Speaker Paul Ryan Wednesday, according to GOP sources. Numerous top Republicans want Murphy to step down amid a report that the married, anti-abortion congressman suggested his mistress terminate an apparent pregnancy.

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Murphy, who represents a district in southwestern Pennsylvania, admitted several weeks ago to an affair with forensic psychologist Shannon Edwards — news that came to light during the woman’s divorce proceedings with her husband. The Pittsburgh Post-Gazette reported Tuesday that Murphy suggested Edwards get an abortion during a pregnancy scare, citing leaked text messages between the two.

“And you have zero issue posting your pro-life stance all over the place when you had no issue asking me to abort our unborn child just last week when we thought that was one of the options,” Edwards texted to Murphy in late January, according to the Post-Gazette.

Edwards was responding to a Facebook post by Murphy touting his anti-abortion position in Congress. Murphy is a member of the House Pro-Life Caucus and voted Tuesday for legislation to ban abortions after 20 weeks.

The story also highlighted a toxic work environment in Murphy’s office, citing a June 8 memo in which his chief of staff, Susan Mosychuk, warned Murphy about mistreating staff. The document, titled “Office Conduct and Behavior: Harassment/Legal Compliance,” suggests there was a “pattern of sustained inappropriate behavior.”

Mosychuck wrote that the office has experienced 100 percent staff turnover over the past several years and attributed it to the congressman’s behavior. She said he often worked staff through the weekends, only to berate them for failing to meet expectations.

Murphy’s district leans heavily Republican, backing Trump by almost 20 points in 2016 and Mitt Romney by nearly 17 points in 2012. It is likely to remain in Republican hands.

Indeed, national Democrats scoffed at the idea that Democrats might be able to retake the seat — even if Murphy, crippled from scandal, were to run again. One Democratic consultant called it “completely unwinnable” as an open seat.

“[Murphy] is certainly weaker today than he was yesterday, but it’d be a stretch to say this is a Democratic pickup opportunity,” another national Democratic strategist said.

But Democrats on the ground are more hopeful, pointing to competitive down ballot results in the district.

“It’s a tough district, no doubt about it, but Democrats have been able to keep it close in other races,” said Mike Mikus, a longtime Democratic operative in the state. “I think you’ll see more Democrats taking a look at this and considering jumping in now.”

A handful of Democrats are already in the race, including Pam Lovino, a Navy veteran and a former Veterans Affairs official; Mike Crossey, a former member of the Allegheny County Council; and Bob Solomon, a physician.

But former Rep. Jason Altmire — a centrist Democrat who represented western Pennsylvania and lost his seat, partially due to redistricting, in 2012 — said “it would have to be the right kind of Democrat” to put the seat in play.

“If you had a social conservative Democrat, it’s been proven that a Democrat like that and who fits that mold can win,” Altmire said.

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House and Senate GOP budget writers push ahead with no final deal in sight

Rep. Diane Black is pictured. | Getty Images

House Budget Chairman Diane Black, who is expected to relinquish her committee perch in the coming weeks to pursue a gubernatorial bid, has made mandatory cuts a keystone of her tenure as leader of the panel. | Drew Angerer/Getty Images

Republicans begin Wednesday their weekslong march toward a final agreement that GOP leaders so desperately seek to grease the legislative wheels for tax reform.

The House is launching debate on its fiscal 2018 budget resolution on the floor Wednesday, while at the same time the Senate Budget Committee starts marking up its own version, after months of haggling in both chambers. Lawmakers are laying the groundwork for the even trickier task of melding the differing plans into a bicameral product that can pass on both sides of the Capitol — and give a green light to writing a tax reform bill.

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For the House GOP, where the budget (H. Con. Res. 71 (115)) is expected to pass early Thursday, that means making peace with the fact that the ultimate agreement will be far more liberal than the one they have so painstakingly crafted.

“Buckle up, get ready, because what we’re going to be voting on — the final budget resolution — will not be what leaves the House,” Rep. Charlie Dent (R-Pa.) said this week. “That’s reality.”

In working toward a final compromise, the Republican conference committee will have to sidestep the same landmines that have stalled the budget process for months, including disputes over spending levels for both domestic and military programs, as well as calls to overhaul programs like Medicare.

House lawmakers have drawn up an ambitious budget that would require Congress to find savings from entitlement programs like food stamps and student loans over 10 years, and make changes in Medicare and Medicaid that also would produce savings. The Senate’s plan does not specifically call for a single penny to be taken from mandatory programs, instead seeking $1 billion in additional revenues from energy sources like opening up oil drilling in the Arctic.

But Senate Democrats contend it would slash Medicare spending by $473 billion over a decade and require $1 trillion in cuts to Medicaid. The Republican plan would take $5.071 trillion from domestic programs over a decade, but it provides almost no detail on what accounts would be targeted.

Democrats have warned that the GOP would largely cut from safety net programs, which make up a large share of mandatory spending.

House Budget Chairman Diane Black (R-Tenn.), who would have a seat on the conference committee, has made mandatory cuts a keystone of her tenure as leader of the panel and would almost certainly insist that at least some of the cuts make it into the joint budget hammered out between the House and Senate.

“If we continue to spend more than what we bring in year after year, it doesn’t matter how much tax reform we do. We have got to have restraint on what we spend,” Black, who is expected to relinquish her committee perch in the coming weeks to pursue a gubernatorial bid, told fellow House members this week. “It’s two sides to that seesaw, not just one.”

Already, House fiscal hawks are howling about the concessions they will be expected to make in order to arrive at a budget agreement Senate leaders can pass with their much-smaller majority margin.

“We aren’t in a negotiating position, and the Senate’s going to make it worse,” Rep. Glenn Grothman (R-Wis.) said this week as the Rules Committee prepared the House plan for floor action.

With a tax code rewrite on the line, though, House conservatives with strong records of anti-deficit stances have signaled a willingness to support the Senate’s plan despite the fact that it would add $1.5 trillion to the deficit over a decade.

House Freedom Caucus Chairman Mark Meadows (R-N.C.) has even signaled acceptance of the proposal, in favor of aggressive tax cuts. And in the Senate, Bob Corker (R-Tenn.) has been accused of going quiet on his deficit-reducing demands after striking a deal allowing the Budget Committee to move forward.

“Look, the budget itself is always a joke. It’s a total joke. It’s not worth the paper that it’s written on,” Corker said in defense of his support this week. “This is a vehicle to begin a debate on tax reform.”

Fiscally focused outside groups haven’t been as conciliatory, vowing to lobby for a more conservative product during the looming debate on the joint budget resolution.

“I think that dangling tax cuts in front of members has pulled them away from their aversion to debt,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in an interview Wednesday. “There’s a lot of hypocrisy going around here.”

Seizing on the opportunity to bash Republicans for diverging from their usual fiscal refrain, Democrats are also calling out the GOP’s willingness to overlook additional spending in the Senate’s plan.

The minority leaders in both chambers have also hammered Republicans this week for proposing cuts to social safety net programs to help pay for a corporate tax break.

“So much for being a fiscal hawk,” Senate Minority Leader Chuck Schumer told reporters this week. “When it comes to tax cuts for the rich, fiscal responsibility doesn’t seem to matter.”

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