Illustration by Golden Cosmos

In 2012, Cate Long was working at the news service Reuters, where she wrote a daily column on the municipal-bond market. Municipal bonds are typically a sleepy corner of investing. They are forms of debt issued by states, counties, or cities, usually to fund infrastructure projects, such as airports and highways, and they are generally considered a safe investment, paying relatively low levels of interest. Finding a compelling story about the municipal-bond market is not an easy task, so when Long came across a document related to an eight-hundred-million-dollar bond sale that Puerto Rico would be undertaking that spring, she decided to look at the numbers more closely. What she found was startling. “I sat down and read it for a couple of hours, and I said, ‘These people are going to default,’ ” she told me recently. “It was pretty obvious.”

In the column she wrote about her analysis, titled “Puerto Rico Is America’s Greece,” Long expressed concern about the island’s economic health, calling it “America’s own Third World country.” At the time, Puerto Rico’s per-capita income was just $15,203 (less than half that of Mississippi, the poorest of the fifty states), and forty-five per cent of its residents were living below the poverty line. Puerto Rico also had a “massive” amount of debt, and was issuing even more bonds, which mutual funds and individuals were eagerly buying up, in spite of the warning signs. In her article, Long seemed to charge almost everyone involved, borrowers and creditors alike, with disingenuousness, incompetence, or both. “As happened with Greece, bond investors continue to buy the debt assuming at some point the government will be bailed out by somebody, somewhere,” she wrote. “Caution, bond investors: There is no European Union standing ready to bail out Puerto Rico.”

The article sent shock waves through the investment community. Moody’s Investors Service, which provides credit ratings, asked Long to come to its offices and defend her findings. (Her defense was, essentially, “I’m looking at the numbers.”) Nevertheless, the island continued its unsustainable borrowing for years—and Wall Street investors kept lending it money. By 2017, five years after Long’s warning, Puerto Rico’s bond debt had soared to seventy-four billion dollars, almost a third of which was held by hedge funds. Meanwhile, the government was struggling to provide basic services to residents.

This pattern of acute decline might have continued indefinitely, but, in September, Hurricane Maria damaged much of the island’s infrastructure, and left a large portion of the population without power or water. The storm was catastrophic; perhaps the only positive side effect is that it changed the calculus for the investors holding the island’s bonds. Before the storm, investors seemed unrelenting in their pursuit of repayment. Various hedge funds and mutual-fund companies were suing Puerto Rico, and one another, in federal court, in disputes about which debtholders could lay claim to the island’s dwindling revenue. After the hurricane, it became painfully clear that these debts would be impossible to repay. In October, some funds essentially gave up, selling off more than eight billion dollars’ worth of Puerto Rico bonds, according to the Wall Street Journal. (Including pension obligations, Puerto Rico is now a hundred and twenty-three billion dollars in debt.)

Still, a different group—one that has received much less attention—continues to make steady profits from the island’s sorry state: the many lawyers and consultants advising it on its finances. In 2016, President Obama signed legislation allowing Puerto Rico to enter a form of bankruptcy and creating a financial oversight board, which in turn hired numerous consulting and legal firms to help manage the bankruptcy process and create new fiscal plans.

Cate Long left Reuters in 2014 and now runs a research service for bondholders. She has been tracking the payments that Puerto Rico has made to the law firms and the Wall Street consultants, and has calculated that the government has paid nearly three hundred million dollars in advisory fees since 2014; she told me that the number is likely to continue growing. Approximately fifty-six million dollars has gone to the law firm Cleary Gottlieb Steen & Hamilton, L.L.P., which also advised Greece and Argentina on debt restructuring. Forty-seven million dollars went to the consulting firm Alix Partners, for overhauling Puerto Rico’s power utility, which then failed during the hurricane. For much of 2017, more than a million dollars a month went to McKinsey for “strategic consulting.” Millions more have gone to other firms—many of which have political connections—to cover costs that include catering and inflated photocopying charges.

The old investing maxim “Where there is pain, there is profit” seems to hold especially true here. The vultures profiting from Puerto Rico’s misery are unlikely to go hungry; the same can’t be said for the people who live on the island. For Long, the whole situation feels eerily familiar. “If we don’t come out of this with a new and super-improved Puerto Rico,” she told me, “this has just been a total waste of time.” ♦