Sen. Bernie Sanders called on the Federal Reserve Monday to provide emergency loans to the government of Puerto Rico, saving the residents of the island from its fiscal crisis.
While visiting Puerto Rico, the Democratic candidate for president said that if the central bank “could bail out Wall Street, it can help the 3.5 million American citizens in Puerto Rico improve its economy and lift its children out of poverty.”
In the lengthy speech outlining how he would address Puerto Rico’s debt problems, Sanders said the Fed has the authority and responsibility to lend to the Puerto Rican government, which has lost its ability to borrow as it has begun defaulting on its obligations.
Sanders’ unusual proposal would test the limits of the Fed’s legal authority and its independence from the rest of the government.
During the financial crisis, the Fed created emergency lending programs that provided a backstop of trillions of dollars for banks and non-banks faced with imminent collapse.
In the 2010 Dodd-Frank financial reform law, Congress put curbs on the Fed’s emergency lending powers to ensure that they could not be used in the future to bail out specific banks and only could be used to protect the safety of the financial system.
Since the Fed wrote the rule enacting that provision of the law, lawmakers from both parties have criticized the central bank for not doing more to limit the circumstances in which the bailout authority may be used.
In his speech, Sanders also decried the “vulture funds” that bought Puerto Rico’s debt at a discount and hope to make a profit on it. He added that Congress should pass a law providing the option of bankruptcy for Puerto Rico.
