[–] [deleted] ago 

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[–] Tecktonik 0 points 2 points (+2|-0) ago 

Generally the same thing as in any bankruptcy situation: creditors would sell off the loans at a fractional cost to new creditors, who would then spend the next hundred years trying to collect the debts from the country commonwealth. Meanwhile in Puerto Rico the government would take a credit hit and would have a hard time borrowing money, and that tight credit would affect citizens because the banks wouldn't have much money to loan, import and export markets would shrink, and then it is a downward spiral into famine, rioting, and violent revolution. Well, really it would just suck a lot. As for the larger impact on those precious municipal bond markets, that is just a load of investor panic since investors never want to lose money regardless of how much they understand the concept of "risk".

If I recall correctly part of the TARP funds did end up going to particular states to help with budget shortfalls, which really meant TARP funds got funneled into the accounts of creditors who held bonds in those states. Any federal money that got sent to the commonwealth would end up with a similar fate.