Busted Bond

Busted bonds are those on which the issuer fails to pay either the interest owed or the principal, or both.

Bonds are being busted in Puerto Rico these days, as the Commonwealth continues to face financial, um...challenges. Is there a PC way to point out a country's inability to find an economic niche while living next to the arguably wealthiest country on the planet?

Usually, someone who reneges on bonds they issued will file for bankruptcy, with the possibility that they will get at least some of the money owed. But in Puerto Rico, the problem is that government entities, including the national electric power company and sewer and highway authorities, are not allowed to file for bankruptcy.

The U.S. Congress is addressing the issue, but so far many bonds are still being busted. So...the next time a slowly dying nation asks for debt lending, what's your guess on the reaction of lenders at that point?