Puerto Rico debt

Puerto Rico has been on financial thin ice for many years and they were kept afloat by selling bonds to investors. In order to cover the risk they had to pay a high interest rate and over the years they sold many bonds paying 8% or higher. Many US hedge funds invested heavily in these bonds and are now at risk of losing their shirts. The question comes up as to why they were willing to take this risk and this question is about to be answered. Recall that the big banks a few years ago were willing to buy a lot of junk mortgage bonds because they knew that the government would have to bail them out if things went bad and thus the term moral hazard came into the vernacular. Remember too big to fail! The Puerto Rican investors are counting on the same thing. If the US wipes out their debt these hedge funds will lose but if the government backs these funds then the investors win. Will Uncle Sam once again use taxpayer money to save the big hedge funds? When the US sends aid will part of that be used to pay off the bond debt? The question arises will the bond holders get paid directly from a bail out by the US or will they receive payment by way of aid?