What's going on?

Puerto Rico's government says it's effectively bankrupt. It has borrowed far too much money and, rather like Greece, it can�t afford to pay it back. Its government is pushing to have its debt �restructured,� meaning it would have longer to pay it back and, in the meantime, pay less interest. Right now, however, due to its status as a US "territory," it is not legally allowed to do that. How this problem will be resolved is not clear � and it could get very messy.

What does this mean?

The Obama Administration is encouraging Congress to change the law in order to allow Puerto Rico to restructure its debt. This may be the cleanest way out for the island. On the other side of the argument is a group of investors, mainly hedge funds, who argue that Puerto Rico can afford to pay its debt � it just needs to enact austerity and cut its government spending. Average Americans, many of whom own Puerto Rican debt through �municipal bond funds,� are stuck in the middle.

Why should I care?

1. If you�re American and you have some investments, you might well own Puerto Rican bonds via municipal bond funds, which are popular investments because they offer tax advantages. A messy, costly Puerto Rican bankruptcy would likely be a negative for such funds.
2. Any particularly negative result for investors could cause some contagion to occur with other municipal bonds, leading to losses not directly related to Puerto Rico.