On Jan. 4, Puerto Rico defaulted on a $37 million payment owed to bondholders by the Puerto Rico Infrastructure Financing Authority (PRIFA), and another $1.4 million owed by the Public Finance Corporation. It did manage to meet a $330 million obligation due that day on its general debt payments—but only by “clawing back” some $164 million previously allocated to PRIFA, among others, arguing that the Puerto Rican Constitution requires that the general debt obligations be given priority treatment. In other words, the government momentarily closed one gaping hole by ripping open another one—all the time destroying the population’s living standard to satisfy the vultures.

Now lawyers for the insurers on the defaulted debt, Ambac Financial, which got stuck with a $10.3 million payment, have written to Governor Garcia Padilla demanding that he return the clawbacks!

This is utterly insane—and reminiscent of the recent Portuguese bail-in, in which bonds issued by the Novo Bank “good bank” were unilaterally transferred (on EU orders) to the Banco Espirito Santo “bad bank,” where they were promptly expropriated (bailed-in). In other words, when the whole shebang starts to crumble—i.e., now—there are no rules that can possibly hold, and it’s every vulture for himself.

AEI economist Desmond Lachman caught a whiff of the matter: “This raises the very real prospect that we could be at the start of a legal free-for-all where different classes of bondholders press their claims in a legal environment where there is no bankruptcy court to adjudicate those claims and work out an orderly debt restructuring for the island.” Lachman, of course, fails to note that the only “orderly debt restructuring” possible is called Glass-Steagall, and that it will have to involve $2 quadrillion in global financial assets, not just Puerto Rico’s $72 billion in debt.

As for that debt, Bloomberg reports that Puerto Rico owes $331 million in interest payments in February, and then another $432 million in May. “The payments swell to almost $2 billion in July, when some general obligations mature.” Puerto Rico has no prospect of making these payments.

Stock markets fell heavily again Jan. 6 across Europe and the United States, while restoring the Glass-Steagall Act — the one action which can shut down the Wall Street casino before it destroys the economy again — was the subject of widespread debate.

The drops in commodity prices and stock markets were led by the oil price dropping below $34/barrel, an incredible development with extreme religious-war tensions spiking among the major oil producing nations in the Mideast. One major criminal bank, UBS, called for the U.S. Federal Reserve to reverse itself in 2016, return to zero interest rates, and start QE4.

The extraordinary danger of a financial crash is the condition of precisely such megabanks, loaded with bad and delinquent debt. The first impositions of the “bank bail-in” policy, since last month, have led to bailed-in banks immediately having their credit ratings downgraded and bank stocks falling across the board.

A Financial Times piece of Jan. 4, based on an interview with the new European Commission bank bail-in czar, Elke Koenig, made clear that her office has become an arbitrary tyranny over Europe’s banks and savers, but one which is out to protect the giant London-centered banks from the bail-in regime. A former UniCredit chief tells the FT, “For the big banks this change should be like the atomic bomb; they know it’s there, but it will never be used.” The paper reports finding widespread skepticism that “bail-in” will be used against megabanks even if they face insolvency; rather, the EU “resolution fund” will be used to bail them out.

But the small and medium-sized banks loaded down with delinquent real estate debt are Ms. Koenig’s targets. The suicide of at least one among many thousands of expropriated bank bondholders in Italy does not move her; it “should not be seen as undermining the case for creditor bail-ins,” she said, even though she acknowledges that those savers were “mis-sold” bank bonds (i.e., by fraud and deception). “We all know that especially in Italy, but also in some other countries, you have a lot of retail investors [in bank bonds],” Ms. Koenig allows. “I feel sorry for each and every one who loses money. But at the same time an investor also has his own responsibility, and we should have learned to make sure that mis-selling … is addressed.”

Ms. Koenig is in the inner circle of fascist German Finance Minister Wolfgang Schaeuble. Her Single Bank Resolution Authority now has just what it sounds like: sole authority, free of any set rules, to order bail-in — or no bail-in — for each bank in all of Europe. And power that will be thrown against any national effort in Europe to legislate Glass-Steagall bank reorganization.