– Denver Public Schools Pay $216 Million to Wall Street Banks to Unwind Swaps (Liberty Blitzkrieg, May 12, 2013):
You can move from New York City to Colorado, but it seems you can never escape the all encompassing tentacles of Wall Street parasitism and theft. I recently covered a similar situation back in March in my piece Wall Street: $474 Million, Detroit: 0. In both cases it seems clear that public officials had no idea what they were getting into and there was a great deal of irresponsibility, but that is beside the point. It’d be one thing to say these communities should suffer the consequences of their actions if Wall Street had to as well, but we all know that isn’t the case. So it is highly immoral and culturally destructive to say it’s ok that Wall Street gets bailed out from all their mistakes and then is able to turn around and impose austerity on everyone else. That’s the way America works today and we can thank Ben Bernanke and Barack Obama for that reality. We must never forget the enablers in chief of all of this. Oh, and did I mention that the $216 million paid by Denver represents two-thirds of annual teaching expenses? USA! USA!
Wall Street banks collected $215.6 million that Denver’s public schools paid to unwind swaps and sell bonds since the district began borrowing to cut pension costs in 2008. That sum is about two-thirds of annual teaching expenses.
The district paid $146.6 million last month to banks, including RBC Capital Markets LLC, Wells Fargo Securities LLC and Bank of America Corp., to end interest-rate swaps as part of a second attempt to restructure a 2008 borrowing, bond documents show. The April 17 deal sold as the district’s property-tax rate has risen 26 percent in two years to fund education.
Municipal borrowers from Detroit’s utilities to Harvard University in Cambridge, Massachusetts, have paid billions of dollars to banks to end privately negotiated interest-rate bets sold as hedges. The Federal Reserve’s policy of holding its benchmark borrowing rate near zero since 2008 has turned many of the swaps into wrong-way bets.
The Federal Reserve works for Wall Street. Period, end of story.
Denver’s schools might have avoided borrowing if elected officials had adequately funded pensions, according to a draft study for Princeton University’s Woodrow Wilson School of Public and International Affairs by Joseph Fichera, chief executive officer of Saber Partners LLC in New York. To fill the gap, officials chose complex financings sold by Wall Street instead of raising taxes or renegotiating benefits, he said.
Denver schools wound up doing a bond deal in 2011, along with last month’s, to convert the 2008 bonds to fixed-rate and exit swaps. The $215.6 million paid to unwind swaps as well as fees for new bond sales has eroded money the district set out to save for its pension plan. Besides the swap termination payments, the cost includes fees to underwriters and other professionals.
“We’ve lost hundreds of millions of dollars on deals we never should have been in,” said Jeannie Kaplan, a district board member who said she voted for the 2008 borrowing and then began pushing to end it in 2010. “Public institutions with elected boards shouldn’t be in these kinds of transactions. Our responsibility is to use the public’s money in a judicious way.”
The payment “will affect the classroom,” Kaplan said.
MacPherson said the borrowings will add $1 billion to pension costs over the life of the loans compared with a scenario where the district had just merged its pension plan into the state system.
“This deal hasn’t done much for anyone — except the bankers, who are dancing in the streets,” said MacPherson.
Yep, they’re still dancing…and it will be you who pays for it when they collapse again.
Full article here.