12 replies to this topic

[linrom1]

http://www.bloomberg...6...&refer=home

Deutsche Bank Swap Makes Pennsylvania Taxpayers Lose (Update1)

By Martin Z. Braun

Jan. 17 (Bloomberg) -- The third-poorest city in Pennsylvania is a lot poorer because of a 28-year bet on interest rates that already has gone awry.

The Reading, Pennsylvania, school district, which has 18,323 students, this week must pay $230,000 to Deutsche Bank AG, Germany's largest bank, because it's on the losing side of a wager that long-term interest rates will rise faster than short- term interest rates. In April, the board rushed approval of the so-called interest rate swap in eight days after its adviser said the transaction may earn the district $16 million by 2034.

While Reading's taxpayers are liable for the loss, bankers and advisers already have pocketed $1 million in fees for arranging the swap, enough to buy 11 Mercedes-Benz S-550 sedans. This week's payment to Deutsche Bank would have covered the school district's monthly utility bill.

``It was all done in a real hurry,'' said Keith Stamm, the only member of the board to vote against the deal. ``The whole board is so desperate to try to find a way to raise money, they see this floated in front of them as a big-time amount of money and they want to go forward with it.''

Local governments from Augusta, Georgia, to Oakland, California, are being lured by similar opportunities to speculate with derivatives created by the world's biggest banks. Most of the $400 billion of private agreements sold to municipalities escape taxpayers' notice and are little understood by the public officials and administrators who approve them.

They can pay for it by offsetting pension expense for the civil servants and collecting more taxes form the illegal aliens school children parents.

[OEXCHAOS]

Karen, I've got to disagree with you and agree with SB. The first thing ANYONE in a position of financial responsibility should know is that you don't fully understand it, you don't do it with other folks money. It's that simple. At the very least, if you can't remember recent history, you're too dumb to be on the board, IMO. On the other hand, a couple hundred grand off on a transaction to make $16MM may not be that big a deal. This may be sensationalizing a small misstep in the wake of OC and PG. One final thing, I don't know about this particular municipality, but in this area, schools are always poormouthing it, but when you run the numbers, you come away with the simple question of "WHERE DOES ALL THAT MONEY GO?". We're over $8k per head now in the public schools. That's over $160K per classroom per 9 months. And many municipalities have been on the gravy train with dramatically rising property tax revenue. You don't think that they're SAVING that money, do you? M

[dasein]

Karen,

I've got to disagree with you and agree with SB. The first thing ANYONE in a position of financial responsibility should know is that you don't fully understand it, you don't do it with other folks money. It's that simple. At the very least, if you can't remember recent history, you're too dumb to be on the board, IMO.
M

Mark,

I dont see where we disagree, I agree with your statement completely - I am only saying that the IBs pitch is such that they explain it to convince you that you do understand it - and it takes a fairly high level of understanding to see that what they say, which seems to make perfect sense may not... similar to why a lot of jury trials end up going the wrong way - folks simply dont have the expertise to understand that they dont understand, and they take comfort in "trusting the experts" - I see this in business too, just hire one of the big 8, uh, 5, and CYA - the expert made me do it!

as to schools, you have that right - in ritzy Fairfield CT, they spend millions on sports and car parks, nothing on the library, and parents complain if their kids get more than 1 hour of homework TOTAL - it interferes with their soccer. very unreal, and the kids will be the ones who are hurt.

klh