Swap Market Is No Place for School Districts to Play

[flashl]

Source: Bloomberg

Feb. 5 (Bloomberg) -- Whoever thought it was a good idea to allow all municipalities to engage in interest-rate swaps and derivatives?

The Pennsylvania legislature, for one. In 2003, the state enacted a law giving its municipalities the power to use swaps, as long as they hired an independent financial adviser to help them figure the transactions out .... Backers of the law told the Pennsylvanians that using interest-rate swaps and other derivatives would allow the state's municipalities to reap enormous savings, and besides, everyone else was doing it, too. To date, 40 states have authorized their municipalities to do swaps.

'Getting Fleeced'

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The result: "The Pennsylvania deals show that school districts routinely lose when making derivative deals. They pay fees to banks that are as much as five times higher than typical rates and overpay advisers by as much as 10-fold," according to their story, "Schools Flunk Finance," in the March issue of Bloomberg Markets magazine.

"The school districts are getting fleeced," commented Governor Rendell, who added that maybe the state should advise municipalities on such transactions, rather than the independent advisers who are so often recommended by the banks who want to do such deals, and who are usually paid only if the deal is done.

Bloomberg

Read more: http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_mysak&sid=awPrGXO2Y_sQ

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Morans.

As schools are fleeced, resources are stripped; consolidations and closings are offered as 'cost saving' measures; trailer villages are erected on school campuses. Meanwhile, adminsitrators, teachers and parents must do MORE with LESS and must find resourceful ways to provide basic necessities, such as toilet tissue or copy paper, for daily operation.

[BadgerLaw2010]

1. That is some seriously dumb shit.