NY Times: Exotic Deals Put Denver Schools Deeper in Debt

[marmar]

Exotic Deals Put Denver Schools Deeper in Debt
By GRETCHEN MORGENSON

Published: August 5, 2010


In the spring of 2008, the Denver public school system needed to plug a $400 million hole in its pension fund. Bankers at JPMorgan Chase offered what seemed to be a perfect solution.

The bankers said that the school system could raise $750 million in an exotic transaction that would eliminate the pension gap and save tens of millions of dollars annually in debt costs — money that could be plowed back into Denver’s classrooms, starved in recent years for funds.

To members of the Denver Board of Education, it sounded ideal. It was complex, involving several different financial institutions and transactions. But Michael F. Bennet, now a United States senator from Colorado who was superintendent of the school system at the time, and Thomas Boasberg, then the system’s chief operating officer, persuaded the seven-person board of the deal’s advantages, according to interviews with its members.

Rather than issue a plain-vanilla bond with a fixed interest rate, Denver followed its bankers’ suggestions and issued so-called pension certificates with a derivative attached; the debt carried a lower rate but it could also fluctuate if economic conditions changed.

The Denver schools essentially made the same choice some homeowners make: opting for a variable-rate mortgage that offered lower monthly payments, with the risk that they could rise, instead of a conventional, fixed-rate mortgage that offered larger, but unchanging, monthly payments. ...........(more)

The complete piece is at: http://www.nytimes.com/2010/08/06/business/06denver.html?_r=1&hp

[Nite Owl]

1. Ouch

Go Romanoff!

[david13]

2. Oh, don't feel bad about it. Orange county, California, a bastion

or presumed to be a bastion of right wingers, home of Richard Nixon, et alia, declared bankruptcy a few years ago. Investments.
Behind the Orange curtain, they say.
dc

[liskddksil]

3. The Denver Post won't be able to whitewash this story like

they're trying on the Regal deal.

[alcibiades_mystery]

4. Hugely important story

There was a story a few months back about the same kinds of shenanigans happening in Jefferson County, Alabama, where JPM sold floating rate shit to "finance" a new sewer system, leading to financial catastrophe. Apparently, JPM was just going around the country pushing these exotic instruments on municipalities that should have been either issuing traditional muni's or just raising fucking taxes. Really incredible reporting from Gretchen Morgenson, again.

[alcibiades_mystery]

5. KICK

It's really incredible that silly personal squabbles get 150 replies while this crucial story for understanding relations between finance and everyday life get four.