Monday, April 4, 2011

Banksters Drive Up Local Taxes Through Municipal Bond Rip-offs

Banksters Drive Up Local Taxes Through Municipal Bond Rip-offs
If one finds it disgusting that TARP tax dollars and Federal Reserve monopoly money are doing nothing except transferring the wealth of America to the wealthy elites, it gets even worse when one ponders Bankster carnage inflicted upon states, cities and municipal entities in the $2.69 trillion municipal bond market.  Here is where the Banksters have bankrupted school districts, counties and who knows who else.
True, it takes a substantial amount of public corruption and/or sheer stupidity at all levels to effectively rob the public.   In some cases, a public official can be bought for as little as “paid for jewelry, a Rolex watch, an Ermenegildo Zegna suit and clothes from Salvatore Ferragamo” according to Bloomberg. 
Quote:  Birmingham, Alabama’s mayor was charged with bribery and money laundering in connection with municipal bond and derivative deals while he was president of the Jefferson County Commission, according to an indictment unsealed today.
Larry Langford, a Democrat, was accused of soliciting $235,000 from William Blount, chairman of Montgomery, Alabama- based bond underwriter Blount Parrish & Co., and lobbyist Albert LaPierre. William Blount helped Langford get a $50,000 loan, and paid for jewelry, a Rolex watch, an Ermenegildo Zegna suit and clothes from Salvatore Ferragamo, according to the indictment. Blount Parrish received about $7.1 million in fees in connection with the deals, which refinanced debt issued for the county’s sewer system.

Jefferson County Alabama is one of the state’s poorest counties. Yet, its corrupt politicos massively indebted the county in the amount of $3.2 billion for a Cadillac sewer system it didn’t need.  Of course the monster debt burden on Jefferson County’s poor residents produced headlines like this because sewer bills skyrocketed: 
As nighttime temperatures plunged in Birmingham, Alabama, last October, Dora Bonner had a choice: either pay the gas bill so she could heat the home she shares with four grandchildren, or send the Birmingham Water Works a $250 check for her water and sewer bill.
Bonner, who is 73 and lives on Social Security, decided to keep the house from freezing.
``I couldn't afford the water, so they shut it off,'' she says.

But how and why did this happen? 
What's threatening to increase them [sewer rates] even more isn't the high cost of treating waste; it's the way county officials chose to finance the $3.2 billion in debt they took on to build a new sewer system. The county relied on advice from a bank, JPMorgan Chase & Co., to arrange its funding, rather than use competitive bidding.
Like homeowners who took out mortgages they couldn't afford and didn't understand, Jefferson County officials rejected fixed- rate debt and borrowed instead at rates that varied with the market.
The county paid banks $120 million in fees -- six times the prevailing rate -- for $5.8 billion in interest-rate swaps. That was supposed to protect the county from rising rates for their bonds. Lending rates went the wrong way, putting the county $277 million deeper into debt.
Interest Rate Soared
In February, the county's interest rate soared to as much as 10 percent, up from 3 percent just weeks earlier. The swaps have now compounded the risk that Jefferson County will file for bankruptcy as it faces its worst financial crisis since it was founded in 1819.
The Banksters got $120 million in fee income for this financial rape of a poor Alabama County and a local brokerage firm received over $7 million in fees. 
In other cases, well meaning folks of means somehow managed to get duped by Wall Street, as probably was the case involving 5 Milwaukee area school districts, including the wealthy school district of Whitefish Bay.  Seeking to shore up its retirement obligations, at the urging of Wall Street scoundrels the 5 school districts pooled their resources and borrowed $37 million (bond proceeds) and $165 million from an Irish bank to invest in a complex CDS that was supposed to make them money.  According to an article that documents the transaction and how it evolved:
Quote:  They were dealing with one of the most complex derivatives ever designed-a synthetic collateralized debt obligation, which is a combination of two other derivatives: a collateralized debt obligation (CDO) and a credit default swap (CDS).
Source:  The Looting of America:  How Wall Street Fleeced Millions from Wisconsin School. 
In the Milwaukee school district case, Wall Street got rich and the 5 school districts got massively stiffed and are now holding the bag on a $200 million pile of debt that was incurred as an investment vehicle designed to earn a rate of return greater than the interest costs on borrowed money.
In a little school district in New Castle, PA (New Castle Area School District), the district got $280,000 in upfront cash on a $9.7 million bond deal that went very bad for the school district but not Wall Street. The Philadelphia International Airport got caught in a derivatives deal involving $6.5 million that drove its interest rate from 1.8% to 7.2%.  Philadelphia pondered cancelling the complex CDS but that would have cost over $24 million or more than the $20 million over the original bond proceeds.  These and other deals are documented in a Bloomberg report (
Hospitals have also been victims of Wall Street.  Non-profit South County Hospital in Wakefield, Rhode Island got involved in a derivatives deal that caused its interest rate on $52 million to double to 12%; now it’s firing workers to pay its massive interest payments.  Apparently, hundreds of non-profits entered into similar derivative schemes with the Banksters.  Vanderbilt University and the University of Maryland Medical System got caught in similar schemes by entering into exotic CDS peddled by Wall Street that they never understood.  For more on the gory details of these transactions and others, read:
These are just a few cited instances of massive public rip-offs  by Wall Street but they are only a drop in the bucket.  How did this happen?  Christopher Taylor ran the Municipal Securities Rulemaking Board (MSRB) as executive director from 1978 to 2007.  Apparently, the MSRB took its orders direct from the Wall Street Banksters.  Taylor was quite frank in admitting this:
Quote:  The big firms didn’t want us touching derivatives,”…..Taylor says the bankers consistently stood in the way of efforts to increase transparency in the municipal bond market.  Source:  Bloomberg Municipal Market Regulator Regrets Enabling Losses.
Even more shocking is that MSRB frequently hired former politicians and lobbyists as consultants (well, that’s not so shocking once one understands how Congress really operates).  After all it was Congress who set up the MSRB in 1975.  Like everything else that Congress does, protecting the Banksters and Wall Street is not only the top priority of Congress it’s the only priority of Congress.  The actions of Congress prove that protecting the interests of the Banksters trumps the right of the public not to be looted.  Only our Congress Critters put the foxes of Wall Street in charge of the Hen House.

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