Wall Street’s latest sucker: Your hometown

Your local politicians have been played like a violin. They can’t, and won’t raise taxes on the wealthy, which is why they’re stealing from the poor, and they’ve let themselves be sold on a bag full of magic beans

From, Fortune

Financial pressures have pushed cities and states to look for ways to save a buck, and into the arms of Wall Street hucksters.

[…]

Remember Abacus, the designed-to-fail Goldman Sachs mortgage bond. Some said Goldman wasn’t at fault because it sold the bond to a large German bank that, unlike individual investors, should have understood what it was buying. But the German bank didn’t hold onto the doomed investment. It was repackaged into seemingly safe investments that were sold to Cedar Rapids, Iowa and others.

Last year, JPMorgan Chase and UBS paid hundreds of millions of dollars to settle allegations that they colluded with other banks to inflate the fees they charge municipalities to manage their money. Rolling Stone recently wrote a story about how the court case of two key figures in that bid-rigging scandal went mostly unnoticed.

Take a closer look and it appears the real losers in the Libor trading case are cities across America. Baltimore is the lead plaintiff in a class action suit against Barclays and a number of other banks that claims the city lost money due to Libor manipulation.

Financial contracts based on Libor played a key role in the financial troubles that led to the bankruptcy of Alabama’s Jefferson County.

A recent report from a coalition of labor and community groups called the Refund Transit Coalition claims that Libor manipulation may have cost twelve transit authorities around the country, including those in New York and Boston, nearly $100 million.

[…]

http://fortune.com/2012/07/11/wall-streets-latest-sucker-your-hometown/

Then there’s this seriously good article, as well. REALLY, click the link below, and read where your money has gone

Interest rate swap deals have allowed the big banks to hold
local governments and agencies hostage for tens of millions of dollars.

BY DARWIN BONDGRAHAM

2002 a little-known but powerful state agency in California and Wall Street titans Morgan Stanley, Citigroup, and Ambac consummated one of the biggest deals to date involving a type of financial derivative called an “interest rate swap.” A year later the executive director of the Bay Area’s Metropolitan Transportation Commission, Steve Heminger, proudly described these historic deals to a visiting contingent of Atlanta policymakers as a model to be emulated. Swaps were opening up a brave new world in public finance by extending the MTC’s purchasing power by $200 million, making a previously impossible bridge construction schedule achievable in a shorter timeframe. The deal would also protect the MTC from future volatile swings in variable interest rates. To top it off, the banks would make a neat little profit too. Everybody was winning.

Then in 2008 it all came crashing down. The financial system’s near collapse, the federal government’s unprecedented bailouts, and global economic stagnation mean that the derivative products once touted as prudent hedges against uncertainty have instead become toxic assets, draining billions from the public sector.

The MTC was forced to pay $104 million to cancel its interest rate swap with Ambac when the company went bankrupt in 2010. Whereas once the Commission’s swaps portfolio was saving it money, now it must pay millions yearly to a wolf pack of banks including Wells Fargo, JPMorgan Chase, Morgan Stanley, Citibank, Goldman Sachs, and the Bank of New York. The MTC’s own analysts now estimate that the Commission’s swaps have a net negative value of $235 million. This money all ultimately comes from tolls paid by drivers crossing the San Francisco Bay Area’s bridges, toll money that not too long ago was supposed to purchase bridge upgrades. Now it’s just a free lunch for the banks.

The MTC is only one example. Local governments and agencies across the United States have been caught in a perfect storm that has turned their “brilliant” hedging instruments into golden handcuffs. The result is something of a second bailout for the Wall Street banks on the other sides of these deals.

[…]

http://www.dollarsandsense.org/archives/2012/0512bondgraham.html

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