Hidden Swap Fees by JPMorgan, Morgan Stanley Hit School Boards

from Bloomberg:



Hidden Swap Fees by JPMorgan, Morgan Stanley Hit School Boards

By Martin Z. Braun and William Selway

Feb. 1 (Bloomberg) -- James Barker saw no way out. In September 2003, the superintendent of the Erie City School District in Pennsylvania watched helplessly as his buildings began to crumble.

The 81-year-old Roosevelt Middle School was on the verge of being condemned. The district was running out of money to buy new textbooks. And the school board had determined that the 100,000-resident community 125 miles north of Pittsburgh couldn't afford a tax increase. Then JPMorgan Chase & Co., the second-largest bank in the U.S., made Barker an offer that seemed too good to be true.

David DiCarlo, an Erie-based JPMorgan Chase banker, told Barker and the school board on Sept. 4, 2003, that all they had to do was sign papers he said would benefit them if interest rates increased in the future, and the bank would give the district $750,000, a transcript of the board meeting shows.

``You have severe building needs; you have serious academic needs,'' Barker, 58, says. ``It's very hard to ignore the fact that the bank says it will give you cash.'' So Barker and the board members agreed to the deal.

What New York-based JPMorgan Chase didn't tell them, the transcript shows, was that the bank would get more in fees than the school district would get in cash: $1 million. The complex deal, which placed taxpayer money at risk, was linked to four variables involving interest rates. Three years later, as interest rate benchmarks went the wrong way for the school district, the Erie board paid $2.9 million to JPMorgan to get out of the deal, which officials now say they didn't understand.

``That was like a sucker punch,'' Barker says. ``It's not about the district and the superintendent. It's about resources being sucked out of the classroom. If it's happening here, it's happening in other places.'' .......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ay5LDbjbjy6c

back in Greenspan's heyday of the new structured finance, 2003. School districts were broke, and they had clever people in suits and ties come in and explain to them how things are done now. School boards are being exploited by bankers, and this is all the head of the SEC has to say:

Cox also says school district officials have a responsibility to the public and to bond investors to ensure their advisers are actually independent and acting in the best interests of taxpayers. ``To the extent that municipalities are participating in transactions they are not qualified for, there is an obligation to get good independent advice,'' he says.

Get it? It's the school board's responsibility to insure that their adviser isn't cheating them. What were they paying their adviser for? Wouldn't a financial adviser have a fiduciary responsibility to give honest advice?

The article points out that under the Pennsylvania law:

In Pennsylvania, it's the financial advisers who are supposed to keep school district officials from getting fooled. That's why the 2003 law allowing for swaps requires districts to use independent advisers.

``There was a fear that these deals were being pushed on the unsuspecting, perhaps, without them getting any other advice,'' says Steve Nickol, a Republican member of the Pennsylvania House of Representatives who introduced the legislation.

So, one way school districts were keeping their heads above water was by going into the derivatives trading bidness with nice bankers in suits and ties giving Powerpoint presentations. Yet these bankers and advisers - and there are lots of them- set out to take the schools and hospitals and pension funds for every million they could get. Somewhere there's the Enron-trader tape of them laughing at the people they exploited.

Financial advisers...backed the swaps bill from the beginning...swaps would save taxpayers money. Since 1998, IMAGE's founder, David Eckhart, has personally contributed $469,400 to Pennsylvania elected officials, political action committees and candidates for office, campaign records show.

Your average working stiff sending their children to public school has probably not been as generous. No doubt the school boards thought they were in good hands:

``We're not financial experts,'' Tucker, 72, says. ``We relied on the best advice we thought we could get.''

Read the whole article. This is just the tip of the iceberg. Then get out your torches and pitchforks, because we're going to need them.

I think you're about right.

Was the commander in chief accountable on Sept. 11, 2001?
No.

Was his national security adviser?
She was promoted.

Was the Secretary of State responsible for the 16 words?
Can't recall.

How about Steven Hadley, the person who said he was to blame?
Still employed.

Maybe Doug Feith and his Office of Special Plans?
Spending more time with his family.

Dick Cheney and his fourth branch of government, outing an agent an an anti-proliferation operation for the CIA?
"So?"

Rumsfeld, who was never right about anything but did it with flair and style.
Happily recommending more war, unmolested.

How about the media who aided and abetted the Teflon Administration?
Still keeping us in the dark and feeding us shit.

Surely the torture and spy legalese has gotten someone into hot water.
NooYoo. Not yet.

Gonzales, unlike his predecessor who was covering up statues, ripped off Justice's blindfold.
Went back to Texas.

Mr. Bubbles Greenspan blessed derivatives.
Bummer.

The SEC.....went on vacation?
Not our job.

The banks raked it in and paid themselves millions and millions.
You got a problem with that?

And them we get to the citizens who have done their civic duty and volunteered to serve on their school boards.
THEY SHOULD HAVE KNOWN. THEY SHOULD HAVE SEEN THIS COMING. THEY AND THE TAXPAYERS ARE RESPONSIBLE.

So now we know that eventually the buck does stop. Just not in Washington or on Wall Street.