More Looting of Taxpayers: Wall Street Collects $4 Billion as Swaps Backfire
Bloomberg.com Nov 9, 2010
The subprime mortgage crisis isn’t the only calamity Wall Street created that’s upending the finances of U.S. states and cities.
Wall Street banks and insurers peddled financial derivatives known as interest-rate swaps to governments and nonprofits that bet they could lower the cost of borrowing. There were as much as $500 billion of the deals done in the $2.8 trillion municipal bond market before the credit crisis, according to a report by Randall Dodd, a senior researcher on the Financial Crisis Inquiry Commission, published by the International Monetary Fund in June.
Borrowers from New York to California are now paying to get out of agreements. Altogether, they have made more than $4 billion of termination payments to firms including New York- based Citigroup Inc., New York-based JPMorgan Chase & Co. and Charlotte, North Carolina-based Bank of America Corp. since the beginning of 2008, according to a review of hundreds of bond documents and credit-rating reports by Bloomberg News.
In contrast to the subprime crisis, few taxpayers know anything about the cost of untangling municipal swaps. The only disclosure of payments to Wall Street often is buried in documents borrowers have to give investors when they sell bonds.
In many cases, firms getting payments aren’t explicitly identified and government officials often don’t call attention to payments made to cancel contracts. Many of the telephone calls and e-mails from Bloomberg News to dozens of government and nonprofit officials over the last eight months seeking comment on derivative transactions went unanswered…….
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