Tuesday, September 8, 2009

Milan: Municipal interest rate swaps under criminal probe

It seems the Italians continue to get wise to the Wall Street schemes that blew up Jefferson County, AL and have attracted Jackson, MS Finance Director Rick Hill. Bloomberg reports:

"The banks had two pieces of advice for Milan: First, the city could save money by buying interest-rate swaps, which are derivatives designed to keep monthly payments low as rates change. Second, the institutions best prepared to sell them those swaps were none other than the banks themselves.
The four banks thus play four roles -- as underwriters, advisers, swap dealers and counterparties in the derivative contracts.
Undisclosed Fees
The group of banks wrote in a June 3, 2005, letter that the bond issue would save Milan about 55 million euros over the 30- year life of the bonds.
The firms never said what their fees on the swaps would be, public records show. Today, Milan faces so-called mark-to-market losses of 231 million euros on its swaps, according to council member Davide Corritore.
In all, the city’s losses include at least 101 million euros in hidden fees, according to Milan prosecutor Alfredo Robledo, who’s investigating the swap deals. The fees were buried because they were built into swap interest rates without any written explanation, the prosecutor says.
That 101 million euro price tag for Milan’s dealings with the four banks was 599 times the original figure of 0.01 percent for selling bonds and providing advice.
Without seeking competitive bids, the city agreed on June 16, 2005, to let the four banks sell them swap contracts. Neither the new swap rates nor the costs associated with them had been part of the original vote by the city council.....
Robledo said in July he would ask Milan judges to indict Depfa, Deutsche Bank, JPMorgan, UBS and 14 individuals, including two city officials, on fraud charges in connection with the swap deals.
...."

This part sounds familiar:
"Italy’s tales of swaps, losses and conflicts of interest are part of a global phenomenon in which local governments have signed contracts they had hoped would lower their debt payments.
In many cases, taxpayers later discovered the swap deals held risks and expenses that their elected and appointed officials didn’t expect or understand and that banks hadn’t disclosed....
After suffering losses, some countries, including Poland and the U.K., have restricted municipalities from engaging in derivative transactions. In mid-2008, Italy temporarily banned public derivative contracts.
Municipalities and local governments around the world have target signs painted on them for bankers,” says Satyajit Das, a former derivative banker at Citigroup Inc. and Merrill Lynch & Co. and author of “Traders, Guns & Money” (FT Press, 2006).
“They’re generally not financially sophisticated, and they’re under pressure to raise money,” Das says. “And nobody in the derivative business is willing to actually be truthful
.”

Read the rest of this article. It will show how these deals are very bad for cities. Meanwhile, Rick Hill still tries to promote a $40 million bond swap, after his proposed $95 million interest rate swap for Jackson's 2002 and 2004 bonds failed. If Jackson goes down this path, Bloomberg will one day write a similar story about how bold and stupid the new city was.

Note: See lower sidebar for collection of all posts on Jackson's interest rate swap proposals

2 comments:

Anonymous said...

Rick Hill needs to resign. He has no clue what he's doing.

Kingfish said...

When it comes to derivatives, you are probably right. He's been a pretty decent finance director in other areas, its just these derivatives where he is wrong.



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Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).


Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.


In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.


Note: Security provided by INS.

Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS
.