Monday, April 20, 2009

Municipal Carnage caused by Wall Street

Earlier posts:
Jackson paying $4 million in fees for bond deal
Will Jackson become Jefferson County, Alabama?

Now that I've blogged a bit about Jackson's foolish decision to refinance its bonds with interest rate swaps based on adjustable rates (just think of refinancing your house with an adjustable rate. Same concept to some degree), its time to see how much carnage there is among municipal balance sheets across the country thanks to these financial weapons of mass destruction. Buckle yourself in and have a drink, you're going to need it.

New Castle School District, PA
"On Sept. 25, the week after Lehman Brothers Holdings Inc. collapsed, the New Castle Area School District's interest rate on $9.7 million of financing arranged by JPMorgan hit 10.6 percent, more than doubling since the month began, as investors demanded skyrocketing returns for municipal debt" interest rate doubled

Philadelphia International Airport, PA
"In April 2002, Philadelphia International Airport entered into a high-stakes derivative trade with JPMorgan. The airport got $6.5 million; JPMorgan acquired the right to put the bank into an interest-rate swap on $189 million of bonds.
JPMorgan took in $4 million-$4.5 million on the deal in fees, according to LeCroy's SEC testimony. That was 10 times what the bank earned for underwriting a floating-rate-bond issue for the airport after the bank exercised the option.
The deal has turned out terribly for Philadelphia. In June 2008, the interest rate on the floating-rate bonds the airport issued surged to 7.2 percent from 1.8 percent the week before, after MBIA Inc., the company that guaranteed the bonds, lost its AAA credit rating.
The rate on the debt reached a high of 10 percent on Sept. 23.....
Philadelphia officials say they don't really have the choice of canceling the swap. Based on prices at the end of September, termination would cost Philadelphia about $24.4 million, according to the city. That's almost $20 million more than what it received in 2002..."

"the state has issued $1.9 billion in bonds since 2002 and plans another $985 million in bonds this year and next.
The state gambled and lost on a TIMED bonds "interest-rate" swap with Wall Street amid the credit crunch last year, and faces a possible termination penalty of more than $130 million if it can't sell those bonds by May 1
...." Tick...tick..tick

Augusta, GA
"Augusta Mayor Deke Copenhaver says he doesn't plan to sign documents authorizing a financial transaction designed to squeeze some extra profit from the city's $160 million utility bond issue.. Augusta will be charged about $3 million in fees on its swap....." Same verse, different city

Reading, PA
"The Reading, Pennsylvania, school district, which has 18,323 students, this week must pay $230,000 to Deutsche Bank AG, Germany's largest bank, because it's on the losing side of a wager that long-term interest rates will rise faster than short- term interest rates... its adviser said the transaction may earn the district $16 million by 2034.
While Reading's taxpayers are liable for the loss, bankers and advisers already have pocketed $1 million in fees for arranging the swap
.." 550 Mercedez sedans

Lewisburg, TN
"Everything was fine until January, Phillips said, when the town was saddled with annual interest payments that had quadrupled to $1 million, and the amount of time the city had to pay off the bonds was reduced from 20 years to seven years....." AP Story

Claiborne County, TN
"Michael Tuten, accounting and finance manager for Claiborne County, said Morgan Keegan in 2007 advised entering into a derivatives deal on an existing $18 million bond to pay for a new school.....
But interest rates began to inch up, and he said the company told county officials earlier this year that they had only a few weeks to refinance the entire bond or make a quadrupled payment of $700,000

Indianapolis, IN
Nearly 1 million Indianapolis Water customers likely will see their rates go up this summer because the city-owned utility faces a penalty of up to $100 million after entering into some of the risky variable-rate financing deals at the heart of the country's economic meltdown
The Indianapolis Bond Bank, which set up the deals in 2005, now will have to pay a penalty of $80 million to $100 million to extract the utility from interest-rate swaps attached to the bonds...
Refinancing seems to be the only choice: The city otherwise would face annual payments of $44 million, which it can't afford....
Interest rates on that debt rose from 3.5 percent to 9.5 percent in the past two years, forcing the utility to make $20 million more in interest payments in 2008 than in 2007...." Indy Star story

New Orleans, LA
"New Orleans is suing Ambac Financial Group Inc. for breach of contract, alleging the bond insurer's ``greed'' and ``mismanagement'' caused it to lose its AAA credit rating, costing the city at least $2 million in extra debt service.
The complaint, filed in federal court in Louisiana on July 17, said the city wouldn't have issued $171 million of taxable floating-rate pension bonds in December 2000 and bought an interest-rate swap, without Ambac's assurance that its policy would allow the city to successfully sell the debt.....

New Orleans's overall interest cost on the pension bonds is 10.5 percent, adding about $400,000 a month in debt service, the complaint said.
The city would have to pay between $26 million and $31 million to terminate the swap, and faces accelerated amortization and redemption costs on the pension bonds, which are now held by JPMorgan Chase & Co., after UBS stopped the remarketing, the complaint said..."

Houston, TX
"Houston wound up paying 15 percent interest on the new securities, not the money-market rates city officials had anticipated...." Bloomberg

Jefferson County, AL
"Jefferson County would have to pay $735 million to end backfiring swap agreements that were designed to save the county money on its sewer debt - a sum so large it could complicate talks with creditors on a debt settlement.."

Erie, PA
"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...." Bloomberg

Any questions?


Anonymous said...

At some point the Clarion-Ledger needs to get off of its collective ass and cover this.

Anonymous said...

Yes, why does our news media ignore obvious HUGE stories? We have this situation in Jackson!

Kingfish said...

Their business editor doesn't know the difference between a credit bureau and a credit rating agency. seriously.

and Ayers writes stories about housing prices while admitting in story he didn't use any sales data.

stilettoGOP said...

This is all so infuriating. It makes you want to stand on the streets with a sandwich board and a bullhorn.

Kingfish said...

Weill and I are going to be on Kim Wade Thursday discussing this stuff.

Kingfish said...

By the way, my traffic has spiked as this post was picked up on several forums and websites, yet local media can't be bothered.

Anonymous said...

Any idea of what a CDS on Jacktown would cost?

If the house is on fire and I can still buy insurance....

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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