HARRISBURG PATRIOT-NEWS Editorial “Don’t gamble taxpayer money on Wall Street: Editorial”:
Advocates of the complicated financial transactions, like the Pennsylvania School Board Association, say they help cut financing costs when issuing bonds. An interest rate swap, the group says, is “simply trading one interest rate for another.” When the “trade” produces a lower rate, the school board or government comes out ahead. (Of course, when the trade produces a higher rate, the cost of the deal goes up. Sometimes, way up. Not to mention the large brokerage fees often tucked away in the deals.)
…Former State Auditor General Jack Wagner, whose work uncovered the botched deals listed above, gave the Senate Local Government Committee a more accurate definition at the panel’s hearing Monday.
A swap, Wagner told them, is a deal “in which the parties bet on which way interest rates will move. , . . [it’s] nothing more than a form of gambling with public funds.”
EDITOR: The sponsors and city controlled Convention Center Authority Board subjected the project to additional risks by entering into a SWAP arrangement for interest on the $62 million in bonds in order to maximize the loan amount. For some advocates it was foolishness; for others, sheer greed.
