11/4/08 As the global economic crisis unfolds, a group of school districts in Wisconsin has found itself at one end of a chain of exotic and risky financial products.
http://www.npr.org/templates/story/story.php?storyId=96510159 appx 8 minutes
11/2/08 Weekend Planet Money Segment: Wisconsin School Investment Has Worldwide Implications
http://www.npr.org/templates/story/story.php?storyId=96414824 appx 7 minutes
11/2/08 New York Times: From Midwest to M.T.A., Pain From Global Gamble
“People come up to me in the grocery store and say, ‘How did we get suckered into this?’ ”
— Marc Hujik, of the Kenosha, Wis., school board
On a snowy day two years ago, the school board in Whitefish Bay, Wis., gathered to discuss a looming problem: how to plug a gaping hole in the teachers’ retirement plan.
It turned to David W. Noack, a trusted local investment banker, who proposed that the district borrow from overseas and use the money for a complex investment that offered big profits.
“Every three months you’re going to get a payment,” he promised, according to a tape of the meeting. But would it be risky? “There would need to be 15 Enrons” for the district to lose money, he said.
The board and four other nearby districts ultimately invested $200 million in the deal, most of it borrowed from an Irish bank. Without realizing it, the schools were imitating hedge funds.
full article...
http://www.nytimes.com/2008/11/02/business/02global.html?_r=1&oref=slogin 2/1/08 Bloomberg article: Pennsylvania schools also risky investments
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.''
full article...
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ay5LDbjbjy6c The Reckoning: New York Times series exploring the causes of the financial crisis
http://topics.nytimes.com/top/news/business/series/the_reckoning/index.html Related articles on the NPR Planet Money blog
http://www.npr.org/templates/story/story.php?storyId=94427042
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