Commentary - 02/05/2008

Make The Children Suffer

Since February 1st, this Bloomberg's exclusive story has been eating away at my gut. It's titled "Hidden Swap Fees by JP Morgan, Morgan Stanley Hit School Boards. First the financiers went after the boomer's pensions, now they're going after their grandchildren's education funds. If you're not bothered by this, perhaps you should enroll in "Roots of Empathy".

David DiCarlo, an Erie-based JP Morgan 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.

What New York-based JP Morgan 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.

This is exactly what financiers brag about; that they short every piece of paper they sell long. One good example is Ben Stein's article "The Long and Short of It at Goldman Sachs." [Yes, I know we're talking about the Morgans, but these firms are all interconnected, as shown here.] This would make sense except for one thing: Schools don't control the Federal Reserve. Financiers do. Why would I say that? Because the Federal Reserve maintains that they are owned by their member banks. Which is true! But who controls the majority of banks in this country? You'll find most of that answer here and here.

However, there's more to this story, and this is just one section of Pennsylvania.

Getting Fleeced: In 15 Pennsylvania school districts, officials entered into interest-rate-swap deals worth $28 million since 2003, according to data compiled by Bloomberg. Of that dollar amount, the schools took in $15 million, and banks and advisers got the rest as fees, Bloomberg data show.
So now we see a pretty good reason for the Federal Reserve to LOWER interest rates, even though other countries are trying to control inflation by RAISING their interests rates, or at least holding them steady. Of course, our Feds say it's to help the subprime homeowners. Uh huh.

The real problem is that the financiers that sold these instruments know EXACTLY how much of this stuff is out there, and at what rates they will take in the most. The Feds will lower the interest rates until most of these contracts are either paid or bought out. That's how financiers make the big bucks.

Here's the point I'd like to make: With advanced martial arts knowledge, I watch over 9 elementary children each morning while they wait for their bus. No big deal, one of them is mine. My point is that I don't use my advance knowledge to harm them, but to protect them. So why are financiers, with advanced knowledge of finance, using their skills to harm school children. Of course, they'll protest and say they're not. But evaluate the final results. Not one child has been harmed by my advanced knowledge, but can these financiers say the same?

Sometimes The Dragon Wins

2008 by Edward Ulysses Cate
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