Towns, cities, even entire counties are going bankrupt across the U.S. after being fleeced in the latest Wall Street financial scam. Municipalities are going to court alleging fraud and collusion between banks and investment firms such as JP Morgan Chase, UBS, and Barclays to inflate fees and rig bids to handle public finances.
The municipalities (and some hospitals and colleges as well) were sold variable-rate bond packages tied to the LIBOR rate and to the Sifma municipal bond index. Through a financial device called a “LIBOR Swap” the financial institutions claimed the bonds were guaranteed not to cost the municipalities more interest if the variable rates increased. However, the historically linked LIBOR/Sifma indices diverged, mainly due to financial institutions colluding to fix the LIBOR rate at a low value even as Sifma increased.
The lower the LIBOR rate the more the banks and Wall Street financiers profited – and they fixed the numbers to make sure they profited far more than the market would have allowed. So the municipalities’ interest payment savings were more than wiped-out through management fees.
Good thing we bailed these companies out back when their own greed ruined them, just so they could come back and help themselves to more sucking off of the taxpayer tit.