BOARDWATCH: '...the Chicago Tribune expose last week just barely scratched the surface on the ways that Wall Street banks take advantage of municipal borrowers like CPS...' Expert challenges Board on 'toxic swaps' to file for arbitration with the Financial Industry Regulatory Authority
[Editor's Note: Once again, Substance's BOARDWATCH feature is publishing the remarks prepared and delivered by the speakers at the monthly meeting of the Chicago Board of Education. More than 500 people turned out for the meeting on November 19, 2014, held in the auditorium at Westinghouse High School. The maxumim 60 people signed up to speak: More would have signed up, but the Board censors the number of speakers (capped at 60) and the time each speaker is allowed to speak (two minutes). The Board President also shortens the time for the speakers with which Board members disagree. The following material was prepared by Saqib Bhatti and provided to Substance by him. Copies of his longer studies are available from the Roosevelt Institute. George N. Schmidt, Editor, Substance].
Saqib Bhatti of the Roosevelt Institute telling the members of the Board of Education that they should apply for arbitration, while reminding them that some of the rest of the Board's debt is as bad for the taxpayers as the "toxic swaps" highlighted in the Tribune investigation and in previous reports to the Board. Substance photo by Nate Goldbaum.My name is Saqib Bhatti and I am the director of the ReFund America Project at the Roosevelt Institute. I just released a report yesterday called �Dirty Deals: How Wall Street�s Predatory Deals Hurt Taxpayers and What We Can Do About It.� You should have received a copy of the report, along with this shorter piece about specific predatory deals in Chicago.
The reality is that the Chicago Tribune expose last week just barely scratched the surface on the ways that Wall Street banks take advantage of municipal borrowers like CPS.
Yes, CPS has toxic interest rate swaps and auction rate securities, but that�s just the tip of the iceberg. In reality, CPS has gotten roped into many predatory deals.
For example, CPS has capital appreciation bonds, which California State Treasurer Bill Lockyer has called �the school district equivalent of a payday loan.� On one of these deals, it will cost CPS $1.1 billion to pay back a $328 million loan.
That is unconscionable. We need CPS dollars to be spent educating CPS students, not padding bonus checks for Wall Street bankers.
I don�t blame CPS for getting into these deals. The reality is that school districts have very few good options when it comes to municipal finance.
But it is now imperative for CPS to try to get out of these deals.
The Tribune investigation revealed many smoking guns that the banks violated the federal fair dealing rule by misrepresenting the risks associated with CPS�s swaps and auction rate securities.
CPS can pursue those claims by filing for arbitration with the Financial Industry Regulatory Authority, or by suing under state law for breach of contract. There is no statute of limitations in Illinois for claims brought forth by public entities.
Moreover, CPS should use its financial and economic leverage to force banks to renegotiate bad or expensive deals. In the business world, deals get renegotiated all the time, especially when circumstances change. I am told most of you are smart, successful business people. You should use your business skills to negotiate a better deal for Chicago�s schoolchildren.
Saqib Bhatti, Director, ReFund America Project (RAP), Fellow, Roosevelt Institute
(312) 860-9917, sbhatti@rooseveltinstitute.org
refundproject.org
