http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ay5LDbjbjy6c
Hidden Swap Fees by JPMorgan, Morgan Stanley Hit School Boards
By Martin Z. Braun and William Selway
Feb. 1 (Bloomberg) -- 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.''
$12 Billion in Deals
It is. During the past four years in Pennsylvania alone, banks have pitched at
least 500 deals totaling $12 billion like the one JPMorgan Chase sold to Erie,
according to records on file with the state Department of Community and
Economic Development. Most of the transactions -- which occurred outside the
state's largest cities of Philadelphia and Pittsburgh -- have been made
without public bidding, which means that banks and advisers privately arranged
the deals with small school districts, the records show.
JPMorgan's Chief Executive Officer Jamie Dimon declined to say if he thought
the bank's fee disclosure was proper and whether the bank acted in a fair,
responsible and moral manner in Erie.
Banker DiCarlo declined to comment. JPMorgan spokesman Brian Marchiony says
the deal gave the school district immediate debt savings and protected it
against unpredictable interest rate risk in the future. He declined to answer
specific questions.
Overpaying Fees
The Pennsylvania transactions involve interest-rate swaps, which are
derivatives. Derivatives are financial contracts whose value is based on other
securities or indexes; interest-rate swaps are tied to future changes in
lending rates.
The Pennsylvania deals show that school districts routinely lose when making
derivative deals. They pay fees to banks that are as much as five times higher
than typical rates and overpay advisers by as much as 10-fold. That means
banks often underpay schools on upfront amounts, as JPMorgan Chase did in
Erie, public records show. And school officials aren't always well served by
their supposedly independent advisers, whose fees are paid by the banks
selling the deals -- only if the sale is made.
`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.
``The school districts are getting fleeced,'' Pennsylvania Governor Edward
Rendell says. The governor, 64, a Democrat who has been in office since 2003,
says the state might in the future advise schools and municipalities on
derivatives contracts before they sign with banks. Christopher Cox, chairman
of the U.S. Securities and Exchange Commission, says he's concerned that
municipalities are taking on more risk than in the past when they raised money
primarily from bond sales.
``It's a serious issue, not only in Pennsylvania but across the country,''
says Cox, 55, who has headed the SEC since 2005. ``That is what we have seen
repeatedly. More often than not, the municipalities aren't configured to have
financial sophisticates in charge of these offerings -- and the result is that
the firms are the only ones who know what's going on.''
Just five years ago, municipal derivative deals weren't sanctioned in
Pennsylvania, the sixth-most-populous U.S. state. Then, in September 2003, the
state Legislature adopted a law allowing schools and towns to use
interest-rate swaps to lower borrowing costs and raise cash.
Exchanging Payments
In a swap, two parties agree to exchange payments over a period of time that
can last as long as 30 years. Typically, one agrees to pay a fixed rate and
the other to pay a variable rate that changes with a benchmark index or
formula defined in the contract.
Public agencies can benefit by using derivatives to guard against swings in
borrowing costs or to lock in current interest rates for bond sales they might
not make for years. In many cases, school districts use swaps as a way to
refinance bonds they've issued in the past.
Derivative deals can bring banks fees three times higher than the traditional
selling of municipal bonds, public records show. School districts don't know
whether they're getting fair market values with swaps because the contracts
are private; they don't know how to compare their deals with those done by
other districts.
`Profits Are Greater'
This lack of transparency is a boon for the banks, says Christopher ``Kit''
Taylor, executive director from 1978 to 2007 of the Municipal Securities
Rulemaking Board, a panel that issues rules on municipal bond sales.
``Business moves from transparent and competitive markets to markets where
there is less transparency and the profits are greater,'' he says. ``If you
don't know how much you're paying, you're going to be paying too much.''
The Pennsylvania swap law was passed after lobbying by financial advisory
firms that stood to profit from such deals.
The legislation made the state a member of an expanding club. Forty states
give government bodies explicit authority to make derivative deals, up from
none 20 years ago, says David Taub, a lawyer who specializes in derivatives
and is a partner at McDermott Will & Emery in New York.
Derivatives aren't regulated by the SEC, the MSRB or by states. Pennsylvania
offers a clear look at these deals because, by law, all the contract records
must be publicly filed with the state.
Pennsylvania Adviser
One derivative advisory firm that backed the Pennsylvania swaps legislation is
Investment Management Advisory Group Inc., or IMAGE. The Pottstown,
Pennsylvania-based company was raided by the Federal Bureau of Investigation
in November 2006 in connection with a criminal antitrust investigation of bid
rigging of investment contracts that are sold to states and municipalities.
The U.S. Justice Department is also probing municipal derivative deals. IMAGE
has said it's cooperating with the probe. No charges have been filed.
In some Pennsylvania transactions, banks bought from school districts rights
to exercise options on an interest-rate swap, or swaptions. Banks can choose
to exercise the option if they stand to make money or can let the option
expire if interest rates aren't favorable to them.
Banks Hedge Risk
The banks that arrange these deals create the swap contracts before pitching
them to schools. Using software programs designed for valuing swaps, they
calculate prices for which they can sell them after a school signs a contract.
That's how the banks make money. For example, if a bank agrees to pay a
district $800,000 in a deal it valued at $2 million, it could reap $1.2
million for itself and middlemen.
``They load it off instantly,'' says Taylor, who's now on the advisory board
of Rockwater Municipal Advisors LLC, an Irvine, California-based investment
firm.
Banks hedge their risk in derivative deals by making trades to cover possible
losses to school districts. The banks make their money from fees, regardless
of interest rate movements.
The reason Erie and other districts don't know how much the bank makes from a
deal is because banks don't tell them, the records show. The money isn't paid
immediately out of school budgets. Fees are hidden from schools because banks
include those costs in the contract by adjusting interest rates up or down.
SEC Disclosure Rules
While the SEC doesn't regulate derivatives, it has authority to oversee how
banks conduct transactions. SEC Chairman Cox says all financial firms should
tell clients what their fees are before signing any deals.
``Brokers and advisers should disclose their compensation and conflicts of
interest to their customers, and to the extent that they are regulated by the
SEC, they must,'' he says.
Cox also says school district officials have a responsibility to the public
and to bond investors to ensure their advisers are actually independent and
acting in the best interests of taxpayers. ``To the extent that municipalities
are participating in transactions they are not qualified for, there is an
obligation to get good independent advice,'' he says.
More than two dozen Pennsylvania school districts bought swaps that bet on the
spread between two interest rates. Many bet wrong. Since 2006, at least 27
school districts gambled that the spread would widen between either the five-
or 10-year London interbank offered rate on the one hand and weekly municipal
bond yields or the one-month Libor on the other.
The opposite happened: Spreads narrowed as long-term interest rates fell. The
schools had to pay banks, or they could pay a steep exit fee, as Erie did with
its swaption to cancel the deal.
Historical Fluke
School district officials say their advisers have told them the contracting of
the spreads was a historical fluke. In the Exeter Township School District, 55
miles (88.5 kilometers) northwest of Philadelphia, Financial S&lutions LLC
told the schools their swap deals shouldn't have lost them money.
``They tell me that's never happened before,'' says Ernest Werstler, who was
business manager of the district until November, when he retired. ``It's
happening to us now.'' Financial S&lutions didn't respond to requests for
comment. Deane Yang, head of research at financial advisory firm Andrew
Kalotay Associates Inc. in New York, says local officials are putting too much
stock in financial advisers who are paid by banks--and in many cases are
referred to schools by banks.
``It's like trying to decide whether a used-car dealer is offering you a good
price or not,'' says Yang, who doesn't work with school districts. ``There's a
car appraiser down the street who tells you he will provide an independent
evaluation. But he's paid only if there's a sale.''
`Pound Someone's Brains'
School board members usually have a poor understanding of derivatives, says
Peter Egan, a financial adviser and former public finance banker at a unit of
Cherry Hill, New Jersey-based Commerce Bancorp Inc.
``A derivative is a very powerful tool,'' says Egan, who's now managing
director of Bordentown, New Jersey-based Phoenix Advisors LLC, which advises
local governments on bond sales. ``It's like a hammer. You could use it to
hammer in a nail with perfect precision. But you could also use it to pound
someone's brains out.''
In many cases, the banks repeatedly sell more derivatives to replace old ones.
In Bethlehem, Pennsylvania, JPMorgan and Morgan Stanley sold the school
district eight swaps on just two bond issues, records show.
Outside Advice
``It sure looks a lot like churning,'' Yang says. Churning is a term used to
describe how stockbrokers or insurance agents sometimes continually sell and
resell the same or similar products to clients in order to make more in fees.
``Doing more than one swap against a single bond issuance definitely benefited
the swap adviser and bank, but probably not the school district.''
In Pennsylvania, it's the financial advisers who are supposed to keep school
district officials from getting fooled. That's why the 2003 law allowing for
swaps requires districts to use independent advisers.
``There was a fear that these deals were being pushed on the unsuspecting,
perhaps, without them getting any other advice,'' says Steve Nickol, a
Republican member of the Pennsylvania House of Representatives who introduced
the legislation.
Lobbyist Leads Change
Financial advisers -- especially IMAGE, which opened in 1992 -- backed the
swaps bill from the beginning. At an Oct. 16, 2002, hearing in Harrisburg, the
state capital, Rick Frimmer, a public finance attorney, and Martin Stallone,
managing director of IMAGE, said swaps would save taxpayers money. Since 1998,
IMAGE's founder, David Eckhart, has personally contributed $469,400 to
Pennsylvania elected officials, political action committees and candidates for
office, campaign records show.
IMAGE said in a written response to questions that the firm never lobbied for
the law. It said Eckhart's contributions had no bearing on the 2003
legislation.
Nickol says he was first approached about approving swaps for school districts
and municipalities in 2002 by Elmer Heinel, a public finance lobbyist whose
clients have included bond underwriters Meridian Capital Markets Inc.,
Stallone's former employer, and Wheat First Securities Inc.
Authority to Buy
Heinel has contributed $141,245 since 2000 to state lawmakers, political
action committees and candidates running for office. Heinel says the donations
weren't tied to the legislation.
The law gave cities, counties and school districts the explicit authority to
buy swaps.
Municipal derivatives had been gaining ground in other states, as well as in
large cities such as Philadelphia and at agencies like the Pennsylvania
Turnpike Commission, as a means to lower borrowing costs, Stallone told the
legislature at the time. The law passed 197-0 in the House and 45-0 in the
Senate.
``There could be huge cost savings for many of the local governments,'' Nickol
said. Rendell signed the bill in September 2003. That same month, the Erie
school district signed the swaption deal with JPMorgan.
Erie Buys In
Once an iron and steel center, Erie is now left with shuttered factories and
an aging population. While General Electric Co.'s $4 billion transportation
unit, which mainly builds locomotives, maintains its headquarters in Erie,
much of the city's manufacturing base has disappeared.
Since 1970, the city's population has declined 30 percent. Seventy-six percent
of students in the district are eligible for free or reduced-price lunches,
according to the state Department of Education.
JPMorgan and IMAGE had pitched the swaption to the school board in June 2003.
JPMorgan's DiCarlo and IMAGE's Mike Garner said at that meeting the district
had locked in high interest rates in 2001, when it issued $38.7 million in
bonds, according to an audiotape of the June 17, 2003, meeting.
In the two years after that, interest rates had declined. Using traditional
bond financing, the district couldn't take advantage of the lower rates
because tax law prohibited refinancing before 2011, Garner said.
Money Now
By agreeing to a swaption with JPMorgan, the district could cash in
immediately, Garner told the board. The bank would make an upfront payment to
Erie. In return, the school allowed the bank to enter a swap with Erie in the
future, from 2011 to 2029.
The value of the swap hinged on four factors: the length of time before the
option was exercised, credit market expectations of future interest rates, the
relationship between a fixed rate to be paid by Erie and changing interest
rates and volatility of lending rates.
The bank could choose to exercise or decline the option. The school district
had no say in that decision.
JPMorgan had recommended IMAGE to the school district's law firm, Knox
McLaughlin Gornall & Sennett PC, says Tim Sennett, a partner in the firm who
worked with the school district on the derivatives deal. IMAGE's Garner told
school board members he thought the district should make the deal.
'Risks Are Reasonable'
``Given your situation, the economics are very good for the district,'' Garner
said, according to the tape of the meeting. ``The risks are reasonable. I
believe everyone on the board has a good grasp of what the risks are.''
The board didn't make a decision that day. ``This was a new concept we'd never
heard of,'' says Richard D'Andrea, the district's business administrator.
``Given the tight budget situations that we're always under, that's a very
strong motivation to help balance the year's budget.''
On Sept. 4, 2003, as a new school year was starting, the board met again with
DiCarlo, who said the district should sign the deal and the bank would give it
$750,000. Board members asked DiCarlo how much the bank would make in fees.
DiCarlo said, ``Everybody has asked, and it's a reasonable question: What does
JPMorgan, what do we get on this transaction? I can't quantify that to you,''
according to a transcript of the meeting.
$2 Million Asset
DiCarlo, who was a state representative from Erie from 1973 to 1980, didn't
tell the board that the contract was worth $2 million in global derivative
markets. Based on interest rates that day and terms of the deal, Bloomberg
data show that was the value of the contract.
JPMorgan's gross markup on the swaption was 0.82 percentage point of the rate
compared with a 0.16 percentage point charge Goldman Sachs Group Inc.
collected from the Philadelphia School District on a comparable swaption the
city had bid competitively in March 2004.
In a written response to questions, IMAGE disputed the amount of fees paid to
JPMorgan. ``The numbers your analysis produces for the districts are clearly
way off the mark,'' it wrote.
IMAGE said it didn't know the bank's fees, estimating they were
$365,000-$495,000. IMAGE said it doesn't know who recommended the firm to Erie
as an adviser. ``Regardless, there are no conflicts,'' IMAGE wrote. IMAGE said
its fees were normal for the industry.
Two-Page Opinion
D'Andrea says he relied on assurances from IMAGE that the deal was right for
the district. IMAGE wrote a two-page opinion saying the deal was fair. It
didn't say how much the fees were, according to a copy obtained under a public
records request.
``The net swaption premium to the district was adjusted to reflect the forward
starting and option-adjusted nature of the swaption, a reasonable hedging
spread in the Libor markets and a fee to JPMCB reflective of its time and
effort dedicated to the district as well as the inherent credit, operational
and market underwriting hedging risk of the transaction,'' it said. Board
member Eva Tucker, a retired professor of geoscience at Penn State
University's Erie campus, says the board didn't fully understand the deal and
trusted IMAGE, which recommended the transaction.
``We're not financial experts,'' Tucker, 72, says. ``We relied on the best
advice we thought we could get.''
James Herdzik, a school board member who works as a sales manager at a machine
shop, says the district couldn't turn down the deal because it was desperate
for money.
``We're scrambling for every penny we can get,'' Herdzik, 48, says. The board
approved the deal in a 6-0 vote.
Paying to Cancel
JPMorgan actually gave Erie $785,000 -- $35,000 more than DiCarlo had
promised. The bank paid IMAGE $60,000, gave bond insurer Financial Security
Assurance Inc., known as FSA, $57,585, paid lawyers and other middlemen
$106,000 and kept $1 million as its revenue, according to public records and
Bloomberg data.
By June 2006, the swaption had left Erie's district with a $2.9 million
liability because expectations of future short-term interest rates had risen,
narrowing the difference between future costs to borrow for one year and for
30 years. In July 2006, the district paid JPMorgan $2.9 million to terminate
the swaption.
The district got the cash from the proceeds of two new derivative deals it did
with Pittsburgh-based PNC Financial Services Group Inc.'s PNC Capital Markets
unit. The transactions paid Erie schools $732,000 up front. One deal was an
interest- rate swap that so far has lost $32,000 for the district, according
to local records.
Most In Need
Erie revised the terms of the swap in October 2006, betting that beginning in
March 2008, long-term rates would rise faster than short-term rates. The other
deal is a swaption; PNC hasn't exercised the option yet.
Herdzik says he can't see why banks would take advantage of struggling school
districts.
``It's kind of like preying on the municipalities that are most in need of
money,'' he says. ``It's like we got raped.''
Other Pennsylvania school districts are paying banks excessive fees.
Bethlehem, 50 miles north of Philadelphia, is also a former steel-making
center. With a population of 72,000, the city has maintained its historic
buildings.
The Central Moravian Church is a symbol of the group that founded the city on
Christmas Eve in 1741. In the industrial area of the city, Las Vegas Sands
Corp. is converting an old steel mill into a casino.
Money-Making Plan
Bethlehem's school district has used derivatives to try to make money. At an
April 2005 meeting, Les Bear, of advisory firm Arthurs Lestrange & Co. in
Pittsburgh, told the school board by arranging two interest-rate swaps tied to
$110 million in bond issues, the 15,350-student district could generate more
than $11 million over 25 years.
School finance director Stan Majewski supported the plan.
``Mr. Majewski commented that we all try to surround ourselves with people who
know more than we do,'' minutes of the meeting say. ``He believes Arthurs
Lestrange is the best public financing department of any organization in this
country.''
None of the board members asked Bear or Majewski how much the district would
pay for the swaps, the minutes show.
A month later, Lestrange, working with a Lancaster, Pennsylvania, firm called
Access Financial Markets, negotiated two swaps with JPMorgan and Morgan
Stanley without competitive bidding.
$3 Million Fees
So far, the district has taken in about $900,000 from the deals, Bloomberg
data show. That compares with $3 million in transaction fees. Lestrange and
Access made $630,000 each for arranging the swaps, according to school
district records. New York-based Morgan Stanley made $840,000 and JPMorgan
received fees totaling $900,000, Bloomberg data show.
Lestrange and Access earned a fee 10 times more than the Easton Area School
District, Bethlehem's neighbor, paid its adviser on a comparable interest-rate
swap in 2004. In a memo to school board members, Majewski said the fees
included annual interest rate monitoring that would cost the district hundreds
of thousands of dollars.
Bear of Lestrange and Matthew Kirk of Access didn't respond to requests for
comment.
The rates the banks charged Bethlehem were twice the average for comparable
swaps deals. In this kind of swap, in which both sides pay floating interest
rates, a bank calculates its fees by subtracting an amount from the rate it
will pay.
In the average deal of this type, banks lower the rate by 0.06 percent, says
Jeff Pearsall, a managing director of Philadelphia-based Public Financial
Management, the largest municipal adviser in the U.S.
JPMorgan subtracted 0.13 percent in the Bethlehem deal, and Morgan Stanley
lowered its rate by 0.11 percent. Morgan Stanley spokeswoman Jennifer Sala
declined to comment.
`What's Going On?'
``It's obscene,'' says Peter Shapiro, managing director of South Orange, New
Jersey-based adviser Swap Financial Group, who doesn't advise Pennsylvania
school districts. ``What is going on in Pennsylvania?''
Bethlehem has paid Lestrange $1.6 million and Access $1.3 million for their
work on eight of the district's 12 swaps, public records and Bloomberg data
show. JPMorgan and Morgan Stanley made a total of $5 million on those
transactions.
Board member Joseph Craig, who approved the deals, says he's not qualified to
discuss the deals and doesn't know how much they cost.
``I really don't remember a whole lot of specifics about it,'' says Craig, 64,
a retired special education teacher who's been on the board for 10 years.
School district business manager Majewski declined to answer questions about
swaps and fees.
``They've worked very successfully for me,'' he says. ``Everything I've done
is done publicly with my local taxpayers.''
Never Told Fees
The school district didn't know that it had overpaid the banks by about
$870,000 because the banks and Lestrange never told them what the fees were,
according to minutes of school board meetings.
Sometimes school districts have agreed to swaptions even when a local
financial official warns against no-bid deals. In Butler County, a rural area
dotted with working farms 40 miles north of Pittsburgh, County Controller Jack
McMillin says the lack of competitive bidding for public finance has cost
taxpayers.
``It's a form of institutionalized larceny under the guise of getting
taxpayers a good deal,'' McMillin says. He wasn't involved in the school board
decisions.
The board relied on an old friend, with the kind of connections that go far in
western Pennsylvania: football and politics. The district put its trust in
municipal finance firm Russell Rea Zappala & Gomulka Holdings Inc., known as
RRZ.
Hall of Fame
Greg Zappala, head of JPMorgan's office in Cranberry Township just north of
Pittsburgh, is the son of former Pennsylvania Supreme Court Chief Justice
Stephen Zappala and the brother of Allegheny County District Attorney Stephen
Zappala Jr. Greg Zappala, 46, played football for the University of Miami
Hurricanes in the early 1980s.
He was a roommate of Jim Kelly, a Pittsburgh-born, Hall of Fame quarterback
who led the Buffalo Bills to four Super Bowls. Zappala's uncle, Charles
Zappala, was an RRZ executive.
In 1990, Greg Zappala became a broker with the firm. One of the founders was
Andy Russell, formerly of the Pittsburgh Steelers.
In 2003, JPMorgan bought the firm's municipal unit: RRZ Public Markets Inc.,
which Zappala ran. The company had worked for the Butler Area School District
since 1991. There was no competition when the former RRZ bankers paid $730,000
for an option to refinance, five years in the future, $39 million of bonds
sold by the school district in 1998.
`No Secrets'
Russ Greer, 61, who served on the Butler school board at the time of the deal,
says it provided much-needed cash and was approved at an open meeting.
``There were no secrets,'' he says.
Except one. Since the school district didn't know what JPMorgan made on the
transaction, it didn't realize it had become another Pennsylvania municipality
that was underpaid up front on a swaption deal.
``The school district has no knowledge of the specific fees made by
JPMorgan,'' Superintendent Edward Fink said in a written response to
questions.
The contract had a market value more than three times what the district was
paid, Bloomberg data show. JPMorgan decided how much of the $2.2 million it
would give the district, without ever telling the school board.
The bank paid $165,813 to bond insurer FSA, $40,000 to IMAGE, $147,500 to five
law firms and $23,000 to the Butler County General Authority. JPMorgan kept
the remaining $1.1 million as its own revenue.
The Board's Understanding
Controller McMillin, a Republican, says he doubts whether the elected school
board had the skills needed to know whether it was getting enough for the
option.
``I can't imagine how they could have understood that,'' he says.
Penelope Kingman, a former member of the school board, voted against the
derivatives deal in 2003. She felt her colleagues had failed to grasp the risk
they were taking in exchange for the money offered by JPMorgan.
``The financial guys would come in with a lot of stuff that nobody at the
district understood,'' she says. ``Local governments are entering into these
without fully understanding what they are doing.''
JPMorgan spokesman Marchiony says, ``the swaps used by Erie and Butler, which
were vetted by independent financial advisers and voted on in publicly
attended meetings, enabled both districts to realize immediate debt service
savings, while protecting them against unpredictable interest rate risk over
several years.''
`Beyond Angry'
Swap deals in Pennsylvania work out well for banks, advisers and lawyers who
are paid for putting them together. Schools, parents and students see it
differently.
In Erie, Rosena Wright says she's growing angry as her son, Desmond, 13, has
been transferred from Roosevelt Middle School, which the city shut down in
2007 after the heating failed, the roof leaked and a ceiling tile fell on a
student's head. Desmond is now in a temporary space the school district is
leasing from a church. Wright, 44, a day-care worker, says no one told her
about the deal that cost her schools $2 million.
``I'm beyond angry,'' she says. ``I really want to tar and feather somebody.''
Erie schools superintendent Barker says he had thought the 2003 derivatives
deal would save some money for the district.
``We're always at the mercy of the experts that advise us,'' he says, adding
that schools have to find a better way to raise money. One option would be to
return to old-fashioned, publicly bid bond sales. He says he doesn't begrudge
the banks or advisers their right to get paid.
``We expect people to make a profit,'' Barker says. ``But they don't have to
put their interests over the kids'.''
To contact the reporters on this story: Martin Z. Braun in New York at
mbraun6@bloomberg.net ; William Selway in San Francisco at
wselway@bloomberg.net
February 1, 2008 00:24 EST
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