Wednesday, March 03, 2010
In need of extra revenue before the Great Recession hit, local governments last decade turned to banks offering interest rate swaps—described by activist Mike Elk as “the equivalent of a payday loan” for consumers short on cash—which only left cities and counties in worse financial shape. The deals resulted in local governments shelling out $28 billion in fees and interest to banks, adding to a collective fiscal hole that’s at least $82 billion in size for local jurisdictions across the country.
Attorneys general from California, Florida and Connecticut, as well as the U.S. Department of Justice, are investigating banks to see if they colluded to rig bids and drive up interest rates for local governments participating in interest rate swaps.
Legislation has been introduced in Congress that would tax banks in such a way as to discourage them from collecting on these deals.
-Noel Brinkerhoff
How Big Banks' Interest-Rate Schemes Bankrupt States (by Mike Elk, Campaign for America’s Future)
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