Chicago Public Schools Dismissed Staff and Borrowed at High Interest Rates to Pay for Interest-Rate Swaps

A. Rashad Abdel-khalik

Chapter 14 in Brazen:Big Banks, Swap Mania and the Fallout, 2019, pp 209-225 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The Chicago Public Schools system (CPS) serves nearly 400,000 students attending more than 600 schools. It was May 2003 when the state legislature voted on granting every public entity, large and small, the authority and right to deal in derivatives without any serious constraints. By that time, bankers and swap pushers had been already on the doorsteps of different state and city agencies offering their magical snakes, called interest-rate swaps, coupled with the highly risky variable rate called auction rate that would reset variable (adjustable) rates on the bonds based on weekly remarketing.

Keywords: Swaps; Interest Rate Swap; Unconscionable Contracting; Termination Penalties; Embedded Costs; Paying for Nothing; Gambling; ISDA; Master Agreement; Deceit; Inadequate Disclosure; Hidden Costs; Zero Sum Game; Wealth Transfer; Paper Chasing Paper; Floating Rate; Synthetic Rate; Credit Risk; Demonstrations; Water Shut Off; Union Class Action Suit; The LIBOR Scandal; Non-Profit (search for similar items in EconPapers)
JEL-codes: E43 E44 (search for similar items in EconPapers)
Date: 2019
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