They're gaining on us....
OT: How you are most likely also taking it in the shorts at the state and local level via interst rate swap derivatives.
While the bailout at the national level by the federal government of the financial system, and the loss in your 401k, are getting all the news, many taxpayers are also taking it in the shorts bigtime at the local and state levels.
------------- FBI Probe of JPMorgan Fees Focuses on Swaps Roiling Muni Debt
By William Selway and Martin Z. Braun
Oct. 27 (Bloomberg) -- Joseph Ambrosini says the deal looked so easy. JPMorgan Chase & Co. bankers told him there was really no risk. All he had to do was sign a public financing contract, and the bank would give $280,000 to his school district in New Castle, Pennsylvania.
``They basically said, unless the world goes under the sea, we'd be in good shape,'' says Ambrosini, the district's business manager.
In September, Ambrosini says, his 3,400-student district went underwater. On Sept. 25, the week after Lehman Brothers Holdings Inc. collapsed, the New Castle Area School District's interest rate on $9.7 million of financing arranged by JPMorgan hit 10.6 percent, more than doubling since the month began, as investors demanded skyrocketing returns for municipal debt.
While JPMorgan has been relatively unscathed by the subprime crisis that hit Bear Stearns Cos., Merrill Lynch & Co., Lehman and other Wall Street firms, a little-known part of the largest bank in the U.S. made a tidy profit peddling a different kind of corrosive debt to hundreds of counties and school districts earlier this decade.
As the credit crunch froze lending globally, causing stock markets to plunge, local officials who say they trusted JPMorgan faced a crisis of their own. Wall Street's drive for profits over the past decade has backfired on towns, cities and counties that borrow in the $2.7 trillion municipal bond market.
JPMorgan and competitors routinely didn't disclose their fees for these contracts, public records show. In some cases, the bank made more money than it paid out. In Erie, Pennsylvania, JPMorgan gave the school district $755,000 upfront and collected $1.2 million in fees.
How Fees Are Hidden
The bank was able to lock in its income by selling a mirror-image swap contract on the open market for the higher amount. The transactions involved derivatives, which are unregulated contracts tied to the value of securities, indexes or interest rates.
The deals JPMorgan arranged used floating-rate bonds and interest-rate swaps. The swaps required a municipality and the bank to exchange payments as frequently as every month. The amounts that changed hands were based on various global lending rates.
Some deals also gave JPMorgan the power over decisions about taxpayer funds by allowing the bank to decide whether an agency would enter a swap in the future.
Jefferson County on Brink
The bonds were backed by AAA-rated insurance companies and worked well for several years because Wall Street had easy access to cash. By the end of 2007, mortgage losses were undermining insurance company credit ratings and money flows began to tighten.
Nowhere have JPMorgan's derivative deals wreaked more havoc than in Jefferson County, Alabama, home of Birmingham, the state's largest city. A combination of soaring rates on its bonds and interest-rate swaps is threatening the county with the biggest municipal bankruptcy since Orange County, California's default in
1994.--------------- for complete article click on
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).