It just won't die. Northampton County Council voted in March to end the swaption once it dropped to $25 million, but it went in the wrong direction.
What is a swaption?
Tom Shortell has a good definition in his Express Times account.
But if you ask me, it's something that looks too good to be true.
It's a high finance vampire that sucks the lifeblood out of unsuspecting municipalities.
Back in 2004, then County Executive Reibman proposed a deal under which, in exchange for a quick $1.9 million from Merrill Lynch, County Council would gamble that interest rates on its $111 million fixed bonds would remain more attractive than those with variable rates in July of this year.
It's called a swaption or swap-option by the suits, but it's really more appropriate in a casino than a local government.
Financial experts from Concord Public Financial Advisers recommended rolling the dice, and kept the campaign coffers full for Reibman.
In a bipartisan failure, three Republicans and two Democrats agreed with Reibman and took the money.
Since that time, almost imperceptibly, the swaption has grown. In 2009, it ballooned from $10 to $14 million. By the time last year's budget was ready, it had grown to $23.5 million. By last night, it was at $27.2 million, enough to keep Gracedale afloat for five years.
It's easy to say now that it should have been killed last year, or in 2010, before it got out of control.
Some did. Ron Angle, for one. Former Fiscal Affairs Director Vic Mazziotti, for another.
But it would have been a gamble. No one had a crystal ball to determine whether the swaption might start going the other way, and there were times when it did.
So it's a mistake to blame the 2010 or 2011 Council for not taking action then. The voices who scream that something should have been done - most of them anonymous - were curiously silent back then.
The mistake was made in 2004, when the swaption was originally approved. You can blame Reibman, the 2004 Council or the state senate that allowed this monster in our midst. Take your pick. Pick all three if you want.
I'm pretty sure Council finally drove a stake through its heart last night.
The Doctor Van Helsing?
Ironically, the person who defeated Ron Angle.
Scott Parsons is unlike Ron Angle in so many ways that I'd probably need a few days to lay it all out. But Parsons, disgusted with the direction in which the swaption was heading, called the County's financial advisers last week and said, "This has got to end."
Parsons explained he'd be willing to pay the whole thing off to get rid of it, but knew that would be a hard sell to the rest of Council. The County would be left with a fund balance inviting a mega tax hike.
So he came up with a compromise.
Instead of paying the entire balance, pay $18 million now and borrow money to pay off the rest.
Robert Fuller, the County's financial adviser, said that taxable municipal bonds could be sold to get the rest of the money, and the County's debt service would stay the same.
Council member Lamont McClure has always seemed concerned that the swaption would suddenly reverse itself. Now it hasn't turned out that way, but I'm not blaming him. He has no crystal ball.
McClure had a different solution. He basically proposed ending half the swaption, and suffering with the rest of it.
But Parsons noted the County would still be "stuck with all the evils for half the swaption." He argued this if his proposal was accepted, "There will be no more knocks at the door."
Council member Bob Werner sided with Parsons. "We're going to end it tonight," he declared.
And that's what happened.
Parsons' proposal was accepted 7-2, with only McClure and Tom Dietrich opposed.
As soon as the meeting ended, Executive John Stoffa called Bank of America with the wooden stake supplied by Scott "van Helsing" Parsons.
I just hope he remembered to cut off its head.
23 comments:
was mclure born a fool or does he work hard at it?
WAY TO GO COUNTY COUNCIL!!!! Good decision. Now you can focus on the rest of the important business of running the county.
"was mclure born a fool or does he work hard at it?"
Didn't quite see where he was going last night, and he took way too much time making the same non points over and over again. The fact that Dietrich sides with him should have clued him in.
To blame it all on reibman is really short sighted..When a new council and executive cam in after reibman left it is on them whether you think it wouldve been a gamble or not..After Reibman left, it was about a third of what it is now.
He then had no say over whether it was sold or not..So, the other 20 million or so is unquestionably on this executive and the council he served with at the time..To say otherwise is absolutely ridiculous.
Where were you when it was a third of what it is now? Were you clamoring then, as you are now doing? You can't even identify yourself, but you are quick to criticize Stoffa for not gambling with your money. Had he done so, and had the swaption gone the other way, you'd be screaming now, too.
The simple reality is that the swaption out Stoffa and the rest of Council in the unenviable position of gambling with your money. Like i said, you can blame Reibman, the 2004, Council, the state senate, or all three.
But don't blame Stoffa for being stuck with the mess they created.
The simple reality is, Reibeman created the mess, and Stoffa failed to clean it up in a timely manner.
As soon as he was elected it became his issue, as with all the other things that were left on the table for him.
He failed over the years to put the issue to bed.
It is easy to blame it all on Reibman, but Stoffa had plenty of time to close it out.
Like most things in his term he has procrastinated, hired consultants and wasted taxpayer monies.
For god sake make a f*cking decision and go with it. That is what you were elected to do!!
over 6 years by the way it looks to me.
Louis T. McFadden's Speech
In the House of Representatives
10 June 1932
It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. -- Henry Ford
The Aldrich bill was condemned in the platform upon which Theodore Roosevelt was nominated in the year 1912, and in that same year, when Woodrow Wilson was nominated, the Democratic platform, as adopted at the Baltimore convention, expressly stated: "We are opposed to the Aldrich plan for a central bank." This was plain language. The men who ruled the Democratic Party then promised the people that if they were returned to power there would be no central bank established here while they held the reigns of government. Thirteen months later that promise was broken, and the Wilson administration, under the tutelage of those sinister Wall Street figures who stood behind Colonel House, established here in our free country the worm-eaten monarchical institution of the "king's bank" to control us from the top downward, and to shackle us from the cradle to the grave. The Federal Reserve act destroyed our old and characteristic way of doing business; it discriminated against our one-name commercial paper, the finest in the world; it set up the antiquated two-name paper, which is the present curse of this country, and which wrecked every country which has ever given it scope; it fastened down upon this country the very tyranny from which the framers of the Constitution sought to save us.
Please go read this at
http://www.afn.org/~govern/mcfadden_speech_1932.html
history will bite your in the AZZ.
"The simple reality is, Reibeman created the mess, and Stoffa failed to clean it up in a timely manner."
Really? And where were you? This is what kills me. You are so quick to condemn Stoffa for not gambling with your money, but you would be the first to condemn him had the swaption gone the other way and had he paid it.
The problem is the swaption, not Stoffa. It forces the govern,ment to gamle with your money.
"over 6 years by the way it looks to me."
And 6 years ago, where were you?
Whats it matter where anybody was at the time..Didnt you say Angle brought up the idea of paying it off back when it was under 10 million?? If Stoffa and Council didnt pay it off then, it's on them..To say anything else is ignorant and ludicrous..But , that's you Bernie..Back Stoffa till your dying breath no matter how freakin wrong you are..I'm no Stoffa hater but i have to agree with 10:27.. They are both to blame..And let's not forget the Republican Council elected in 2009..Good luck on their reelection..
It matters bc your mouth was shut then. Had Stoffa paid it and swaption went the other way, you'd be screaming bloody murder now. Anonymously, of course.
Post your anonymous nonsense on the hate blogs out there. I am tired of seeing Stoffa attacked for cleaning up a mess he did not create and being put in a damned if you do, damned if you don't situation. What is especially irksome is that the people who now complain he should have done something years ago were themselves sitting on their hands at the time. Moreover, these attacks are being made anonymously. Not one of these arm-chair executives has the courage to take responsibility for what he or she writes. So the hell with them.
Post your anonymous hate elsewhere.
Bernie, this Swaption mess is a good example and argument against privitizing social security.Yes they gambled and lost,now Norco is on the hook for an even greater debt.Just who were the leading proponents advising the norco pols back in the day?
Guy, This would be Reibman's baby. Sabatine, Merwarth, Dowd, Grube, Ennslin and Corriere voted for it. Angle, McHale and Ferraro were opposed.
In 2004, this is what Angke said. "We don't belong in the gambling business, and this is a gamble...the whole thing is hedged on where rates will be eight years from now."
Now, in 2012, there are all kinds of experts who did not exist in 2004, saying how terrible this was and blaming Stoffa for being forced to gamble with a risky financial deal proposed by others.
Ok --no need to worry anymore about this swaption. I think Parsons is on the right track. Borrow as much as you can and amortize it over 30 years at the lowest interest rate you can have and no pre-payment penalty. Once the time is up for the Gracedale issue in 4/5 years --The loan could be paid off from the proceeds of the sale of gracedale. Just think -no more union thugs and bogus signatures to deal with.
William Guy does not exist. Are you so much a coward that you are even afraid to ID yourself when taking shots at a 74 year-old man?
Would you post if you are aware of any litigation against boa is going forward?
There is n litigation. It was considered.
Post a Comment