Rolling Stone: Denver Schools Get Whacked

Gretchen Morgenson of the New York Times is single-handedly resurrecting the Gray Lady's reputation as a muckraker of the first order. Having already blown a big hole in the side of Goldman Sachs with her December, 2009 story exposing its crooked deal with hedge fund king John Paulson, Morgenson this week took an ax to Colorado's Democratic Senator Michael Bennet, uncovering a Jefferson-County style scam he helped perpetrate on the Denver School system on behalf of several Wall Street banks (including primarily JeffCo villain JP Morgan Chase) while acting as Denver's school superintendent years ago.

The essence of this deal is that Bennet arranged for the Denver school system to raise $750 million for its pension fund using an exotic transaction that involved interest rate swaps. Had the schools raised money using traditional fixed-rate bond issues, the debt would have featured 7.2% interest rates. Instead, Bennet and JP Morgan worked together to raise bucketloads of cash from investors using variable-rate debt with interest rates of about 5%. The banks then slapped an interest-rate swap on the deal that allowed the Denver school system to mimic a fixed-rate loan -- for a fee, of course.      - More -