New Report Shows Toomey’s Risky Derivatives Cost Pennsylvania’s Schools Millions

New Report Shows Toomey’s Risky Derivatives Cost Pennsylvania’s Schools Millions

Toomey’s “Pioneering Work” Led to Huge Profits for Wall Street

MEDIA, Pa. – According to a new report from Mother Jones magazine, the derivative swaps that Congressman Toomey has called “non-risky” on the campaign trail have cost Pennsylvania school districts and state and local governments millions of dollars, but made Wall Street rich. During his time on Wall Street, Congressman Toomey did “pioneering work” with interest and currency rate “swaps,” leading to a “serious derivatives operation.”

Mother Jones reported that, “In Pennsylvania alone, 107 school districts reportedly entered into swap deals-‘gambling with the public’s money,’ according to the state’s auditor general.” The 2009 special investigation by the auditor general found that the school districts, along with 86 local governments, had financed $14.9 billion in debt tied to interest-rate swaps — or more than half of Pennsylvania’s budget.

“Congressman Toomey has exposed the American public to countless risks by pioneering, promoting, and protecting the use of risky derivatives. With his work, he’s guaranteed huge profits for Wall Street, but less safeguards for the rest of us,” said Sestak spokesman Jonathon Dworkin. “Congressman Toomey is still willing to side with his friends on Wall Street after they swindled millions from Pennsylvania’s schools.”

According to Bloomberg, Wall Street is to blame for the risky transactions: “During the past four years in Pennsylvania alone, banks have pitched at least 500 [swap] deals totaling $12 million.” Wall Street banks like JPMorgan Chase preyed on Pennsylvania school districts desperate for funding to repair their classrooms and buy new textbooks, and didn’t tell them “that the bank would get more in fees than the school district would get in cash.” [Bloomberg, 2/1/2008]

Reading’s school district had to pay $230,000 to Deutsche Bank, AG because of its loss on an interest rate swap: “While Reading’s taxpayers are liable for the loss, bankers and advisers already have pocketed $1 million in fees arranging the swap, enough to buy 11 Mercedes-Benz S-550 sedans. This week’s payment to Deutsche Bank would have covered the school district’s monthly utility bill.” [Bloomberg, 1/17/07]

In 15 Pennsylvania school districts, officials signed for interest-rate-swap deals worth $28 million since 2003. Only about half was returned to the school districts, while Wall Street got the rest as profits. [Bloomberg, 2/1/08]

Congressman Toomey’s Long History of Derivatives Transactions

Did “Pioneering Work” With Derivatives. While working at Chemical Bank in the 1980s, Toomey did “pioneering work” with interest and currency rate “swaps,” which are a type of derivative. [Allentown Morning Call, 4/11/04; Financial Times, 5/23/97]

Led a “Serious Derivatives Operation.” According to Derivatives Strategy Magazine, Toomey was “lured to Morgan Grenfell, the British merchant bank, to start what Toomey calls a ‘serious derivatives operation’…  ‘We were dealing in various currencies, all kinds of interest rate and currency-related derivatives-options, swaps, forwards and so on.'” [Derivatives Strategy, 5/99]

Deregulated Derivative Trading. Congressman Toomey voted for legislation which deregulated derivative trading and allowed Wall Street firms to increase the kind of risk-taking which led to the economic crisis. [Commodities Futures Modernization Act, HR 4541, #540, 10/19/00]

Called Derivatives “The Most Important Development” in Finance. Congressman Toomey tried to claim that he never pioneered the use of derivatives, but in a video from 2003, he lavished praise on them, calling derivatives, “perhaps the most important, creative and innovative development in finance in the last 30 years.” [Morning Call, 8/17/10]

Tried to Hide His Derivatives Past. Congressman Toomey has gone to such great lengths to disguise his Wall Street career that he even edited his campaign bio to omit the fact that he “developed and managed a $21 billion derivatives trading operation for Morgan Grenfell Finance, Inc.” [Pittsburgh Post-Gazette, 04/13/09]

October 7th, 2010 | Posted in Front Page Stories | No Comments