Michael Bennet Ruined The Finances And Pension Fund Of The Denver School System

I would have led today with this blockbuster story in the NY Times about the Denver school system and how the guy who Whitney Tilson thinks "Rocks!!!" cost it millions, but the jobs numbers and the Obama administration outsourcing policies were more pressing.

But now let's take a look at the Michael Bennet Denver public school scandal:

In the spring of 2008, the Denver public school system needed to plug a $400 million hole in its pension fund. Bankers at JPMorgan Chase offered what seemed to be a perfect solution.

The bankers said that the school system could raise $750 million in an exotic transaction that would eliminate the pension gap and save tens of millions of dollars annually in debt costs — money that could be plowed back into Denver’s classrooms, starved in recent years for funds.

To members of the Denver Board of Education, it sounded ideal. It was complex, involving several different financial institutions and transactions. But Michael F. Bennet, now a United States senator from Colorado who was superintendent of the school system at the time, and Thomas Boasberg, then the system’s chief operating officer, persuaded the seven-person board of the deal’s advantages, according to interviews with its members.

Rather than issue a plain-vanilla bond with a fixed interest rate, Denver followed its bankers’ suggestions and issued so-called pension certificates with a derivative attached; the debt carried a lower rate but it could also fluctuate if economic conditions changed.

The Denver schools essentially made the same choice some homeowners make: opting for a variable-rate mortgage that offered lower monthly payments, with the risk that they could rise, instead of a conventional, fixed-rate mortgage that offered larger, but unchanging, monthly payments.

The Denver school board unanimously approved the JPMorgan deal and it closed in April 2008, just weeks after a major investment bank, Bear Stearns, failed. In short order, the transaction went awry because of stress in the credit markets, problems with the bond insurer and plummeting interest rates.

Since it struck the deal, the school system has paid $115 million in interest and other fees, at least $25 million more than it originally anticipated.

To avoid mounting expenses, the Denver schools are looking to renegotiate the deal. But to unwind it all, the schools would have to pay the banks $81 million in termination fees, or about 19 percent of its $420 million payroll.

John MacPherson, a former interim executive director of the Denver Public Schools Retirement System, predicts that the 2008 deal will generate big costs to the school system down the road. “There is no happy ending to this,” Mr. MacPherson said. “Hindsight being 20-20, the pension certificates issuance is something that should never have happened.”

...

Both Mr. Bennet, whom the White House has praised for his innovative approach to education, and Mr. Boasberg defend the deal they recommended in Denver back in 2008. They say that it has saved the school district $20 million it would have otherwise had to pay to cover the pension shortfall, and they maintain that no one could have predicted the credit crisis of 2008 that elevated the deal’s costs.

Really? No one could have predicted the credit crisis of '08 that elevated the deal's cost to ruinous levels?

YOU CLOSED THE DEAL AFTER BEAR STEARNS HAD ALREADY FAILED!!!!

If the failure of Bear Stearns from credit problems wasn't an indication that a credit crisis was occurring, then what exactly would be?

Here is what USA Today said when the Bear Stearns failure occurred in mid-March 2008, weeks before Bennet and Boasberg closed the finance deal for the Denver school system:

If the U.S. economy were a car, all of its warning lights would be flashing red.

The breathtaking collapse of investment bank Bear Stearns over the weekend is the latest — and perhaps the most alarming — indicator to flash on the economy's dashboard.

First, the crisis in subprime mortgages — loans to those with poor credit — infected the credit markets. Then home prices started sinking. Then mortgage defaults rose, and the economy began to sputter. Now, the Federal Reserve is desperately trying to stabilize the credit market before a failure of confidence can poison the entire U.S. financial system.

The latest sign that the financial system is close to overheating: Bear Stearns, (BSC) once the country's fifth-largest investment bank, agreed Sunday to be sold for just $2 a share, down 93% from its closing price Friday.

The best-case scenario now is that the Fed can get the financial markets humming again, leading to a recovery in the housing market and a resurgent economy. The worst case: an economic breakdown in which the crisis spreads to other banks, and beyond.

"It's a really dicey moment we've come to," says Seattle-based money manager William Fleckenstein.

Read the rest of the USA Today article to see that nearly EVERYBODY post-Bear knew their were problems in the system that could lead to a spectacular crash.

Everybody except for Bennet and Boasberg, of course.

Apparently Bennet and Boasberg needed the ghost of Alexander Hamiliton to come up from hell in some Dickensian spectacular and warn them about the dangers of what essentially was an ARM for the Denver public school system as so many other people with ARM's were going belly-up and causing the firms that backed them - like Bear Stearns - to go belly-up too.

And despite costing Denver public schools millions, Bennet continues to insist the deal was good for taxpayers.

Huh?

I think what bothers me most about this story is that it is another example of either an inept or corrupt public official with connections who gets a pass from President Accountability even though he cost the Denver public school system millions.

Bennet should not only be out of politics, he ought to be IN JAIL for the financial decisions he made as head of the Denver school system.

No wonder Bennet has taken in so much campaign cash from hedge funds, securities funds, insurance companies and real estate interests.

He is squarely on their side, stealing money from the Denver schools and quite literally HANDING IT OVER TO THE CROOKS ON WALL STREET.

I guess that's why Whitney Tilson thinks Bennet "Rocks!!!"

He's helped make Tilson and other criminals like Tilson millions.

Instead of turning his back on a creep like Bennet, President Accountability has helped him with his election campaign like he has helped no other candidate running in 2010.

So Obama must really want Bennet around despite what amounts to a major league screw deal that will eventually cost thousands of teachers their pensions and Denver school kids their teachers.

Because that's how they'll fix this problem, of course.

They'll come around in 2014 and say "We can't afford to pay you what we promised you for your pensions anymore..."

And they'll say "This is an emergency, we have to lay off teachers and raise class size to 40..."

And Bennet and Obama, god forbid they are still in power, will nod solemnly and talk about fiscal responsibility and prudence and all that jive when it was their screw-ups that brought this to fruition in the first place - Bennet by making the deal, Obama by backing this clown for office despite it.