New Jersey Pays Goldman Sachs for Interest-Rate Swaps on Nonexistent Bonds

[marmar]

Goldman Sachs Still Paid for Swaps on Redeemed Bonds (Update2)
By Dunstan McNichol


Oct. 23 (Bloomberg) -- New Jersey taxpayers are sending almost $1 million a month to a partnership run by Goldman Sachs Group Inc. for protection against rising interest costs on bonds that the state redeemed more than a year ago.

The most-densely populated U.S. state is making the payments under an agreement made during the administration of former Governor James E. McGreevey in 2003, when New Jersey’s Transportation Trust Fund Authority sold $345 million in auction-rate bonds whose yields fluctuated with short-term interest costs. The agency finances road and rail projects.

“This vividly shows the risk of entering into interest- rate swap agreements,” said Christopher Taylor, former executive director of the Municipal Securities Rulemaking Board in Alexandria, Virginia. “The world’s got to see what stupidity even the sophisticated investors like the transportation fund can get into.”

While New Jersey replaced the debt with fixed-rate securities in 2008 after the $330 billion auction-rate bond market froze, the swap -- in which two parties typically exchange fixed payments for ones based on floating interest rates -- isn’t scheduled to expire until 2019.

The state paid $940,000 under the agreement last month and a total of $11.4 million since the auction-rate bonds were redeemed. The expenditures come as the fund reaches its borrowing limit and Governor Jon Corzine, Goldman’s former chairman who was a U.S. senator when the contract was signed, seeks $400 million in budget reductions as tax receipts fall. ...........(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601109&sid=al5.EHL9NEBQ

[AllentownJake]

1. This could be very bad for Jon

Very bad.

[DJ13]

2. Yes it could

He was supposed to be the guy who knows money from his years on Wall Street.

This is a real black eye.

[AllentownJake]

4. It is his old firm too

If Jon was a republican, I'd already have the talking points and ads in my head to run against him in the final push.

[DJ13]

5. Snap, I forgot that part

Now it could be painted as continuing a sweetheart deal he knew wasnt valid.

[AllentownJake]

7. Yep

and you can throw in everything that is unpopular in America right now into one 30 second ad. Bailouts, Bonuses, and Big Business and address him as former CEO.

They aren't dummies, the New Jersey election is about to become a lot closer.

[autorank]

8. Another yep. This is a disaster waiting to be publicized.

And there's a guy on the other side who is seriously bitter for having his weight mocked.

[AllentownJake]

9. Corzine isn't that liked at Goldman Sachs

In Too Big to Fail, they gave the background of the Corzine vs. Paulson battle for chairman of the partners (the firm wasn't public at the time). Those two really hated each other and it was a pretty nasty battle. I wouldn't be all that surprised if someone at Goldman with an old grudge highlighted the deal to the press.

[autorank]

3. This fits in with my theory about the distribution of intelligence in the U.S.

The people are at the top and the financial elite, their political representatives, and the media
minions are at the bottom of the IQ scale. I can't even imagine why such an agreement would have
been reached. It's political kryptonite!

[AllentownJake]

6. Wall Street plays the same games with the government

that it does with consumers. Honestly you'd need three lawyers and two experienced finance guys to interpret for you what you bought as opposed to what you think you bought.