Friday, May 15, 2015

Indiana Finance Authority Paying Nearly $106 Million In Swap Termination Fees To Goldman Sachs For Stadium And Convention Bonds

We talk a lot about Ponzi schemes since Indiana seems to be the Ponzi scheme capital of the world. Unfortunately, Ponzi schemes aren't limited to private actors. The people handling state and local finances for our fabulous sports and convention facilities are unrivaled when it comes to operating Ponzi schemes with immunity. A friendly reader brought our attention to a couple of refunding bonds that are being issued this month by the Indiana Finance Authority on behalf of the Indiana Stadium & Convention Building Authority, which undertook the financing of the Lucas Oil Stadium and the expansion of the Indiana Convention Center.

Specifically, the IFA is issuing $296,530,000 in lease refunding bonds for the stadium project and $44,710,000 in refunding bonds for the expanded convention center project. The usual suspects are feeding at the public trough. Barnes & Thornburg is naturally acting as bond counsel for the IFA, while Krieg DeVault is acting as bond counsel for the underwriters, which includes Goldmach Sachs, J.P. Morgan, principally, and to a lesser extent, BMO, Merrill Lynch, Citigroup, US Bancorp and Wells Fargo. The fact that Barnes & Thornburg's Joe Loftus sits on the board of the Indiana Stadium & Convention Building Authority and his firm makes a ton of money off these bond transactions poses no conflict of interest.

Believe it or not, the expected Barnes & Thornburg conflict of interest is the least of our concern. What caught our eye was these staggering termination payments we the taxpayers are making to Goldman Sachs to get out from under swap agreements. Goldman Sachs will receive a termination payment of $71,250,000, which will be paid from a portion of the 2015 A Bonds, the very same bonds it is so generously agreed to help us underwrite for the stadium bonds, and it will receive a $34,700,000 termination payment, also to be paid from the 2015 A Bonds it is helping us underwrite. Those combined termination payments will cost taxpayers $105,950,000. Just think what you could fund with nearly $106 million that will instead be paid to the greedy, Wall Street bankers who are systematically using their power and influence over the people we elect to run our government to consolidate all of the nation's wealth into their greedy hands.

Think about this. We're paying $106 million for the privilege of being robbed by Wall Street. I thought we got out from under these absurd swap agreements several years ago. The City of Indianapolis alone spent $93 million to get out of swap agreements about five years ago, which were supposed to act as a hedge against higher interest rates. That's not our only concerns. Remember Gov. Mitch Daniels promising the taxpayers that because the state was assuming control of the bond financing for the stadium and convention center expansion the new taxes being levied to pay down that debt would be used for just that purpose so that they were paid down on time and not constantly being refinanced and rolled over repeatedly like the Marion County Capital Improvement Board has done for decades, resulting in no debt on anything ever getting paid off? In fact, we still owed practically all of the money we borrowed to build the Hoosier Dome when it was imploded to make room for the expanded convention center. Its debt simply got rolled into the new debt. The same thing is happening with the new stadium and convention center debt. The debt just keeps getting rolled over, refinanced and churned to earn more outrageous fees for the greedy bastards who are constantly feeding at the public trough.

If you were wondering who makes up the board that runs the Indiana Finance Authority, here are their names: Chris Atkins, Chairman, OMB Director; State Treasurer Kelly Mitchell; Owen "Bud" Melton, former First Indiana CEO; Harry McNaught, Jr., Denison Properties CEO; and Kerry Stemler, KM Stemler Co. CEO


Anonymous said...

Sometimes a city is forced into these things by a contractual termination event, like the downgrading of your bond rating which happened to Chicago Schools, and sometimes its just an early termination fee that actually costs more than keeping the old higher interest bonds thru to their term, like the situation in Oakland. If these bonds don’t really need to be refunded, which would be the case if interest rates haven’t changed so very much since the initial issuance, then you have a case of churning which just drives the fees paid to the underwriters and the attorneys sky high. I think its Minneapolis, and maybe the State of Minnesota, that statutorily caps such fees and delineates when refund bonds can be issued and under what circumstances. If the taxpayers aren’t going to realize a real savings of about 3% annually, including all these fees the churning causes plus the termination fees, then the State won’t allow the refunding bond swap, period. These things got popular for a while because wild swings in interest rates freaked out State Treasurers who then wanted some swap protection. But now, with interest rates near zero and very limited exposure for big swings, it seems to me there has to be some bottom line advantage to triggering the termination event fees. If we can’t save 3% over the life of these bonds, then what is the purpose of canceling the old and starting new. If the only reason is to churn fees for the big boys, then somebody ought to put a stop to it. This stuff is the new stuff of white collar fraud, and Goldman Sachs has been hauled before the SEC, the bankruptcy courts and before States Attorneys General for years over these kind of transactions. We ought to be sure we approve of paying them a hundred million dollars in fees before following thru. Because that would fund a lot of pothole repairs or hire a lot of cops. And somebody is actually paying that money. I call them taxpayers. I don’t know what the Barnes and Krieg mouthpieces call the funding source; probably patsies. Remember, Goldman has a reputation for referring to its clients in especially derogatory, demeaning terms, implying the clients don’t understand what they are really doing, and are only there to shovel money into Goldman coffers.

Eric Morris said...

Goldman and Barnes, doing God's work yet again. When does the U.S. fiat dollar Ponzi scheme blow up?

Flogger said...

The USA is like an old steam ship lost in the middle of Pacific Ocean. Nearly out of water, and food for the crew and no more coal to burn. So the solution is start tossing the crew over the side, and begin to break up the wooden ship for fuel for the steam engines.

Like the Toll Road the money is made for some on the commissions, and the expenses they can charge for. Eventually some poor sole has to bite the bullet and take a loss. The poor sole in these instances is going to be the taxpayers (99%) when financial institutions fail.

Anonymous said...

This is similar to what Vladimir Putin's regime does to move Russian tax dollars into his pocket.