Shadowproof

Wall Street doesn’t just go after the 99%. It goes after municipalities too.

Cross post from IfLizWereQueen

And among the biggest Judas Goats Assisting Wall Street in fleecing municipalities all over the USA are their trusting city officials, who prove to be willing marks for Wall Street Financial Carnies.

City leaders are also often led down the path to financial debt and ruin for their communities by members of their local Chamber of Commerce who have bought the Wall Street “free” market mantra hook line and sinker.  In fact, these judas goats, wittingly and unwittingly are Wall Street cheer leaders who advise communities to give a Wall Street corporation anything they want–tax-free land, buildings, etc. because they will bring jobs to the community.  And who do you think pays for this largess to corporate America?  It’s the taxpayers.  Corporations come into our communities, take up space, reduce the tax revenues needed to run local government with their tax-free ride, often polluting the  air and land of the communities, and then they pick up and move on to greener pastures whenever it suits their corporate bottom line–often with little or no notice to the 99% in the communities where they operate.  They even shut down plants that are turning profits.  Wall Street corporations, by and large, are not about making the best product, or delivering the best services to their customers.  Instead they are all about cutting costs to deliver big bonuses to their millionaire and billionaire CEOs and dividends to their preferred shareholders.  Job loss (firing people) means plus signs, not minus signs, in their ledger.  These people are the enemy.

Many representatives of public entities and municipalities lack the financial expertise of the financial predators from Wall Street. In fact, most of the 99% lack the insider knowledge of Wall Street’s con-games which they seem to be able to dream up faster than flim-flam men from the carnival.  One outstanding example was Hoosier Energy Rural Electric, a cooperative owned by 800,000 mostly rural customers.

And it’s not like members of Congress haven’t known this story and hundreds of others like it for years.  Instead, they have chosen to close their eyes and be willfully blind. Why?  Because  it is to their personal advantage to do so.  They make money from the con deals that Wall Street plays on the American people–and yes, a full one-third of the “financial products” offered  by Wall street financial hedge fund managers and other financial sharks are nothing short of con games.  The minute the people get wise to a con-game played by Wall Street, the hoods stop playing that game and invent a new one.  Bernie Madoff is not the exception, he is the rule.  The ONLY reason that Madoff is in prison is because he dared to pull his Wall Street con game on the 1%.

The story of how Hoosier Rural Electric and its 800,000 rural owners and members of the 99% got hosed may not be as well-known as the hosing that Enron gave to the 99% of its investors, but the Hoosier story was so outrageous that it was published in the November 30, 2009 issue of Business Week.  ”Wall Street vs. America.” This article by investigative journalists Theo Francis, Ben Levisjohn,  Christopher Palmeri and Jessica Silver-Greenberg no doubt led to the IRS crackdown on leaseback deals.

Hoosier Energy leased a power plant near Wabash River in Sullivan County, Indiana.  In 2002, a group of attorneys and investment bankers descended on the tiny non-profit utility, owned by its customers, with a quick way to earn money.  Hoosier leased a power plant near the Wabash River to the John Hancock Financial Services.

Hancock then leased it back to Hoosier.  The utility netted $20 million and the bankers and lawyers made $12 million–all created with the magic of paperwork.  Over the past 10 years, dozens of utilities, transportation agencies and other public nonprofit entities have struck such  leaseback deals to collect cash on their assets.

John Hancock planned to reap tax benefits on the facility. Such deals are shams that amount to a circular exchange of assets and  cash.  Such transactions are nothing more than the creation of abusive tax shelters for the wealthy at the expense of the 99%.

But the story gets nastier.

In a 3,000 page pact with Hoosier there was buried a technicality that allowed John Hancock to not only wiggle out of the contract, but also to collect a fat fee.  Wall Street Financial shysters don’t make money by creating and marketing legitimate products.  They make money from pushing other people’s assets around and collecting fees and fines for their pencil pushing–that’s what the financial industry of Wall Street is all about.

Even though Hoosier has continued to make all of its payments, it fell into technical default after Ambac Financial Group, which backed the transaction suffered a credit-rating down grade. (This opens another can of worms:  How the credit rating agencies play hand in glove with Wall Street financial institutions.)

Having not found a suitable replacement, Hoosier faced a $120 million penalty, a sum that could exhaust its cash and credit lines.

In September of 2009 the Seventh Circuit Court of Appeals ruled the  utility had to find a new guarantor by the end of 2009 or pay Hancock the money. This of course will mean higher electricity rates for the 99%, the 800,000 rural people who own the cooperative.

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Wall Street bankers should never be given the reins to Pension Funds of the 99%–and believe me,Wall Street financiers are salivating at the potential to tap into Social Security.

In 2006, The Teacher Retirement System of Texas hired T. Britton Harris IV to overhaul the $100 billion pension fund.  The portfolio, one of the 20 largest pension funds in the USA, was still recovering from the dot-com busts.  Harris gave them fair warning (of course it was after he had been hired).  ”My approach has never been incrementalist.”

Harris moved the Texas Retirement fund into risky investments. In late 2009, Texas teachers reported that its new private equity and real estate investments had dropped by 15% and 33% respectively.  However, regardless the fate of its clients, Wall Street financial sharks don’t skip a beat.  They continue to collect their hefty fees throughout it all.  Private equity firms and hedge funds typically charge a hefty 1% to 2% fee on the total pool of assets under their management–even if their hair-brained schemes lose money.  Thus on the Texas Teacher’s $13.5 billion portfolio, these shysters still collect tens of million dollars a year.  When it comes to sticking it to the 99% no one does it like the Wall Street and their millionaire cheerleaders in Congress.

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ILWQ Comments:  What are the lessons here?

There are many.

1. If attorneys and Wall Street bankers come to your community or public utility cooperative offering a deal that is “too good to be true.”    It is and you should run, not walk, away.

2. Any time that any deal–whether it is a contract with a Wall Street banker, or a piece of legislation voted on by Congress, contains more than 100 pages, walk away from it.  You can bet that it comes with many hidden caveats, fines, special conditions, etc.–all of which are designed to benefit the special interest representatives who wrote the contract.  The contract for Hoosier was 3,000 pages!  I think that one may have even outdone the Patriot Act for page count.

Update on the Hoosier Lawsuit

The last I read, there was an apparent settlement on December 29, 2009: “. . .”This is an equitable agreement, and our focus now is on moving forward to further strengthen our cooperative and continuing to meet the power supply needs of members,” said Chris Tryba, Hoosier Energy’s communications manager, in a statement.”

SOURCE:  John Hancock Settles Leaseback Dispute

Reed Oslan of Kirkland & Ellis represented Hoosier Electric and lists the case in his resume as:  ” . . . Successful representation of rural electrical cooperative for the southern half of Indiana with respect to a complex financing under a “SILO” real estate sale leaseback structure.  Case involved numerous issues of U.S. tax laws, restructuring, finance, and the doctrine of temporary and permanent impossibility relating to a SWAP contract with Ambac Financial. “

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