In the News: Chicago Tribune’s Series on “Borrowing Trouble”

In the News: Chicago Tribune’s Series on “Borrowing Trouble”

by Alex Taliadoros In an incredible feat of investigative journalism, the Chicago Tribune has published a three-part series exposing how Chicago Public Schools (“CPS”) gambled and lost tens of millions of taxpayer dollars though complex financial deals with Wall Street banks. The first of the Tribune articles outlines how public officials issued more than $1 billion worth of auction-rate bonds and interest-rate swaps despite the excessive risk associated with these financial products. As described by the second article, big banks designed these deals so that they could profit regardless of what happened. To persuade CPS officials to sign on to these costly long-term agreements, banks offered large sums of upfront cash to the school district and vastly misrepresented the stability of the auction-rate market. When the market collapsed in 2008, Chicago Public Schools were left with an additional $100 million in debt burden. Today, Chicago students are paying the price. The same school district that closes schools, lays off teachers, and forces its students to walk through dangerous gang territories to get to class currently pays millions of dollars to Wall Street as interest each month. The third Tribune piece reveals another troubling aspect to these financial deals: the laws that make them possible. Before 2003, the complex financial tools that CPS used would have stood on shaky legal ground, but legislation passed that year changed that. The bill was drafted by an attorney at a major Illinois bond law firm, sponsored by a Senator who admittedly didn’t understand it, and passed with little public debate. As soon as it became law, CPS began a massive borrowing spree that...