The agency that supplies water to most of Southern California has paid tens of millions of dollars since 2008 to exit risky and complex financial deals it made before the Great Recession hit.
The Metropolitan Water District of Southern California entered two dozen interest-rate swap deals, which, in a convoluted way, aimed to stabilize debt interest rates, but amount to bets on the way interest rates will go. If interest rates move one direction, the swap becomes an asset. If they move the other direction, it becomes a liability.
Metropolitan, a powerful Los Angeles-based agency that provides water to 19 million people across Southern California, paid nearly $88 million to exit interest-rate swap deals, and still has a $71.5 million swap liability on the books, records obtained through the California Public Records Act show.
Such payouts and the liability that remains show Metropolitan got the raw end of the deals and lost. Neither would have existed if interest rates had gone up, instead of down.
As part of a review of local public agencies that did swaps, Metropolitan’s swaps stood out because leaders there invested more heavily in them than the rest – tying nearly $2 billion in debt to swap contracts – and paid a heftier price for doing so when it wanted out of the losing deals.
Government officials’ appetite and tolerance for such risk-taking with public money has waned in recent years, but much of the damage was already done.
We Stand Up for You. Will You Stand Up for Us?
What in the hell is a public utility doing playing financial roulette with ratepayer money? Oh, I forgot, the San Diego County Board of Supervisors did something very similar when they hired a hedge fund manager to help with their investments. Remember Lee Partridge? Remember how that worked out?
morons! even I coulda told them not to do it. but, as Mr Porter writes, it ain't their money (remember that Danny DeVito film "Other People's Money"?)
and, they are indemnified against prosecution (unless it can be proven that they were deliberately criminal) too. at least they can be FIRED.