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Chicago Public Schools Dismissed Staff and Borrowed at High Interest Rates to Pay for Interest-Rate Swaps

In: BRAZEN Big Banks, Swap Mania and the Fallout

Author

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  • A. Rashad Abdel-khalik

Abstract

The Chicago Public Schools system (CPS) serves nearly 400,000 students attending more than 600 schools. It was May 2003 when the state legislature voted on granting every public entity, large and small, the authority and right to deal in derivatives without any serious constraints. By that time, bankers and swap pushers had been already on the doorsteps of different state and city agencies offering their magical snakes, called interest-rate swaps, coupled with the highly risky variable rate called auction rate that would reset variable (adjustable) rates on the bonds based on weekly remarketing.

Suggested Citation

  • A. Rashad Abdel-khalik, 2019. "Chicago Public Schools Dismissed Staff and Borrowed at High Interest Rates to Pay for Interest-Rate Swaps," World Scientific Book Chapters, in: BRAZEN Big Banks, Swap Mania and the Fallout, chapter 14, pages 209-225, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813275577_0014
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    More about this item

    Keywords

    Swaps; Interest Rate Swap; Unconscionable Contracting; Termination Penalties; Embedded Costs; Paying for Nothing; Gambling; ISDA; Master Agreement; Deceit; Inadequate Disclosure; Hidden Costs; Zero Sum Game; Wealth Transfer; Paper Chasing Paper; Floating Rate; Synthetic Rate; Credit Risk; Demonstrations; Water Shut Off; Union Class Action Suit; The LIBOR Scandal; Non-Profit;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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