The Democrat Culture of Corruption and the New Jersey Credit Swaps

With Corzine attacking Christie I thought it might be appropriate to re-post this on swap deals and New Jersey:

What happened and the Impact:

Swaps’ deals from McGreevey era enriched consultants and have cost the state millions
BY DUNSTAN McNICHOL STAR-LEDGER STAFF

A Star-Ledger review of those deals — built from information obtained through numerous public records requests — shows:

• Over the past 21 months, investment bankers have collected $183 million more in swap payments than they have sent to the state. To understand how money flows back and forth on a loan, think of it this way: The state sends the bankers money for rates it previously locked in, and the bankers send the state payments based on prevailing rates.

• Last year, the state paid $39.8 million to cancel or postpone two swaps gone bad to avoid even more losses.

• The state is scheduled to pay $120 million in fees for underwriters that never were disclosed to the public and lawmakers.

• The consultant under contract to help New Jersey manage and evaluate its swaps, CDR Financial Products of California, has negotiated deals being probed by the Internal Revenue Service in other states for alleged improprieties.

Investigations:

In 2004, with the state’s swaps portfolio swelling, New Jersey hired CDR Financial Products to help manage the deals for a flat fee of $250,000 per year. CDR is the California company whose deals are now under federal investigation.

Over the past two years, five communities, all outside New Jersey, revealed they were told by the Internal Revenue Service that CDR set up side-deals that steered excessive fees to the company, thus jeopardizing the tax-free status of the bonds. The IRS twice cited deals between CDR and the investment bank Bear Stearns as generating excessive fees.

Much of this occurred under the McGreevy admin, but Governor Corzine did allow a deal that CDR profited from to move forward:

State officials decided in March to allow an upcoming swaps deal to take effect as scheduled, based in part on advice from CDR. The transaction would have cost $27 million to cancel. By locking it in, Bear Stearns and six other underwriters are scheduled to get about $20 million in fees over 25 years.


Corzine and his treasurer, Bradley Abelow, said they were unaware of the IRS issues involving CDR. The treasurer said the state’s $250,000-a-year contract with the firm, which in January was extended through the end of the year, will be reviewed.

CDR Financial Products has been a heavyweight amongst the Democratic party for years and Corzine, who was a Goldman Sachs man and understood swaps, apparently had no idea what types of deals that company was alleged to have crafted . Corzine eventually terminated the contract, but why did he wait? Finally, does this not illustrate the culture of corruption that has typified New Jersey and the Democrats?