Americans Clueless Paying Wall Street $20 Billion for Bad Swaps [View all]
By Darrell Preston and Aaron Kuriloff - Fri Jan 13 05:01:00 GMT 2012
The $294 million bond deal to refurbish the Superdome after Hurricane Katrina was one of many times Louisiana taxpayers have been tapped for what may total $2 billion of subsidies to keep Saints owner Tom Benson from moving the team out of state. Photo: Mario Tama/Getty Images
Chart: Interest-Rate Swaps Deals Gone Bad
Seven months after Hurricane Katrina ripped holes in the Superdome’s roof in 2005, Louisiana State Bond Commission members made what they were told would be “the best of a bad situation” in financing the stadium’s renovation.
Acting against the recommendation of their staff, the commissioners voted for a Merrill Lynch & Co. plan to use debt and interest-rate swaps to pay for the job. While the deal helped keep the National Football League’s New Orleans Saints from leaving town -- and the arena got new scoreboards while 12,000 seats were converted to luxury class -- taxpayers became the losers for supporting a winning team.
The cost of financing the work has reached $42 million, almost a quarter of the $187 million spent on Katrina-related repairs and enhancements and three times as much as expected. The deal became so expensive that the state repurchased the debt sold by the New York investment bank to stop the bleeding.
“It was a flawed idea out of the gate,” said Robert Brooks, who teaches financial management at the University of Alabama in Tuscaloosa.