Case study: How cities and states ended up being hedge funds

The New York Times offers an interesting story of how cities and state entities ended up ensnared in the global credit crisis. We've noted that many of them face some severe financing hardships, even with the crisis abating a bit. The worst hit are those that invested in certain CDOs. The Times looks at a school district in Wisconsin that ended up borrowing $165 million from a free-wheeling bank in Ireland named Depfa, and using $35 million of its own money to invest in synthetic CDOs issued by the Royal Bank of Canada. In doing so, they were following the advice of a banker who had all of two hours of training on CDOs. I'm sure the commission was huge. Lots of other government entities are in the same boat. Much of this will end up in court.

For more:
- here's the article

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