How the Scam Works

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The Financial Times reports today on derivative deals gone bad in little Italian villages. Their poster child is Baschi, population 2,800, but it goes way beyond that:

Between 2001 and 2008, 525 Italian local authorities entered into almost 1,000 interest rate swaps with an aggregate value of €35bn, according to Italy’s audit office and the central bank….Scores of these deals are now turning sour, dragging Italian banks such as BNL and global institutions such as Merrill Lynch, UBS, Deutsche Bank and JPMorgan into court.

This is embarrassing for Italy, as the state is widely considered to have failed to control the deals involving cities as large as Milan to a tiny Order of Capuchin Friars near Genoa. It is also extremely embarrassing for investment banks. Investigations by Italy’s finance police have led to raids, the seizure of assets and bankers being named in criminal cases. One prosecutor in south Italy has asked that Merrill Lynch be banned from doing business with municipalities for two years.

Hey, Merrill Lynch! I remember them. That’s the company that entered into a whole bunch of derivative deals with my hometown of Orange County in the early 90s and drove us into bankruptcy. I guess you can take the investment bank out of the hustle, but you can’t take the hustle out of the investment bank. Or something.

This comes via Felix Salmon, who notes that “municipalities around the world have been ripped off by fast-talking derivatives salesmen for years, and the whole business really is very sleazy.” As it happens, there was a bit of sleaze on both sides, probably, as these small towns were all hoping to get something for nothing and figuring that if a piper needed to eventually be paid, some future mayor would have to pay him. But the whole piece is worth reading. It’s a nice look into the incredibly complex deals that these banks put together and sold to plainly unqualified buyers.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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