Cargo ships off Somalia aren’t the only ones who need to fear piracy. Reuters reported yesterday that rating agency Moodys has followed Standard & Poors and downgraded insurance company Ambac to junk. It appears the conditions for a $400 million termination payment by the Turnpike Authority (enough to ransom all the ships held by Somali pirates, including the three new ones captured yesterday, many times over) to convicted IRS tax cheat and former Nazi slave labor beneficiary Swss Bank UBS are now in place. The payment is on a “swaption” interest rate contract that the Authority entered into to get quick cash in return for a monstrous potential future payment. A downgrade by both Moodys and S&P of Ambac, which insured the ability of the Authority to meet its obligations under the deal, triggers the termination. Similar deals elsewhere have prompted FBI investigations for corruption, but of course that would never happen in Massachusetts.
Alert readers may recall a plan for the Commonwealth to bail out the Authority by guaranteeing the debt — in effect, putting the Authority’s financial dunce cap on every citizen in the state. Read the original documents and some clear interpretation by BMGers here. State House news reported last week, however, that stonewalling bureaucrats and their patrons in the House, who don’t want to disclose the details of the deal, forced Senator Mark Montigny to give them a time out:
The Senate adjourned just before 2 p.m. Wednesday, its only formal session of the week clocking in at under an hour. … [T]he Senate agreed to Sen. Mark Montigny’s request to again delay enactment of legislation putting the full faith and credit of the Commonwealth behind risky rate swap agreements that have backfired on the Mass. Turnpike Authority. Montigny told the News Service he has rarely invoked delay tactics in his 16 years in the Senate but that backing the fragile turnpike’s obligations would set the state up for fiscal disaster. “The pike is sort of like a very addictive drug,” he said. “Somehow, whoever takes over becomes part of the problem.” Montigny said he has demanded, to no avail, details on who signed the rate swap agreements and whether anyone is poised to profit from the turnpike’s distress. The Senate adopted an amendment backed by Montigny when it first approved the bill, but the House struck several key disclosure provisions and the Senate then retreated from the New Bedford senator’s proposal. The bill authorizes Treasurer Tim Cahill to join Patrick administration officials as they attempt to negotiate with the parties involved in the swaptions. The amendment would have prohibited state agencies from entering into rate swap deals, a provision House officials said was too broad. It would have also demanded key disclosures about the turnpike’s rate swaps dating back to 1997. Montigny has now four times blocked final Senate approval of the turnpike legislation, which the House and Senate favor as a hedge against a so-called termination payment, in the hundreds of millions of dollars, that the firm UBS may demand of the turnpike. The bill requires a roll call vote to win final passage, meaning it will not arise until at least next week. …
The case for cleaning out the pirate lairs dissolving independent authorities, from the Turnpike Authority to the MBTA, just got stronger. Elections may not be the best way to ensure effective government, but they’re the best yet devised.
I’m not opposed to every, single independent state agency. I’ve been pretty involved in the HEFA/Mass Development threads and the more I learn about HEFA the more sense it makes that it is an independent state authority. The reason is that I’m having a hard time coming up with a scenario under which taxpayers would be asked to back the agency up if it made bad decisions and I can’t imagine a scenario when a bad call by HEFA would have a negative impact on the public.
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p>That is NOT the same as the MBTA or MTA which provides services that millions of Mass residents rely on.
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p>I want a thorough, serious review of every single quasi-independent and independent state agency and I’d love to see many of them brought directly under the executive branch. But, I’m not willing to make a sweeping generalization. I imagine one would have to look at them on a case-by-case basis.
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p>A while back Rep Lori Ehrlich (sp?) wrote about our options for the MTA mess. Wasn’t bankruptcy an option? I haven’t heard more about this option. Why not just let the MTA declare themselves insolvent, and get on with putting their function under the executive branch?
But it’s uncharted territory — chapter 9’s are quite rare, and a Mass. Turnpike bankruptcy would be national, very unfavorable news. Plus, it might not shake out in a very good way.
Well, I’m all for uncharted.
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p>As far as our national popularity, in this environment lots of states have their own problems. They shouldn’t be overly worried about little old us. And if the fact is that we messed up good, I’m not interested in hiding that. Better to own it and move on. And learn an important lesson (like, maybe swaptions, not such a great idea).
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p>When you say, “it might not shake out in a very good way,” what do you mean? I honestly don’t know a lot about this, but when I heard bankruptcy, I thought, “Perfect.” Because it’s true. They are an independent agency who ran themselves into insolvency. So, sell off the assets, put control of the highway under Mass Highway (or whatever a bankruptcy judge determines), and let’s move on.
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p>Do you have an specific fears about a bankruptcy?
That’s the concern, right there.
a bankruptcy judge could mess this particular mess up worse? Could anyone?
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p>I’m having a hard time imagining a bankruptcy judge doing anything that would really bug me. What’s the worst case scenario? And, couldn’t the legislature “fix” it after the bankruptcy by enacting new law (God help us, creating a brand-new independent authority?).
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p>Paying for the incompetence of an authority that was working independently of the state governemnt, investing without the full faith and credit of the Commonwealth, and was not accountable to an elected official…that really bugs me. Especially when teachers are being laid off and public services are being slashed. This massive debt is not what our budget needs.
While I tend to be sympathetic, I am very leery of questions like “Do you think a bankruptcy judge could mess this particular mess up worse?”
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p>I have been astounded at just how bad a single judge can mess up an already catastrophic situation. Ask any divorced father who had to appear before the now-retired Judge Edward Ginsburg if you’d like a for-instance.
knowing who authorized this and who benefits seems like it should be a bare minimum to any action.
Absolutely.