Bet was placed with public funds

Editor:
In April the Reading School Board placed a bet that will cost the taxpayers $230,000.


Buying a derivative is not a hedging strategy but a trading strategy that is potentially reckless. A derivative is a financial contract whose value is derived from stocks, bonds, currencies, commodities, loans or linked to changes in the weather or interest rates.

In this case the board was betting on the relationship between long and short term interest rates. The only parties guaranteed to make money in a deal such as this are the bankers and advisors, who walked away with approximately $1,000,000 Million in fees.

Advisers such as Concord Public Finance get paid for conducting a transaction. The fact that this transaction cost the taxpayers $230,000 is irrelevant to Concord. It gets to keep its $400,000 fee whether the deal works out or not.

These are sophisticated strategies and require extreme diligence in their application. In this case there may have been a legitimate reason for this transaction, but it would seem all too often entities are sold on these speculative strategies. There is no difference between betting on interest rates, orange futures or the price of pork bellies.

When will public officials fully appreciate their responsibility as stewards of public money?

William H. Love South Heidelberg Township