Audit: MBTA wasted $55 million in debt deals

[briv]

Should we start talking about dissolving the MBTA?

Audit: MBTA wasted $55 million in debt deals
Galen Moore Reporter

Between 2000 and 2005, The MBTA blew $55 million by playing fast and loose with $1.6 billion worth of debt, State Auditor Joe DeNucci says.
T managers tried to protect against rising interest rates using "rate swaps," a controversial tactic in which institutions trade financial obligations. When interest rates fell, the MBTA wound up on the losing end, and paid $48.8 million in closing costs to get out of the bad arrangements.

The net loss was $55.3 million, according to the auditor's report released yesterday.
"I understand the T was trying to be creative to reduce its debt load," DeNucci said, "but I think these types of practices are very risky."
The MBTA's $5.1 billion debt burden is the largest of any U.S. transit authority. T officials have cited debt payments as a strain on the authority's annual budget. Ultimately, riders and taxpayers are paying for these forays into "highly speculative, risky and complex" financial arrangements, DeNucci said.
However, the MBTA's chief financial officer disputed DeNucci's findings. "I don't think there was any net loss," CFO Jonathan Davis said.
The T swapped rates in order to get out of risky variable-rate loans and guarantee a fixed interest rate on its debt, he said. He admitted the authority could have done better by waiting until interest rates fell, but said managers would have had to have been "omniscient" to know that.
"I think what they're referring to is, well, interest rates kept going down. Why didn't you just wait?" Davis said. But interest rates could have gone up, he said. "We couldn't tolerate that type of risk."
There is a fine line between hedging and speculating, said Donald J. Smith, a Boston University associate professor who studies interest rate swaps. If the T is really hedging against risk, the practice may be responsible, he said, but speculating for a profit on interest-rate fluctuations is quite risky.
"If you want it, you're speculating," Smith said. "If you need it, you're hedging."

 

[palindrome]

The MBTA is such a joke. The unions have the mbta by the balls, and management is about as smart as the turkey sandwich i ate for lunch.

 

[jass]

I cant see how we can blame them for this. They took a risk, it didnt work.

Citigroups announcement the other week shows that it could have been worse.

 

[ablarc]

^ I guess that means no one can be blamed for any bad gamble.

 

[statler]

^^ Depends on the nature of the gamble.

Not all are created equal.

 

[palindrome]

I cant see how we can blame them for this. They took a risk, it didnt work.

Citigroups announcement the other week shows that it could have been worse.

citibank isn't gambling with public tax funds. I personally would prefer if the t didn't gamble at all.

 

[PerfectHandle]

The real problem here is that the legislature essentially cut the T off from public funds with the whole Forward Funding debacle.

 

[statler]

The problem is with using the word 'gamble'.
It not like T headed down to Foxwoods and put $55 Mil on '25 Black' and blew it.
They took a calculated risk. Large organizations do it all the time. If it was successful, we never would have heard about it.[/SIZE]
Hell, investing in the stock market is a 'gamble' and no one cries when the state does that.

 

[ablarc]

^ It's all whether they win. If they do, it's wise investment; if they lose, it's gambling.