Wall Street is trying to manipulate state and local governments into getting rich quick by pitching pension obligation bonds, reported AllGov.com. These kinds of deals usually work only for the banks while leaving the public broke.
With pension obligation bonds, local and state governments borrow money from banks at low interest rates to reinvest in pension funds for retired residents. They are extremely high risk, however. When the market takes a dive, those funds can be lost while taxpayers still have to pay the interest.
Economic experts discourage local and state governments from receiving pension obligation bonds. “It’s sold as a magic bean,” said University of Colorado Denver professor Todd Ely. “But when it goes bad it’s not free. Then it isn’t really magic. If it could be counted on to work as often as it’s supposed to, then everyone would be doing it.”
The state of Kansas is planning on making a pension obligation bond deal worth $1 billion. A deal that size could net $3 million for Wall Street regardless of how it turns out for Kansas. The state could take a loss, but the bank still gets paid.
States and municipalities don’t need to be gambling with the retirements of its citizens. Pension obligation bonds are get-rich-quick schemes, but the only ones getting rich are the banks. The end result is more economic turmoil for the taxpayers.