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Only In California: School Owes $1 Billion On $100 Million ‘PayDay’ Loan

Home - by - December 11, 2012 - 10:30 America/New_York - 6 Comments

ZeroHedge

These three letters – C.A.B. – might just be the Dis-Humor story of the day. NPR reports that more than 200 schools across California are coming to the shocking realization that the upfront cash they needed so badly came at quite a price. These ‘Capital Appreciation Bonds’ are unlike normal bonds (requiring regular coupon payments and principal repayment); instead they provide the ‘lent’ money upfront and defer all interest and repayment to some magical faery land time in the future (by which time the interest accrued has grown exponentially as the interest accrues on the rising ‘principal plus previously accrued interest’). Brilliant – as the Guinness chaps might say. So California schools are now undertaking PayDay or loan-shark style loans defending the idiocy of super-short-term thinking with such statements as “Why would you leave $25 million on the table?” referring to the upfront cash that one Treasurer was able to get his hands on – with clearly no comprehension of the financial instrument’s massive convexity. California State Treasurer Bill Lockyer said “It’s the school district equivalent of a payday loan or a balloon payment that you might obligate yourself for, so you don’t pay for, maybe, 20 years – and suddenly you have a spike… It’s so irresponsible.”

There has to be some lesson in here – some philosophical reflection on our society’s complete and utter inability to see beyond the next cashflow need… Simply mind-blowing…

 

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» 6 Comments

  1. Carlos The Jackal

    December 11th, 2012

    Government has a “The taxpayers are good for it” mentality on all levels.

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  2. Maudie N Mandeville

    December 11th, 2012

    ‘Back in the ’90s, the state of Michigan banned capital appreciation bonds altogether. But (SOCIALIST DEMOCRAT Bill) Lockyer says California needn’t go that far. He supports a series of reforms such as capping the payback of debt to four times the amount borrowed. Otherwise, says Lockyer, these bonds will be paid well into the future, BY THE CHILDREN OF TODAY’S STUDENTS.’

    Get it?

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  3. Stranded in Sonoma

    December 11th, 2012

    Come on! Don’t worry! CA just passed Prop 30 and they always have the lottery to fall back on.

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  4. obfusecatenot

    December 11th, 2012

    Sadly, it is all part of the “collapse the system” mantra to overthrow the economy created by capitalist Caucasians. The ends justify the means. Are they complicit or just useful idiots? America will never capitulate to Socialism, but in the name of liberalism they will wake up one day in a socialist utopia, and wonder how did we get here. – You’ve been dumbed down by those who have stolen your sovereignty and your childrens birthright the liberal intelligentsia that is the edu-crap. Oops, Freudian slip, I meant edu-crat.

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  5. serfer62

    December 11th, 2012

    Hey! Put it on your credit card!…oh, wait

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  6. Tim

    December 11th, 2012

    It’d be funny if it weren’t so fucking reprehensible.

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