Busted. City Attorney Dennis Herrera filed a civil lawsuit in San Francisco Superior Court today. The accused: Five municipal bond insurers. The allegation: Said insurers pressured local governments to purchase unnecessary bond insurance with the goal of scoring more credit and better interest rates. The scheme: Herrera contends that the insurers conjured up an illegal dual rating scheme, which systematically granted higher credit ratings to private sector borrowers over public ones; ironically, governments are less likely to default on bond obligations than corporations, according evidence cited in the press release issued by the City Attorney's office. Luckily, the scheme was outed during the subprime crisis.
Local governments discovered that they were left with squat (or "junk bonds," as they're called in the industry) once the markets crashed. Aftermath: Millions of bills' worth of taxpayer money down the drain, unknowingly squandered for worthless insurance policies. Quoth Herrera: “It’s the antitrust equivalent of nesting dolls: a scam inside a fraud inside a rip-off. And now that the scheme has been revealed, taxpayers are left holding the bag. [Curbed Inbox]For more stories from Curbed SF, go to sf.curbed.com.
