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Reporting on Risky Bond Deals

Richard Daley, former mayor of Chicago. (Jonathan Alcorn/Bloomberg via Getty Images)

ProPublica reporter Cezary Podkul has done enough reporting on risky bond deals that when he came across Jason Grotto and Heather Gillers’ investigation of Chicago’s bond troubles, he had to hear the backstory.

One of their series, “Borrowing Trouble,” found that the Chicago Public Schools will owe tens of millions of dollars more in interest because of exotic borrowing contracts that magnified risks to taxpayers. The reporters join Podkul in this week’s podcast to discuss their reporting, which was a winner of this year’s prestigious Gerald Loeb Award for explanatory reporting.

Highlights include:

  • The role of intergenerational equity in the city’s troubles: “You have to wonder, why would you want to live in a place where your tax dollars are not going to services, they’re not going to keeping you safe, they’re not going to improving your kid’s schools,” Gillers says. “Instead, they’re going to paying interest on interest on stuff that was used up 10 years ago.” (5:19)
  • The “scoop and toss” method of managing overwhelming debt -- that is, borrowing more money to make payments on current debt, “tossing” the debt into the future. (13:30)
  • The ways that bankers benefited on both sides of the bond deals, by selling auction rate securities, which have variable amounts currently due and in effect-- then later selling interest rate swaps to lessen the risk of the exotic deals they had helped sell - for a fee. (19:47)

Hear their conversation on iTunes, SoundCloud and Stitcher, and and read the Chicago Tribune series “Borrowing Trouble” and "Broken Bonds." You can also subscribe to ProPublica’s podcasts to hear conversations like these each week.

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