August 09, 2010 05:02 PM UTC

Bennet's Waterloo

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• by: oldbenkenobi

In addition to its myth-making, the Bennet campaign has depended on two secrets being kept.  First, the extent of White House involvement in his appointment.  That is still unknown.  Second, a true financial picture of the DPS.  On Friday, that was revealed by the NY Times in an article by Gretchen Morgenson, who won a Pulitzer Prize for her coverage of Wall Street.  

The Bennet spin team promptly went into action.  The leaders of their defense were Boasberg and Conrad.  (Once again, Bennet was not leading.)  Boasberg wrote talking points and the Bennet campaign adopted them.  One of their arguments is that Jeannie Kaplan is a Romanoff supporter and therefore her opinion is suspect.  Boasberg and Conrad are Bennet supporters.  Are their opinions thus rendered equally suspect?  

The article makes it fairly clear Kaplan is a Romanoff supporter:

Mr. Boasberg said critics of the deal were politically motivated, pointing to the close primary runoff pitting Mr. Bennet, the former superintendent, against Andrew Romanoff, another Democrat, for a place on the ballot for the Senate in the November elections. But Ms. Kaplan said she started questioning the deal before Mr. Bennet was appointed to the Senate in early 2009.

What the article does not point out is that Boasberg is a fierce supporter of Michael Bennet!  That “factual inaccuracy” didn’t bother Bennet, apparently.  

The Bennet defense also conveniently ignores that Kaplan is only one of many sources in the story. Unlike the Denver Post, the NY Times asked the opinion of several objective third parties who had no interest in our primary race.  (Speaking of the Denver Post, its coverage of this issue reached a new nadir of disgrace.  Even the Bennet Groupthinkers must have been embarrassed.  The story did not reach the Denver Post’s front page until nearly 7pm on Friday, then merely regurgitated Bennet’s talking points and even linked to them.  The Post then added a second story focused on Boasberg and regurgitated the talking points again!)

Much has been made of the proxy fight between Romanoff and Bennet factions on the Denver School Board.  What gets obscured is the issue they are fighting over.  Kaplan and others have been fighting tooth and nail for full disclosure of the DPS financial picture.  The other side tried to suppress the details of the DPS financial picture.  The suppressors support Bennet.  

Is it the Bennet campaign’s position that the people of Denver do not have right to know the financial state of its public school system?  

And if this is such a great financial deal for the DPS, as the Bennet defense claims, why have the Bennet supporters on the Board worked so mightily to suppress the details?  

The crux of the Bennet defense is found in paragraphs 12-14 of the Conrad letter.  These paragraphs also provide good examples of their smoke and mirrors defense.  Having just claimed the phrase “termination fee” is inaccurate, Conrad promptly uses it: “If interest rates rise, then the banks owe a termination fee to DPS should DPS choose to terminate. If interest rates fall, then DPS owes a termination fee to the banks. The make-whole fees are exactly the same in either direction.”  All three paragraphs 12-14 depend on this construction.  And there’s one a big problem: INTEREST RATES FELL SO WE OWE BANKS THE TERMINATION FEE!    

It’s fair to say the Bennet team disputed everything they could in the article, right?  They went through it line by line and came up with 18 alleged factual errors.  We know they did not scrimp on any favorable detail they could add to their list, right?  The most damning aspect of the Bennet defense is what they omitted.

In the article, there are at least seven paragraphs talking about the fact that Bennet and Boasberg did not properly warn the School Board about the very large risks inherent in this deal:

“We looked at what the risks were,” said Mr. Boasberg, who has been superintendent of the Denver public schools system since early 2009.

But according to several members of the board of education, the bankers’ presentations for the 2008 debt deal outlined its risks only in broad terms, discussing, for example, what would happen if interest rates shifted or the economy weakened a bit. The banks provided no full-blown worst-case situations to the board, focusing instead on the transaction’s upside: lower debt costs and a potential saving of $129 million in pension costs over the next 30 years.

School board members also said that bankers had not discussed problems in the variable-rate debt market that arose the previous year — a development that would have alerted them to troubles they might have had securing a manageable rate on the debt that they were refinancing.

Nor, they said, had the bankers discussed the outright collapse of trading in auction-rate securities, a $330 billion market that ran aground in mid-February 2008. Auction-rate securities are very similar to the variable-rate debt the Denver schools were considering at the time; both types of securities involve periodic auctions sponsored by financial institutions to determine what interest rates will be paid by the issuer.

Like the structural weaknesses in the variable-rate market, turmoil in the auction-rate market should have been a warning sign for the Denver school system and its financial stewards. But according to board members, its bankers and advisers never sent up warning flares of this sort.

“I think there was discussion around financial markets as a whole,” said Bruce Hoyt, a board member since 2003 and treasurer at the time the deal was done. “I don’t recall specific discussions about the freezing of auction-rate securities.”

In the end, Denver became ensnared in the financial maelstrom that was stirring even before it restructured its debt and that gathered force as the credit crisis deepened through the summer and fall of 2008. Prevailing interest rates collapsed, and the market for the Denver public school system’s debt shrank markedly.

Regarding all these paragraphs, the Conrad letter says…nothing.  Bennet’s DPS deal defense website says…nothing.  Boasberg must mean he and Bennet looked at the risks.  Because they did not share them with the School Board.

Conrad claims, “I’m all for raising important questions (as I and other board members did in 2008) about major financial and other policy decisions.”  But she was not for getting the details about this deal into the open, nor was Bennet.  “Trust us,” Bennet and Boasberg told the board.  And the Board did trust them.  And now the DPS is screwed.  Don’t take my word for it.  Here was Tom Boasberg in September 2008 when the market was going south, quoted in the Denver Post, the closest the Post has ever had to an article critical of the DPS deal:

“Any penny we have to pay more on interest is a penny we aren’t paying for kids, and we don’t like that,” he said. “If this went on for a year, it would be really bad. It’s incredibly, incredibly unlikely, given the market and given the fact that we are getting a deal.” [my emphasis]

Unfortunately for the DPS the bad market did go on and on.  Boasberg was either lying then or he’s lying now.  Which do you think is more likely?

Maybe Bennet did not know the downside of the deal.  Could that be possible?  Our “genius” Michael Bennet?  The only other option is that he knew the risks of the deal but failed to alert the Board.  That makes him irresponsible.

So much for Bennet’s “business experience.”  Again, don’t take my word for it — and certainly don’t take the Bennet campaign’s word for it.  Read the article again and the Bennet talking points and see for yourself what the Bennet campaign omits and cleverly dodges.  What you’ll notice is that many of the Bennet talking points are already mentioned — and refuted — in the article.  I guess the Bennet campaign is so accustomed to the fawning coverage given by the Big Denver Paper it comes as a shock to see an article by a real newspaper that doesn’t buy the bullcrap they’re selling hook, line and sinker.