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The [Wednesday] Papers

"Investment banks this spring paid $2 million to the city of Houston to settle claims they did not sufficiently warn city officials about the risks of the auction-rate bond market - the latest in a series of awards to governments damaged by auction-rate losses," the Tribune reports.

"No such award is coming to the Chicago Public Schools, even though CPS issued more auction-rate securities than any other school district in the country and more than most major cities. CPS did not file a claim with the relevant arbitration panel during its six-year eligibility period, a time span that included several years of Mayor Rahm Emanuel's tenure.

"It's not clear why the cash-strapped district decided not to pursue a claim - or even whether there was a decision at all. Under questioning from the Tribune, school officials acknowledged that they don't know whether CPS ever explored the option of filing a claim over its auction-rate losses. A Tribune series last year estimated those losses at roughly $100 million over the life of the deals."

Wait a second.

School officials acknowledged that they don't know whether CPS ever explored the option of filing a claim over its auction-rate losses.

I thought school board chairman David Vitale kept telling the teachers union, community groups and others agitating for such a move that they tried but, hey, a contract's a contract (except when it's one signed with teachers).

Have I - and others- been under a false impression this whole time? Was that debate confined to interest-rate swaps, which are related but still different? Or were we simply lied to - again?

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"The school district said in April that it was 'analyzing the (auction-rate) situation to see whether there is a valid claim and, if there is, how best to proceed.'"

So it did explore the option.

"On Tuesday a CPS spokeswoman said the district 'has not made any definitive decisions regarding claims about auction-rate securities.'"

So it's still exploring the option.

But if I understand this Tribune report correctly, the deadline for such a claim has passed.

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CPS could still pursue a claim in the courts, but "Attorneys who work on such cases say going to court can be much more costly and time-consuming than filing a claim with the Financial Industry Regulatory Authority, or FINRA, a self-regulatory organization that operates a dispute resolution forum and set the six-year deadline."

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Before you ask yourself (again) how Vitale retains his post, consider this:

"Current school board President David Vitale, a former vice chairman and director of Bank One Corp., presided over the district's auction-rate borrowing strategy beginning in 2003, first as chief administration officer, then as chief operating officer."

Now let me take you back to a Tribune story from last November (ah, the value of links still forsworn by legacy media . . . ):

Fresh from the world of high-stakes trading, David Vitale arrived at Chicago Public Schools a decade ago with a plan to transform the way it borrowed money.

With the district thirsty for cheap cash, plain old municipal bonds weren't good enough anymore, and banks were standing by with attractive new options.

So Vitale, then the chief administrative officer at CPS, and other officials pushed forward with an extraordinary gamble. From 2003 through 2007, the district issued $1 billion worth of auction-rate securities, nearly all of it paired with complex derivative contracts called interest-rate swaps, in a bid to lower borrowing costs.

No other school district in the country came close to CPS in relying so heavily on this exotic financial product. In fact, market data show the district issued more auction-rate bonds than most cities, more than the state of California.

But the bold move disregarded an iron law of finance: Nothing is free. If money is offered at a lower price, it means there are associated risks - risks the district could ill afford to take.

As it turns out, the gamble likely will cost CPS an enormous sum, according to a first-of-its-kind analysis by the Tribune. Over the life of the deals, the district stands to pay an estimated $100 million more in today's dollars than it would have on traditional fixed-rate bonds.

Now is the time to wonder how Vitale retains his post. Rahm?

See also: Vitale Flunks Finance 101.

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Now returning to today's Trib:

"Beginning in 2003, CPS entered four auction-rate deals worth a total of $1 billion. Three weeks before CPS closed its final deal in 2007 with Bank of America, a senior BofA official warned internally of a potential market 'meltdown,' according to a federal complaint brought later on behalf of investors. CPS officials say Bank of America never shared those concerns with the district.

"Securities consultant Craig McCann, a former Securities and Exchange Commission economist who has counseled municipal borrowers considering auction-rate claims, reviewed public documents concerning CPS' auction-rate debt after a call from the Tribune last year piqued his firm's interest.

"We think they suffered substantial damages," McCann said. "We think the case would have been as strong at least as the average auction-rate securities issuer case we've observed."

Stronger than the case for, say, closing 50 schools.

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"Opinions differ about when the six-year period for filing an auction-rate claim begins. For CPS, the period could be said to begin either when its last auction-rate bond was issued in 2007 or when the market collapsed in early 2008. Either way, it overlaps with Emanuel's tenure, which began in 2011."

And now it overlaps with Rahm's re-election, which was predicated in large part on his financial legerdemain.

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"CPS in December gave the impression that the Emanuel administration had weighed and rejected the option of filing of an arbitration claim."

Aha! I thought so!

"In answer to a question from the Tribune about whether it had considered arbitration over auction-rate securities, the district provided a statement, which the Tribune printed, saying it 'had previously reviewed the transactions and determined there is no avenue for arbitration.'"

Again, don't print statements supplied in lieu of an official actually answering questions. Just say the district refused to comment, which would be true.

(Also, don't use the word "print" when the Internet has been around so long; "publish" will cover both the print and online versions of your article.)

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"Several months later, CPS officials said they had misinterpreted the question and their answer referred to other financial transactions, not auction-rate securities."

Really? Can we see the question to determine if that's even remotely possible? Maybe they were thinking only of swaps, too?

Also, talking to a live person would have prevented that. In lieu of a live person, so would noting a refusal to comment. No more statements, ever again. From anyone. No more e-mail interviews. No more bullshit.

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"They said they could not say whether the district had considered filing an arbitration claim with FINRA and noted that the time for doing so has passed."

We don't know if we considered it, but we do know the deadline has passed!

Also, there's no way CPS or the city doesn't know if filing a claim was considered. Did you consider it, Vitale? No? You, Rahm? Any of our lawyers? Okay, then the answer is No. Or the answer is Yes. "Don't Know" is unacceptable. So the truth is more like "CPS officials won't say why they didn't file a claim, or even acknowledge whether they considered doing so, even though the issue was raised with them - passionately - numerous times over recent years. For some reason, the district prefers to play dumb over answering our questions."

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"'We remain vigilant in trying to manage the challenges presented by CPS debts - including bonds and pensions - that were incurred over decades,' the district said in its statement."

Aaarrrggghhhhh!

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Addendum:

"Tracking arbitration claims can be difficult because the process often remains confidential, but the Tribune has documented settlements paid to nine governments, including $2 million for the city of Modesto, Calif., and Houston's recent $2 million settlement."

So it is possible. If you try.

School Colors
"Just 15 years go, 40 percent teachers in CPS schools were black. Today, it's 23 percent," Natalie Moore reports for WBEZ.

(And what's more: "Many black students are segregated into majority black schools.")

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"The face of Chicago Public Schools teachers is changing: the teaching workforce is whiter and less experienced. Meanwhile, most of the students in Chicago's public schools are Hispanic and African American. Black enrollment has gone down, but black students still make up 39 percent of the district."

*

"[Chicago Teachers Union researcher Pavlyn Jankov] said the number and percentage of schools where there are virtually no staff or no students who are African American has increased a lot too. In just the last decade the number of schools with fewer than a 10 percent black teaching staff jumped from 69 to 223. Schools with no black teachers soared from 10 to 50."

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Click through for the whys and wherefores.

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I often wonder: What would CPS look like if the city's elite - along with those fleeing to the suburbs solely for the schools - sent their kids there. Investing in the public schools is not just about money - though more money would surely, almost magically, follow. What if the city's parents all did it together - a massive effort to send everyone's kids to CPS to not just bolster but uplift the whole damn system. Such an increase in stakeholders would be transformative - and teach our kids quite a lesson.

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Instead, under Rahm Emanuel's direction, we are creating a two-tiered system within a two-tiered system:

"The school-level budgets show a continued trend of decreasing enrollment - and funding - for neighborhood schools and increases for charter schools. District-run schools as a whole will lose about $60 million next year, which CTU Vice President Jesse Sharkey says is 'going to be felt in the classroom,'" Catalyst reports.

And yet, charters still don't show any better results than real public schools.

Taste Of Journalism
Stenography vs. reporting.

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You can't compare attendance at this year's five-day Taste with last year's storm-shortened Taste and wonder "Is The Taste Cool Again?" Of course attendance is "up" over last year. That's why the Tribune compared this year's numbers to 2013, when the Taste was last the same number of days.

(Also: I wonder what per capita numbers would look like. The city's population keeps declining, you know.)

Also, memo to DNAinfo: The Taste was never cool. Even in its heyday, that would not be an accurate way to describe it.

Antonio Brown P.S.
Additional thoughts on yesterday's Miming McCarthy item:

Police are calling Brown a high-ranking gang member, but I have yet to see anyone name which gang. Isn't that one of the first questions you would ask McCarthy?

Also, what does it mean to be of high rank these days when the traditional hierarchical gang structure has collapsed?

Also, do the police suspect which rival gang had a beef with Brown?

If I've missed any of this in the coverage, let me know.

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Another Secret Phone Call Collection Program
"Investigators using the program were urged to ''keep the program under the radar'' and use the call records in such a way as to keep Hemisphere's information 'walled off' from public scrutiny," the Electronic Freedom Foundation notes.

"'The federal government, specifically the Drug Enforcement Administration, has taken pains to hide its use of Hemisphere, telling police agencies to 'never refer to Hemisphere in any official document,'' said Hanni Fakhoury, EFF senior staff attorney."

Can we got back to talking about Obama's legacy (27:53) again?

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Fantasy Fix: Second-Half Surprises
Jonathan Herrera vs. Carlos Rodon.

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TweetWood
A sampling.

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The Beachwood Tip Line: Let's swap.



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Posted on July 15, 2015


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