In a massive and well-researched story, the New York Times tonight dealt the potential death-blow to Sen. Michael Bennet's already-struggling campaign for reelection. Just four days before the end of Colorado Democratic primary voting, the story by Pulitzer Prize-winner Gretchen Morgenson (complete with Bennet's mug shot) details how in 2005 Bennet left his job as a corporate raider for right-wing billionaire Philip Anschutz, later became head of Denver Public Schools and in that position orchestrated a deal with JP Morgan -- a deal that destroyed the Denver Public Schools' balance sheet and made JP Morgan, Citigroup and Bank of America millions. Bennet's senate campaign (no surprise) is a recipient of hundreds of thousands of dollars from the financial industry, including PAC contributions from JP Morgan; individual contributions from a Citigroup lobbyist and director; and an individual contribution from a Bank of America executive.
The story is truly ugly -- and I say that as an expectant father who wants to send my new child to a DPS school. The Times reports that Bennet "persuaded the seven-person school board of the deal's advantages," and, as KDVR Fox 31 adds, this was a deal that "was only good for big banks, which have been contributors to Bennet's campaign." Here are the sordid details:
Since it struck the deal, the school system has paid $115 million in interest and other fees (to JPMorgan), at least $25 million more than it originally anticipated...to unwind it all, the schools would have to pay the banks $81 million in termination fees, or about 19 percent of its $420 million payroll...
(Bennet and DPS chief Boasberg) say that it has saved the school district $20 million it would have otherwise had to pay to cover the pension shortfall... But the savings cited by the two men do not take into account termination fees associated with the complex deal. And had the school district issued fixed-rate debt, Wall Street would not have received the cornucopia of fees embedded in the more complex deal...
From the campaign trail in mid-July, Mr. Bennet reiterated his support of the deal...
In an earlier piece about this, the Cherry Creek News* sums it up:
DPS worked with JP Morgan and Citigroup on fixed-rate bonds, then worked with Morgan and others on a "swap," betting taxpayer money that interest rates would stay high. Placing the bet earned the banks millions in fees, and when interest rates sunk to historically low levels, the bankers made more money and Denver taxpayers and schoolchildren lost. In essence, Bennet bet taxpayer money on the direction of interest rates against big Wall Street banks, and lost.
Denver taxpayers lost, but big Wall Street banks won huge, to the tune of millions of taxpayer dollars.
All of this is genuinely stunning -- and politically devastating. You have huge losses for the school system that Bennet claims is his shining management achievement that makes him qualified to be senator. You have quotes from experts saying the deal would have been "highly unusual among private sector issuers like corporations," and yet Bennet led the charge for it at the urging of JPMorgan and Citigroup, his future campaign contributors. And maybe worst of all, you have Bennet still refusing to admit any error or wrongdoing, insisting despite a huge transfer of taxpayer cash to his Wall Street donors that this deal was nonetheless just great for taxpayers.
The issue boils down to this: Either Bennet was embarrassingly incompetent in sending Denver taxpayers and schoolchildren into the jaws of Wall Street's predatory lenders -- if that's the story, it destroys his argument that his positive "real-world experience" will make him an effective legislator -- or, Bennet was blatantly corrupt, using his position as DPS chief to help pad the profits of his corporate friends at the time, and his future Senate campaign contributors.
Either way, this makes the ads of Bennet's opponent, Andrew Romanoff, look like they hit devastatingly close to home. For months, Romanoff has been focusing attention on how Bennet's huge corporate campaign contributions influence Bennet's votes, and how Bennet's time as a corporate raider raise the ultimate question about Bennet: Which side are you on? After this New York Times blockbuster, it sure doesn't look like Bennet has a good answer to that query.
Well, at least not good if you are a Denver taxpayer, a Denver schoolchild and/or a Colorado Senate primary voter.
NOTE: Denver school board member Jeannie Kaplan, who is quoted in the NY Times story, will be on AM760 Friday morning at 7:05am to fill us in on the details. Tune in at www.am760.net or on your radio dial.
* By the way, HUGE kudos to the Cherry Creek News in its political reporting on this race. This is the second investigative story the paper has been ahead of in the campaign (the first one is here).