The states were desperate. The bankers were predatory. I see predatory lending as nothing other than loan sharking.
Part-time municipal council members all over America desperate to fund infrastructure projects during the Bush economy signed up without understanding that these swaps were worse than most payday loans. On the other hand, many of the people involved in these transactions knew they were losing propositions. According to Economist Susan Ozawa of the New School:
The markets were pricing in serious falls in the prime interest rate…. So it would have been clear that this was not going to be a good deal over the life of the contracts. So the states and municipalities were entering into these long maturity swaps out of necessity. They were desperate, if not naive, and couldn't look to the Federal Government or Congress and had to turn themselves over to the banks.
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