JPMorgan Cassino Settlement Shows Derivatives Failed Taxpayers

For the 33,000 residents of Cassino, the Italian town’s attempt to cut its borrowing costs using derivatives was a losing bet the moment it was struck. The Wall Street bank that created the deal reaped an instant profit.

Cassino, flattened during World War II, signed a contract with Bear Stearns Cos. in 2003 to swap the fixed rates it was paying on 22.5 million euros ($29.5 million) of debt for a variable rate, according to documents obtained by Bloomberg News last month under a court ruling. After the cost of the swap spiraled, the town sued JPMorgan Chase & Co., which bought Bear Stearns in 2008, and the bank paid to end the contract, leaving Cassino with a 577,000-euro loss, more than half of what it pays each year to provide free nursery care.