Archive for capital appreciation bonds

City of Eureka’s Validation Action and Reverse Class Action Lawsuit

Posted in Uncategorized with tags , , , , , , , , , , on January 13, 2013 by highboldtage

City of Eureka’s Validation Action and Reverse Class Action Lawsuit

People of Eureka! You Are About to Be Stripped of Your Constitutional Right to Vote – Forever!

Quietly on election night the Eureka City Council passed by 5-0 vote an ordinance to send a so-called “validation” action to the local Superior Court, in essence filing a class action lawsuit against all Eureka residents. The purpose of the action is to “validate” the sale of 10 year “Pension Obligation Bonds” that will refund the current short term obligation due CalPERS but also to circumvent the requirement in the Constitution of the State of California that debt of term longer than one year must be approved by 2/3 majority of the citizens. If this “validation” action goes forward, and some local Humboldt judge rubber stamps it, then you and all your fellow Eurekans will FOREVER be denied the right to vote on ANY PENSION OBLIGATION BONDS OF ANY TERM, TYPE, OR DURATION. This is a ponzi scheme and its desperation hints at severe financial problems ahead for the city of Eureka. It is a long step down the road to municipal bankruptcy.

One weak justification the Council gave for denying Eureka residents the right to vote on the bonds was to save the taxpayers the cost of a special election. Compared to the “fees” of almost a half million $ to be paid to the financial parasites. Um Hmm.

Oh and in case you weren’t aware of it, you were sued too. It’s a rare unusual reverse class action lawsuit where the “class” are the defendants. (That’s right, you and me.)

I filed an “answer” against the suit. Now I must pay a filing fee of $435 by Jan. 17th, so I need donations to help with that. We need to address the issue of how the poor and the modest of means access the legal system. It seems like the rich and powerful have no problems with it.

I need some help, but it can’t divert help from the Eureka Fair Wage Act either. That is critical.

I may have been the only one in the city who answered it, I don’t know. I would like some pro bono legal help. I have a few arguments I want to make against this legal blackmail but I am not a lawyer and don’t have much experience in court.

This issue of kicking the can down the road and making future generations pay for our stuff. I hate it. I want to leave a better world for our children and grandchildren. We cannot wage war on future generations!

Yes I am aware that this issue cuts across normal political and party divides.

People may disagree over how good a deal these bonds are. I think they are a shitty deal that will cost the taxpayers over a million dollars more than simply paying off calPers in five years. Plus it will needlessly funnel almost a half million dollars in “fees” to Wall St. parasites. Its ok if you disagree with me on this.

The point is that I believe the people both do and must have the right to vote their approval up and down on this kind of long term bond. If we get to vote on these and the voters approve them, I won’t have any complaint. I will still think they are shitty bonds, but the voters will have spoken.

If you can help me in this please email me @  Without your help it will be hard to continue, unless someone unknown to me has also filed an answer.  Again I need a few $ for fling fees and if possible some pro bono legal help.


Bill Holmes

Answer to the Unconstitutional Actions of the City of Eureka – Pension Obligation Bond Validation

imagine the audacity of a city council,

a city manager and a city attorney,

willing to sue all the citizens of the city

and anyone else who has an interest

all in order to circumvent the Constitution of

the State of California

Because they know damn well that the citizens

will not approve this bullshit bond issue.

what they are trying to do is convince a judge and everyone else that short term obligations owed to CalPERS are “bonds” that can be refunded without voter approval as is required under the Constitution of the State of California. These are not bonds that are being refunded. This is fiction.

Refinancing short term obligations with long term bonds defines fiscal irresponsibility and is indicative of serious problems in the finances of the City of Eureka.

At the very least the voters of Eureka should be given the chance to vote on this bond issue.

They have said that they don’t want to vote because of the “cost to the taxpayers” of an election. Yet, they are going to pay some Wall St. parasites almost $500,000 in fees to float this bullshit bond issue.

They are lying to you.

pdf of the answer:


background information:


Incompetence? Corruption? Shocking Financial Revelations Rock Humboldt Schools

Posted in Uncategorized with tags , , , , , , on November 30, 2012 by highboldtage

update  12/6 North Coast Journal coverage

this is beyond class warfare….this is generational warfare.

If we want our grandchildren to curse us all we have to do is keep acting the way we are acting.

have a peaceful day,


A few observations…..

First of all, these are junk bonds. Municipal junk bonds, but still junk bonds. There is a whole category of bonds called municipal junk bonds and dealers who specialize in them. One large muni junk bond fund has a current yield of 5,8% on muni junk bonds. Mactowns School Bonds deliver almost 7% so draw your own conclusions. They are risky for both the borrower (the MUSD) and they lender (the speculators who buy junk bonds.) The risk is that the school district will default, and the bonds become worthless or more usually some amount less than 100% set by some federal bankruptcy judge. Muni junk bonds that default currently return 44% of principal. That is why thier interest rates are high to compensate for the (expected) mathematical expectation of loss on the bonds.

Who owns them? Speculators. Maybe even some pension funds who have been suckered or pressured into buying them, or have bought them for corrupt reasons. People who are hedging against something or are diversifying a large portfolio with a small amount of this risk. These last two are at least rational. All the above is true but most real people don’t buy 40 year zero coupon bonds because who would buy a bond that matures after you are dead?

Can they be recalled? If the legalities can be worked out , yes. Calculating their fair market value is trivial. Maybe the MUSD will have to pay a premium of 1% over fair market to buy them back. They have not existed long enough to have grown in value significantly. The queston is who would refinance them, since MUSD has obviously bumped up against its credit limit. Force the people who put these deals toghether to pay back their fees and commisions. In the Bernie Madoff case they call this a clawback.

It goes without saying that a vice president at Security National, a company whose sole existence is about mortgages and securitized credit and debt instruments should understand the consequences, costs and risks of issuing zero coupon bonds. For him there is no excuse and his failure to communicate this to the community is inexcusable. The same can be said for several other board members. On the other hand there might be other board members there and in other communities around California who are just “good government” types of people, and they might be Republicans or Democrats, and these people might have simply believed what “staff” told them, or more likely what “staff” omitted. These people are victims, just the same as elderly victims of con artists. This is not a left right issue. Around California there is legit outrage at this from both “liberals” and “conservatives.”

But it is more complicated than just corruption. Sure there most likely is corruption at some level. And we will hope that it will be found out and prosecuted. But it is also a symptom of a systematic problem with our economy: over-financialization. Too much of our GDP now is tied up in Wall St. derivative products that have created essentially the biggest casino on Earth (And in the history of Earth!). Not enough is tied up in truly productive assets like factories and schools, and the social safety net, which is certainly a productive investment in our common social capital.

have a peaceful day, Bill

McKinleyville CABs cost $475,000 in fees

Its discoverable who owns the bonds

update the real info:

update MUSD responds:

What was the original purpose for the sale of these CABs by the McKinleyville USD?  Have the proceeds been spent yet, and if so on what?  Were the proceeds used to roll over previous indebtedness, as in Willits?


“The case of the McKinleyville Union School District is especially striking. In 2008, residents of the district just barely approved Measure C, which authorized the district’s board of trustees to offer up to $14 million in bonds. (The measure required a 55 percent yes vote to pass.) Of that, the board elected to offer $4.2 million in the form of capital appreciation bonds. Since that debt was structured over a 40-year period, with interest accruing all the while, taxpayers in the district will eventually be on the hook for over 13 times that amount — a stunning $57 million in total.”

via Hank Sims

Some background from the local McKinleyville Press:

Some debate at the Humboldt Herald:

CAPITAL APPRECIATION BOND (CAB) – A municipal security on which the investment return on an initial principal amount is reinvested at a stated compounded rate until maturity, at which time the investor receives a single payment (the “maturity value”) representing both the initial principal amount and the total investment return. CABs typically are sold at a deeply discounted price with maturity values in multiples of $5,000. CABs are distinct from traditional zero coupon bonds because the investment return is considered to be in the form of compounded interest rather than accreted original issue discount. For this reason only the initial principal amount of a CAB would be counted against a municipal issuer’s statutory debt limit, rather than the total par value, as in the case of a traditional zero coupon bond.

more from google on capital appreciation bonds in california and

Willits has bond pain too

Willits a cautionary tale MUST READ

OC Register

Wall St. Journal


Voice of San Diego


BondBuyers Online “Unintended Consequences”

How do Capital Appreciation Bonds Work?

Junk Municipal Bonds

Zero Coupon Bond Calculator

North County Times (read the comments)

CABs a ticking time bomb in California