CABs: What I get

By Joel Thurtell

A few days ago, joelontheroad registered more than 5,500 hits in a week.

Not Facebook, but for a guy without the resources of, say Huffington Post or The New York Times or even a small town weekly, not bad.

I’m not about to engineer an IPO, however.

Facebook’s disappointing initial stock price is not the reason.

Rather, the reason is my failure to monetize this site.

Like most bloggers. I don’t make a penny from what I write on joelontheroad.

My first Internet venture was quite different.

I made money with

That’s because I was selling products — refurbished old ham radio equipment.

There was and is a market for old radios.

There is a market for joelontheroad, too.

It’s just not a paying market.

So why do it?

Have you been reading my recent columns about Capital Appreciation Bonds?

Have you wondered why a journalist in Michigan is covering what seems to be a California story?

My ongoing series about CABs is a testament to the power of the Internet.

It is that power that excites and motivates me to write about CABs.

Here is what happened.

Twenty years ago, I wrote an exposé about insider trading and self-dealing in a sewer project in three western Wayne County townships in Michigan. There was no Internet in 1992. The stories appeared on a Saturday morning in April in the Detroit Free Press. The paper enjoyed a high level of circulation and in the Joint Operating Agreement, aka monopoly, with The Detroit News, the Free Press was the only statewide outlet that could break a hard news story.

My sewer story had huge impact. Four months later, in the Republican primary, all seven of the elected officials connected with what came to be known as Sewergate were dumped. That was some vindication for me, but by August of 1992, I had been banned from writing about the sewer issue. Nothing wrong with the accuracy of my reporting. Rather the contrary. Infuriated elected officials lobbied Free Press editors, there was a big meeting with me, editors and officials in a Free Press conference room, the executive editor staunchly defended the quality of my work, the Free Press ran an editorial condemning the sewer scam —  and I was told no more sewer stories.

Sewergate was all about municipal bonds that were sold to investors to finance a $100 million sewer project. Some of the bonds were CABs. I learned about CABs from a bond salesman who’d been hoping for a piece of the sewer action. Cut out of the deal, he was pissed. He told me that Michigan schools were using CABs to run up huge interest bills that would come due long after current officials were gone. I was forbidden to write about the sewer, so I turned to CABs.

I persuaded an editor the story was important. For several weeks, I drove from suburban Detroit to Lansing each day. The Michigan Treasury people set up a table and put out all the files on CABs. I still have photocopies of every official statement of every CAB issue by a Michigan school district.

I learned that since the first CAB was issued in 1988, Michigan school debt — hitherto flat — had doubled from $2 billion to more than $4 billion and was headed for the sky.

CABs, aka “zero coupon bonds,” are designed to maximize returns for investors. In Michigan, we found interest rates of more than 500 percent.

In California, we found interest at 1000 and even 2200 percent!

School districts could pledge “no new taxes” to voters in millage elections, then cross their fingers because unless property values continued rising at 6 or 7 percent per year, a tax bill would come due when interest payments had to be made 10, 15, 20 and  even 40 years in future.

That was the essence of the story, along with the fact that school officials were being taken for a colossal ride and taxpayers were getting a humongous screw job, and the air around CABs was full of lies.

My CAB stories ran in the Detroit Free Press on April 5, 1993. CABs effectively ended on that date. We published what we called the “Big Graphic,” which showed each school district that issued CABs together with the purpose, the amount of principal and the amount of interest. When people saw what their school officials had duped them into, the air — suddenly laden with truth — got hot.

The following year, 1994, the Michigan Legislature banned CABs. Senators and House members referred to tear sheets of my stories as they voted.

By that time, I had been off the CAB story for a year. There was fallout. No problem with the journalism. Major failure of nerve at the newspaper. Just as with the sewer story, I was ordered to stop writing about CABs.

Maybe if Free Press editors had realized the impact those stories had, they would have taken a different view. But they got flak from purveyors of CABs, and frankly, few editors understood the concept of compound interest and balloon payment at the heart of CABs. Capital appreciates, and when you make no interest payments of years, capital appreciates in compound manner.

Not an easy concept for editors.

Anyway, the stories won the 1994 Michigan Education Association’s School Bell Award, but much more importantly, our journalism prompted the Leghislature to pass a law forbidding CABs in Michigan. All that happened long after editors squelched my Cab reporting. Believe me, there was a lot more to write. I had only nicked the surface of the scandal.

Still, I can brag accurately that my work saved the taxpayers of Michigan billions of dollars.

All of this happened before the Internet.

For some reason three years ago, I posted my Free Press CAB stories on this blog. Back in March, I was contacted by a Californian who had noticed that schools in that state were issuing CABs and running up huge piles of debt. This Californian googled for CABs and found my 19-year-old Free Press stories. And was impressed that Michigan banned CABs.

But my correspondent noted that in 19 years, no other journalist had delved into the arcane but — to taxpayers — costly world of Capital Appreciation Bonds.

That is how I learned that CABs are thriving out West.

Thank you, Internet.

And thanks to the fact that I posted my 1993 Free Press stories on joelontheroad.

Without those posts, my California contact would not have happened. The stories had the same effect on that person’s research — enlightenment.

Education on how bad CABs are.

I don’t make a nickel publishing these articles.

But I know how powerful those 1993 newspapers stories of mine were. They taught legislators.

They responded by giving CABs the boot.

It happened in Michigan.

It can happen in California.

So far, mainstream California journalists have not tuned in.

Doesn’t matter.

Anybody who wants to know what’s going on with CABs in California can find my stories.

They don’t need the LA Times.

No, I don’t make money doing this.

But if I can help inform the public and policy-makers about the abuse of CABs, maybe, just maybe, California’s Legislature will do what Michigan lawmakers did.

Boot CABs.

If that happened, well, believe me, it would beat money.


This entry was posted in Bloggery, CAB scams, future of newspapers, Joel's J School, Muni bonds and tagged , , , , . Bookmark the permalink.

2 Responses to CABs: What I get

  1. Bernard King says:


    Thank you so much for your excellent reporting. My wife and I were considering purchasing a house in the Poway School District, but now thanks to your reporting, we know our massive property tax payments would be simply flushed down the drain to pay for overpriced capital appreciation bonds.

    You are a true investigative reporter, and an invaluable asset to our democracy.

    Thank you.

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