"If you're in a poker game and you don't know who the patsy is, you're the patsy".  Warren Buffet

Today's Bloomberg:   The Reading, Pennsylvania school district must pay $230,000 to Deutsche Bank because it is on the losing side of a wager on long-term interest rates.

Excerpts from the article:
“It was all done in a real hurry,'' said Keith Stamm, the only member of the board to vote against the deal. “The whole board is so desperate to try to find a way to raise money, they see this floated in front of them as a big-time amount of money and they want to go forward with it.''

William Cinfici, another board member and a registrar for the state's division of vital records, said Concord (the school's financial advisor) didn't provide enough financial information to evaluate the transaction.

`Nobody Questioned It'

“It was arcane, nobody questioned it,'' Cinfici said. “Everything was presented to us at the last minute. I said, `Well, I'll trust in the guys' judgment.'''

While Reading's taxpayers are liable for the loss, bankers and advisers already have pocketed $1 million in fees for arranging the swap.

The Internal Revenue Service has probed whether the mispricing of municipal swaps has allowed advisers and banks to make excessive fees, depriving the federal government of earnings from the investment of tax-exempt bond proceeds. The U.S. Justice Department and SEC have asked for information on swaps as part of an antitrust investigation into alleged bid- rigging in the $2.3 trillion municipal market.

Local governments from Augusta, Georgia, to Oakland, California, are being lured by similar opportunities to speculate with derivatives created by the world's biggest banks. Most of the $400 billion of private agreements sold to municipalities escape taxpayers' notice and are little understood by the public officials and administrators who approve them.

The article can be read in its entirety here