Tobacco Asia

Volume 18, Number 5

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taste art of taste the the art of create create The enjoyment of tobacco has traditionally always enriched people's senses all over the world. The harmonious interplay of sensory created by Hertz & Selck. Progress and tradition going hand in hand. www.hertz-selck.de Hertz & Selck GmbH & Co. | P.O. Box 20 16 64 | 20206 Hamburg-Germany Tel. +49 [0]40-43 25 76-0 | Fax +49 [0]40-43 25 76-50 | info@hertz-selck.de settlement in legal history, promising US$206 billion in the first 25 years alone. And when governments are given that kind of windfall, Wall Street senses a killing. These are the same under-regulated insti- tutions that caused the world crash in 2008, and now debts are once again turning toxic. Under the TMS the tobacco companies agreed to pay the yearly installments in per- petuity. What Wall Street offered the states was cash in hand immediately. To raise the money, bonds were issued to investors, using all or part of the tobacco money as collateral. Nine states – Alaska, California, Iowa, Mich- igan, New Jersey, New York, Ohio, Rhode Island, and West Virginia – plus Washington DC, Puerto Rico, and Guam took the bait. In theory, everybody wins. The states get immediate funds, the investors get the carrot of a monster future payback, and the finan- cial institutions make wads of cash in fees. The trouble for the states – and the tax- payers of future generations – is that they traded their tobacco payments for a fraction of their true worth. If someone came to you and said, "Lend me $100, and in a year I'll repay you not $100, but $10,000. And I'll also pay you interest, not on the $100, but on the $10,000" you'd think he was mad. And he would be. But this is in effect what these states have done. On a monumental scale. "It's going to cost taxpayers, either directly or indirectly" The 12 states and territories issued capital appreciation bonds (CABs) at a compound rate that accumulates each year, in effect pay- ing interest on interest. Unlike normal bonds, CABs avoid yearly interest payments in fa- vor of a total, so-called "balloon payment", in these cases up to 50 years ahead. For this added investor risk there is a price to pay. And what a price! This dozen between them issued CABs to the value of US$22.6 billion. In exchange they received just US$573.2 million. Once compound interest is factored in, the final re- payment to investors will be US$67.1 billion. A staggering loss. There have been ripples about this since the first deals were struck in 2002. And now there's an in-depth – and ongoing – investi- gation by ProPublica, the Pulitzer Prize win- ning, non-profit, public interest news agency. Its first report, published in August 2014, has already been picked up by influential main- stream publications such as The New York

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