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Detroit Emergency Manager Calls Interest Rate Swaps a "Ticking Time Bomb"

Detroit requests approval for new settlement to get out of swaps contracts originally designed to protect pension fund against rising interest rates.

By Steven Raphael and Steven Church, Bloomberg | Updated on January 03, 2014

Bankers who sold Detroit interest rate swaps placed “a ticking time bomb” in their structure, the city’s emergency manager said in court as a trial resumed over a proposal for canceling the transaction.

Although the city collected $40 million over eight months from the swaps deal, falling interest rates helped the banks behind the deals turn a profit, Kevyn Orr, the emergency manager, testified today before U.S. Bankruptcy Judge Steven Rhodes in Detroit.

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