The recommendations in the “Turned Around” report from the ReFund America project are important and sensible ones. In Illinois, as in Chicago and many other places around the country, big banks appear to have violated their legal obligations of “fair dealing” by overstating the benefits and understating the risks of the complicated long-term interest-rate swaps they pitched to public entities. These deals, now gone bad, are leaching billions of dollars from taxpayers and communities and sending them to Wall Street instead of meeting local needs.
In addition to the legal steps the State of Illinois can and should take, the SEC has the authority to investigate these deals, and to order disgorgement of ill-gotten gains if it finds evidence of wrongdoing. It is disappointing that the Commission has not already taken such steps. But a call from the people and the State of Illinois could and should spur the SEC to action to recover for the public big-bank gains that resulted from violations of their obligations to do business in a fair and transparent way with these public-sector clients.