Or so says Jack Wagner, PA's auditor general.
A little over a year ago, I came to pretty much the same conclusion.
Putting the shenanigans in the context of home mortgages (thinking the experience folks have with home mortgages would make the whole "swaption" thing a little easier to comprehend), I wrote the following:
In the words of the homeowner analogy, the homeowner (aka, the school board) is basically placing a bet with her local neighborhood bookie that a couple years down the road the market interest rate is going to be lower than whatever rate she is presently paying. In exchange for placing this bet, the bookie pays the homeowner an upfront payment and agrees to cover a certain portion of her monthly mortgage payments. However, if whenever this bet comes due interest rates don't come down, the bookie gets paid back all the money he put out plus a penalty.
Just replace "homeowner" with "school district" and you get the drift. And in this bet, there is no way for the bookie, aka the "banker," to lose money cause turned around and took the other side of the same bet from AIG. No matter how things turn out, the bookie gets his.
The only other point I'd reiterate is the fact that the only people with any interest in making these transactions are the bankers who underwrite the transactions, the lawyers who paper over the deal and the politicians who authorize the deal to pay back favors.
The rest of us get stuck with the bill (i.e., crappy schools and high taxes).
Oh yeah, this is one more reason why corporations should not be afforded full First Amendment rights.