From whose perspective?
We will lend you money. You will partially fund the liability with a sinking fund. We will manage the sinking fund. If you lose money in the sinking fund, you must pay us for the loss. We will collect fees as a percent of assets in the meantime (the ultimate scaleable and compounding fee structure). This is called risk socialization with private gain. We will see you on the slopes.
Milan (and other Italian municipalities):
We will borrow money. We agree to your terms as they sound like good ideas and we love your suits. If we lose anything, we will claim ignorance of said terms. We will sue. Jurisdiction will be in Italy. This is called politicization of liability. We will see you on the slopes.
"Investment bankers, many based in London, spotted a major opportunity in the 1990s. Italian cities and regions wanted to borrow money. In order to avoid ballooning debt, the central government required local authorities to put away a percentage of the loan every year in a "sinking fund" so that when it was time to repay the full sum, they would be able to do so.
Investment banks offered to manage the sinking funds. While the funds initially had to be invested in Italian government bonds, the criteria were widened to include other government debt within the European Union. This could include debt from countries seen as more likely to default, such as Greece, as long as it was triple-A rated.
The banks took a fee to manage the sinking funds. They argued to the Italian authorities that as well as saving the money to repay their initial loan, they might also make some money from the investments. Many did when the global economy was booming.
All of the contracts were different. But critics have said some contained a sting which was not properly understood by some of the Italian authorities.
While the local authorities only earned a return on the money they put aside, the value of their total loan was at risk. The banks could invest all of the money the authority had borrowed through bonds. If everything went well, the bank would pay a return based on the incremental amounts the local authority was putting into the sinking fund, and keep the rest as profit.
If things went badly, it was the local authority which would have to pay for the loss – and then also have to pay off the bond when it became due."