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Mon Mar 14, 2016, 10:47 AM

How Wall Street Screws Municipal Governments

In all of the misdeeds of Wall Street over the last decade, until Bernie Sanders brought up what interest rate swaps sold by Wall Street to the city of Chicago have done to the finances of Chicago in his meeting at a Chicago church on Saturday with Jesse Jackson, I had forgotten all about them. Some might not be familiar with them. Many cities and counties have been badly damaged by products Wall Street sold to them without properly disclosing the associated risks. Jefferson County, AL, home of Birmingham, the largest city in the state, filed for bankruptcy several years ago in large part due to an interest rate swap gone bad.

As Bernie pointed out, while cities like Philadelphia and Detroit have sued or threatened to sue Wall Street and recovered part of their losses, former Wall Streeter and Clinton protege, mayor Rahm Emanuel of Chicago, has closed large numbers of Chicago public schools (and mental health facilities) due to budget shortfalls while dutifully paying $36 million per year to Wall Street banks on interest rate swap products that have gone bad. Emanuel, who doesn't hesitate to employ bare knuckle tactics with the Chicago teacher's union (which had endorsed Bernie), won't go after Wall Street, which still favors him with campaign contributions.

Here is a link to a 16 page paper (in PDF form) that is a very good summary of how Wall Street screws municipal governments and what kinds of changes need to be made, along with a few short excerpts. This is another example of the Wall Street greed and corruption that Bernie Sanders is campaigning against as Wall Street funds SuperPacs for Hillary Clinton.

http://rooseveltinstitute.org/wp-content/uploads/2015/11/Bhatti_Dirty_Deals.pdf

<There is a saying that a budget is a moral document. If that is true, then cities like Detroit are bankrupt in more ways than one. Across the country, elected officials in financially distressed cities and states are cutting essential community services like mental health clinics and public schools in order to address budget crises, but they are faithfully paying Wall Street for predatory financial deals. In public budgeting parlance, funding for services is called discretionary spending but payments to Wall Street are considered mandatory.

Most people would agree that the most important debt that a school system owes is to students, to provide them with a decent education. In reality though, school districts like Philadelphia’s are routinely forced to increase class sizes, lay off teachers and guidance counselors, and close schools to pay predatory debts to Wall Street. The financialization of the United States economy over the last 35 years has distorted our social,economic, and political priorities. The primary function of government is to provide services to residents (e.g., streets, schools, fire protection, national defense), not to provide a profit to Wall Street. However, in the financialized economy, Wall Street profits trump all other priorities.>

<The current Wall Street business model is premised on extraction. The more money bankers can extract from the economy, the bigger their end of year bonuses will be. In municipal finance, this means diverting public dollars that are supposed to be spent on Main Street back to Wall Street. As tax rates for corporations and top income-earners have declined over the past 35 years, cities and states have been forced to take out debt to pay for things they used to be able to afford. This has provided banks with the opportunity to extract vast amounts of taxpayer dollars. Outstanding municipal bond debt has grown tenfold since 1981, from $361 billion to $3.7 trillion.>

<As public officials have been forced to increase borrowing to keep up with the growing demands of their communities, Wall Street firms have taken advantage of this crisis by steering municipal borrowers toward more complex debt deals that generate more fee revenue, turning a plain vanilla corner of banking into a complicated goldmine for bankers. The financialized economy allows Wall Street to extract wealth out of every transaction. Whether a parent takes out a loan to send a kid to college or a public agency issues a bond to pay for basic services, banks get to take a cut through fees and interest. This enriches the financial sector at the expense of working families, contributing to the growing inequality in our country.>

<In Chicago, Mayor Rahm Emanuel’s Board of Education voted to close 50 schools in 2013, the largest mass school closing in American history. This displaced 30,000 students, approximately 90 percent of whom were African American. Chicago Public Schools (CPS) claimed each school it closed would save the district $500,000 to $800,000 annually. Altogether, this means that the school closings would save the district at most $40 million. CPS pays $36 million a year on interest rate swap deals, enough money to keep at least 45 schools open. But instead of spending its money running schools, CPS is forced to prioritize payments to Wall Street ahead of children’s education. Parents and teachers have called on the Mayor and the Board of Education to challenge the legality of the swap deals on the grounds that the deals likely violated the MSRB’s fair dealing rule (see above), but to no avail. >

<Opacity is a threshold problem in municipal finance. Not only do financial institutions purposely obscure the terms and provisions of complicated financial contracts, but it can also be nearly impossible to get a full accounting of all the money that taxpayers are spending every year for financial services. Public officials are often contractually prohibited from disclosing fees and fee structures to the general public, sometimes in direct conflict with state open records laws. Banks and other Wall Street firms, especially private equity firms and hedge funds, fight to maintain a shroud of secrecy over fees in order to hide arbitrary and disparate fee structures. This makes it difficult to bring any accountability into the system or to have effective taxpayer oversight over financial deals.

Between cash management, debt management, and investment management for state and local governments, school districts, public agencies, and public pension funds, taxpayers do trillions of dollars in business with Wall Street firms every year. We deserve to know how our money is being spent and where it is going, and we should be able to evaluate the terms of all financial transactions.>

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Arrow 10 replies Author Time Post
Reply How Wall Street Screws Municipal Governments (Original post)
BernieforPres2016 Mar 2016 OP
Mrs. Ted Nancy Mar 2016 #1
FlatBaroque Mar 2016 #2
Skwmom Mar 2016 #4
BernieforPres2016 Mar 2016 #5
FlatBaroque Mar 2016 #6
BernieforPres2016 Mar 2016 #7
Skwmom Mar 2016 #3
lostnfound Mar 2016 #8
BernieforPres2016 Mar 2016 #9
lostnfound Mar 2016 #10

Response to BernieforPres2016 (Original post)

Mon Mar 14, 2016, 11:17 AM

1. Rolling Stone had an article about Alabama

Six years ago.

Looting Main Street

If you want to know what life in the Third World is like, just ask Lisa Pack, an administrative assistant who works in the roads and transportation department in Jefferson County, Alabama. Pack got rudely introduced to life in post-crisis America last August, when word came down that she and 1,000 of her fellow public employees would have to take a little unpaid vacation for a while. The county, it turned out, was more than $5 billion in debt — meaning that courthouses, jails and sheriff's precincts had to be closed so that Wall Street banks could be paid.

Wall Street's Bailout Hustle

As public services in and around Birmingham were stripped to the bone, Pack struggled to support her family on a weekly unemployment check of $260. Nearly a fourth of that went to pay for her health insurance, which the county no longer covered. She also fielded calls from laid-off co-workers who had it even tougher. "I'd be on the phone sometimes until two in the morning," she says. "I had to talk more than one person out of suicide. For some of the men supporting families, it was so hard — foreclosure, bankruptcy. I'd go to bed at night, and I'd be in tears."

...

Homes stood empty, businesses were boarded up, and parts of already-blighted Birmingham began to take on the feel of a ghost town. There were also a few bills that were unique to the area — like the $64 sewer bill that Pack and her family paid each month. "Yeah, it went up about 400 percent just over the past few years," she says...


http://www.rollingstone.com/politics/news/looting-main-street-20100331

I don't see any republican, let alone Trump, doing anything about this.

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Response to BernieforPres2016 (Original post)

Mon Mar 14, 2016, 11:19 AM

2. Bernie's recent presser in Chicago laid this out pretty well. /

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Response to FlatBaroque (Reply #2)

Mon Mar 14, 2016, 11:47 AM

4. Is there a link to a video?

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Response to Skwmom (Reply #4)

Mon Mar 14, 2016, 11:55 AM

5. Here it is

The whole thing is worth watching. It gets into issues that have not been discussed much in the rest of the campaign, including this municipal finance/Wall Street issue, the audit of the Fed that showed they loaned trillions of dollars to financial institutions all over the world at virtually zero interest rates, voter registration issues, etc.

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Response to BernieforPres2016 (Reply #5)

Mon Mar 14, 2016, 11:57 AM

6. This is actuallu another event. Glad he is using Rahm as a foil to hammer this home. /

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Response to FlatBaroque (Reply #6)

Mon Mar 14, 2016, 12:08 PM

7. I see now that you referenced a press conference

I saw that as well. Bernie addresses the issue at about the 4:00 mark in this video.

Jesse Jackson drops an incredible number as well. The city of Chicago has paid out $600 million in police misconduct cases.

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Response to BernieforPres2016 (Original post)

Mon Mar 14, 2016, 11:47 AM

3. About time. This is a very important issue.

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Response to BernieforPres2016 (Original post)

Sat Mar 26, 2016, 12:16 PM

8. Another form of upward wealth transfer from middle class to banksters

There's so many of them. Student loans, the bank bailout, municipal debt swaps, pension defaults, corporate relocation incentives / tax waivers, and unnecessary wars, to name a few.

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Response to lostnfound (Reply #8)

Sat Mar 26, 2016, 01:03 PM

9. Thanks for mentioning the corporate relocation incentives

And I would include professional sports franchises in the same category. Corporations, billionaire professional sports franchise owners and the scummy "relocation consultant" industry they have spawned pit U.S. states and municipalities against each other in a prisoner's dilemma to see which set of taxpayers can offer them the biggest subsidies to do what they were in most cases going to do anyway.

I think this should be addressed at the federal level with legislation making it illegal for states and municipalities to offer special incentives for particular relocation deals. I read that Obama discussed such a proposal at some point but presume he didn't follow through. Bernie should add it to his platform.

Here is a link to a story on the recent relocation of General Electric's headquarters from Fairfield, CT to the Boston, MA area. As part of the more than $120 million in subsidies, Massachusetts taxpayers ended up paying for the personal relocation expenses of GE CEO Jeff Immelt, who I would estimate has made at least $300 million in compensation over the last 15 years, and for other GE executives. This is while Massachusetts, like most states, faces budget problems and is cutting services to the poor.

http://www.courant.com/politics/hc-malloy-and-ge-20160114-story.html

<Malloy said that the state had offered GE "a lot,'' but he and others declined to elaborate, in light of the state's policy of keeping financial incentives confidential. Massachusetts is offering GE more than $120 million in incentives, plus tax breaks and assistance to pay for executives' relocation from Connecticut.>

Here's an article on the corporate welfare that helps build new sports stadiums for their owners who are part of the top 0.01%. It focuses only on the cost to the U.S. government of allowing municipalities to issue tax exempt bonds to fund these stadiums and doesn't even get into the much greater subsidies provided by local taxpayers.

http://www.bloomberg.com/news/articles/2012-09-05/in-stadium-building-spree-u-s-taxpayers-lose-4-billion

<Jones is one of dozens of wealthy owners whose big-league teams benefit from millions of dollars in taxpayer subsidies. Michael Jordan’s Charlotte, North Carolina, Bobcats basketball team plays in a municipal bond-financed stadium, the Time Warner Cable Arena, where the Democratic Party is meeting this week. The Republicans last week used Florida’s Tampa Bay Times Forum, also financed with tax-exempt debt. It is the home of hockey’s Lightning, owned by hedge-fund manager Jeffrey Vinik. None of the owners who responded would comment.>

<Tax exemptions on interest paid by muni bonds that were issued for sports structures cost the U.S. Treasury $146 million a year, based on data compiled by Bloomberg on 2,700 securities. Over the life of the $17 billion of exempt debt issued to build stadiums since 1986, the last of which matures in 2047, taxpayer subsidies to bondholders will total $4 billion, the data show.

Those estimates are based on what the Treasury could have collected on interest from the same amount of taxable bonds sold at the same time to investors in the 25 percent income-tax bracket, the rate many government agencies assume. In fact, more than half the owners of tax-exempt bonds pay top rates of at least 30 percent, according to the Congressional Budget Office. So they save even more on their income taxes, a system that U.S. lawmakers of both parties and President Barack Obama have described as inefficient and unfair.>

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Response to BernieforPres2016 (Reply #9)

Sat Mar 26, 2016, 04:21 PM

10. I thought about adding the sports deals too

Was thinking that money isn't destined for the banksters, so much, just for the cronies. But maybe I neglected to consider that the stadiums are big financing deals too

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