Wall Street, Coming to Your Town! (and Destroying It)
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As cities like Scranton seek to eliminate unsustainable debts, investors grow more demanding. Bond insurers involved in bankruptcy negotiations in Stockton and San Bernardino have even suggested that bondholders have a claim to CalPERS, the retirement fund for California’s public workers. Though the retirement system is constitutionally protected, this is a troubling development because bondholders’ demands are almost always given priority. A recent CBO report noted that “of the 18,400 municipal bond issuers rated by Moody’s Investors Service from 1970 to 2009, only 54 defaulted during that period.” Bonds are bets that banks don’t lose.
Though the debt financing of U.S. cities is not illegal, that doesn’t mean deals are made fairly and transparently. We recently learned that interest rates around the world have been manipulated for years for the benefit of a few firms. Yet the LIBOR scandal is not surprising when one considers that municipal interest rate fraud has been going on for years with no public outcry. In his report on municipal bond rigging in Rolling Stone, Matt Taibbi explainedhow Wall Street has “skimmed untold billions” from hundreds of municipalities—and how they continued to invest in bonds even after they were caught. “Get busted for welfare fraud even once in America, and good luck getting so much as a food stamp ever again,” Taibbi wrote. “Get caught rigging interest rates in 50 states, and the government goes right on handing you billions of dollars in public contracts.” The debt financing of municipal government is an activity promoted and protected by the regulatory arm of the federal government.
What Can Be Done?
Strike Debt, a group (of which I am a member) inspired by Occupy Wall Street, has begun to address municipal bonds as part of a larger critique of debt as a system of wealth extraction. Strike Debt asserts that debt is a primary mechanism through which the 1 percent profits from the 99 percent. Debt affects everyone, especially those who are too poor to access low-interest credit. And Wall Street is the primary culprit. Framing municipal debt as part of a global system poses significant opportunities for organizers because it connects anti-austerity movements abroad to debt resistance efforts at home. Once we reframe debt as a problem that affects us all—as municipal debt obviously does—it becomes easier to imagine that we have enormous power to withdraw our consent.
Strike Debt’s analysis of debt as a system of wealth extraction is also a critique of capitalism. Municipal debt is more than just another example of Wall Street greed and local corruption. It may be the biggest scandal yet because it is not a scandal it all. U.S. cities, towns, and districts are now increasingly debt financed, which means they cannot operate without access to the credit markets controlled by the big banks. This illustrates that Wall Street’s class war against cities cannot be mitigated with more regulation. In fact, the SEC protects investors, not municipalities, from the consequences of bond deals gone bad. Even renegotiating debt often requires new loans. “When muni bond issuers unwind deals and pay enormous exit fees to Wall Street,” the New York Times recently reported, “they typically issue new debt to do so. In recent years, for example, New York State has paid $243 million to terminate such transactions; $191 million was financed by new debt issuance.” Raiding cities for wealth, which produces a cycle of indebtedness, is not illegal or unusual. It is simply the way Wall Street does business.
The idea that some debts cannot and should not be paid is gaining traction. In 2011, for example, Jefferson County, Alabama declared bankruptcy (the largest in U.S. history) to rid itself of $4 billion in debt, much of it issued by corrupt officials to finance a sewer project that left people in a predominantly low-income, African-American community without a functioning sewer. Some do not want to renegotiate the debt. Instead, they reject it outright. As one Occupy activist in Birmingham noted, “[the debt] shouldn’t ever have been issued, and therefore it shouldn’t exist. It shouldn’t have been spent. Since it shouldn’t have existed, we’re not going to pay it.” This statement could become a slogan for debt resistance movements across the country because it insists that debtors are a class, a collective “we” that can decide when enough is enough.