Daily Digest - October 20: Charity Never Helped Every Person in Need

Oct 20, 2014Rachel Goldfarb

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Iowa’s Tea Party Disaster: Joni Ernst’s Shocking Ideas About the Welfare State (Salon)

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Iowa’s Tea Party Disaster: Joni Ernst’s Shocking Ideas About the Welfare State (Salon)

Elias Isquith references Roosevelt Institute Fellow Mike Konczal's Democracy Journal article on voluntarism to explain why Ernst is so wrong about the place of charity in the social safety net.

Policymakers Slowly Acknowledge What Marketers Have Known for Years: Millennials Exist (Fusion)

Emily DeRuy reports on Millennials Rising, quoting Roosevelt Institute Vice President of Networks Taylor Jo Isenberg on why Millennials feel disconnected from policymaking.

Amity Shlaes: If Being Wrong About the Economy Is Wrong, I Don’t Wanna Be Right (NY Mag)

Jonathan Chait responds to Amity Shlaes's defense of a 2010 letter warning the Fed about inflation that never came. He points out the need to balance that risk with the reality of unemployment.

Rising Inequality: Janet Yellen Tells It Like It Is (New Yorker)

John Cassidy discusses the importance of the Federal Reserve Chair's Friday speech, which questioned whether rising inequality threatens American values of opportunity.

Amazon’s Monopsony Is Not O.K. (NYT)

The current fight between Amazon and Hachette proves that Amazon is abusing its power, writes Paul Krugman, who compares Amazon's business practices to Standard Oil.

The Epic Struggle Over Retirement (AJAM)

Susan Greenbaum says that allowing Wall Street to attempt to fix pensions by turning them into defined contribution plans managed by Wall Street would be disastrous.

Workers Bring $15 Hourly Wage Challenge to Walmart (The Nation)

Michelle Chen reports on recent demonstrations by Walmart workers fighting for a better workplace. Walmart's willingness to "end minimum-wage pay" isn't enough to bring workers out of poverty.

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Daily Digest - October 17: The False Prophets of the Invisible Hand

Oct 17, 2014Tim Price

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What Markets Will (NYT)

Many economic analysts talk about the market as a kind of divine force, writes Paul Krugman, but they're only using it as an excuse to justify their own desire for more human sacrifice.

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What Markets Will (NYT)

Many economic analysts talk about the market as a kind of divine force, writes Paul Krugman, but they're only using it as an excuse to justify their own desire for more human sacrifice.

AbbVie Board Ditches Planned $55 Billion Shire Acquisition (Reuters)

The pharmaceutical company has abandoned plans to shift its tax base to the U.K., reports Ben Hirschler, because new rules make it harder to dodge U.S. taxes through such inversion schemes.

How the Fed Is Trying to Fill in the Gaps of Monetary Policy (WaPo)

Janet Yellen met with nonprofits and community developers in Chelsea, MA yesterday to discuss how Federal Reserve policy can better support working-class cities, reports Ylan Q. Mui.

Even Red-State Voters Want to Raise the Minimum Wage (The Nation)

Minimum wage increases will be on the ballot this fall in some states that lean heavily Republican, writes John Nichols, despite opposition from the top leadership of the party.

$10.10 Minimum Wage Would Save The U.S. Government $7.6 Billion A Year (HuffPost)

A new study from the Economic Policy Institute shows that a higher minimum wage would allow 1.7 million workers to stop relying on public assistance programs, reports Kevin Short.

Companies Warn That Income Inequality Is Hurting Their Business (ThinkProgress)

An analysis of corporate filings finds that many of the largest U.S. retail companies are concerned that their customers are not earning enough money to support sales, writes Alan Pyke.

The Volcker Rule: How a Simple Idea to Rein In Banks Got Supersized (Bloomberg View)

A straightforward proposal to ban proprietary trading has ballooned to hundreds of pages, leading some to call for the return of Glass-Steagall as an alternative, writes Yalman Onaran.

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Daily Digest - October 15: "Fifteen and a Union" Goes Beyond Fast Food

Oct 15, 2014Rachel Goldfarb

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America’s Fastest-Growing Profession is Joining a Very Public Fight for Higher Wages (WaPo)

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America’s Fastest-Growing Profession is Joining a Very Public Fight for Higher Wages (WaPo)

Lydia DePillis looks at the differences in home health aides' fight for "15 and a union" when compared to fast food workers. For one, most home health aides are paid by Medicaid.

Gov. Scott Walker on the Minimum Wage: "I Don't Think It Serves a Purpose" (MoJo)

Andy Kroll places the Wisconsin governor's comments in context with his other remarks opposing the minimum wage, and his state's strong support for an increase.

Can Rehabilitating Prisoners Repair Wall Street’s Broken Reputation? (Buzzfeed)

Matthew Zeitlin questions whether financial products that fund social services are more than just a charm offensive meant to make Wall Street look nicer to the public.

Americans Face Post-Foreclosure Hell as Wages Garnished, Assets Seized (Reuters)

An uptick in "deficiency judgements," in which banks go after debt that wasn't covered by a foreclosure sale, is preventing people from moving forward after the Recession, writes Michelle Conlin.

When the Guy Making Your Sandwich Has a Noncompete Clause (NYT)

Neil Irwin says the noncompete clauses for "sandwich artists" at Jimmy John's typify the trend toward practices and procedures that leave low-wage workers even worse off.

Walmart’s Cuts to Worker Compensation Are Self-Defeating (AJAM)

By raising workers' share of insurance premiums, David Cay Johnston says that Walmart and other companies are only ensuring their own customers have less to spend.

The Real World of Reality TV: Worker Exploitation (In These Times)

David Dayen explains the difficult working conditions of the writers and editors who create "unscripted" reality television in light of one staff's recent push for unionization.

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Daily Digest - October 14: Americans Are Too Vulnerable to Downward Mobility

Oct 14, 2014Rachel Goldfarb

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The Age of Vulnerability (Project Syndicate)

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The Age of Vulnerability (Project Syndicate)

Roosevelt Institute Chief Economist Joseph Stiglitz points out that inequality isn't just about lack of upward mobility, but also risk of downward mobility, and the U.S. economy has made people particularly vulnerable.

The Score: Does the Minimum Wage Kill Jobs? (The Nation)

Roosevelt Institute Fellow Mike Konczal and Bryce Covert say the answer is probably no; for one, the states that have raised their minimum wage this year are experiencing higher employment growth.

In Texas and Across the Nation, Abortion Access is a Sign of Women's Well-Being (The Hill)

Roosevelt Institute Fellow Andrea Flynn and Shulie Eisen connect access to abortion with the larger picture of women's health and economics. States that limit abortion don't do well on related issues either.

Youth Convention Gathers Crowds, Pols Over Brutality, Employment, Immigration, Ed and Transport (The Youth Project)

Jason Mast reports on the NextGen Illinois conference, profiling a few of the student organizers who are pursuing political change in their state now instead of waiting until they're older.

Revenge of the Unforgiven (NYT)

Paul Krugman says an excess of virtue surrounding debt is killing economic growth. Forgiving more debt would increase the other spending needed to kick-start the economy.

Them That's Got Shall Get (TAP)

Nathalie Baptiste follows up on the impact of the foreclosure crisis on black family wealth, focusing on the wealthiest black community in the country: Prince George's County, Maryland.

‘Citizens United’ is Turning More Americans into Bystanders (WaPo)

E.J. Dionne argues that massive independent political spending is turning voters off, as it deepens our divisions and the sense that no one will work together after the election.

New on Next New Deal

Does the USA Really Soak the Rich?

Roosevelt Institute Fellow Mike Konczal says that recent arguments against more progressive taxation use a nonsensical definition in which inequality drives up tax progressivity.

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Daily Digest - October 8: Government Should Push Back on Bad Financial Deals

Oct 8, 2014Rachel Goldfarb

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City Hall’s Inaction on Interest-Rate Swaps Is Indefensible (Chicago Sun-Times)

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City Hall’s Inaction on Interest-Rate Swaps Is Indefensible (Chicago Sun-Times)

In a letter to the editor, Roosevelt Institute Fellow Saqib Bhatti points out what the Sun-Times missed in defending Mayor Emanuel's inaction to recover funds from these toxic deals.

Changing the Future of Sexual and Reproductive Rights (HuffPo)

In light of the Women and Girls Rising conference, Roosevelt Institute Fellow Andrea Flynn and Campus Network Lower Northeast Policy Coordinator Ariel Smilowitz examine the policy shifts needed in the U.S.

Eric Schneiderman is Still Seeking Justice for the Financial Crisis (WaPo)

Katrina vanden Heuvel, a member of the Roosevelt Institute's Board of Directors, praises New York's Attorney General for almost single-handedly keeping up the fight to hold Wall Street accountable.

Amazon Warehouse Workers Head To Supreme Court Over Unpaid Theft Screenings (HuffPo)

Dave Jamieson lays out the arguments in Integrity Staffing Solutions v. Busk, which broadly looks at whether employers can require nonessential tasks – like security screenings – off the clock.

The Great Wage Slowdown of the 21st Century (NYT)

David Leonhardt examines President Obama's optimistic take on why wage growth will finally start to pick up in the next few years. Leonhardt isn't quite sold.

John Boehner Just Admitted on Twitter That Republicans Have No Jobs Plan (TNR)

Danny Vinik says that while it's fun to joke about Boehner's empty tweet, the truth is that without a real jobs plan, Republicans have caused significant damage to the economy.

Tens of Thousands of Walmart Workers Are About to Lose Their Health Insurance — and It's Good News! (Vox)

Sarah Kliff explains that while Walmart's decision was almost certainly based on saving money, this gives part-time workers access to subsidies on the exchanges and cheap insurance.

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Daily Digest - October 7: How Wall Street Wins When Cities Are in Debt

Oct 7, 2014Rachel Goldfarb

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Is Wall Street Making a Killing Off Cities’ Debt? (Next City)

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Is Wall Street Making a Killing Off Cities’ Debt? (Next City)

In an illustrated essay, Susie Cagle shows how Wall Street profits off swap deals tied to cities' municipal bonds. Roosevelt Institute Fellow Saqib Bhatti explains pension obligation bonds.

Will the UN’s New Development Goals Downplay the Need for Gender Equality? (The Nation)

Barbara Crossette questions if reproductive rights will be given sufficient emphasis, drawing on the Roosevelt Institute's Women and Girls Rising Conference for female leaders' opinions.

Tax Cuts Uber Alles (Slate)

Jamelle Bouie explains why Paul Ryan needs a pretty unreliable mathematical model, known as dynamic scoring, to sell his proposed tax cuts as good for the economy.

Embrace the Irony (New Yorker)

Lawrence Lessig is attempting to destroy big money's influence in politics. All he needs, writes Evans Osnos, is for 50 billionaires to fund his SuperPAC.

Wages Should be Growing Faster, But They’re Not. Here’s Why. (WaPo)

Jared Bernstein suggests that raising wages is no longer part of American employers' model, and that wages won't increase until the labor market is much tighter.

SRC Cancels Teachers' Contract (Philadelphia Inquirer)

Kristen Graham and Martha Woodall report on the Philadelphia School Reform Commission's unexpected decision to unilaterally cancel the teachers' union contract.

New on Next New Deal

At NextGen IL Conference, Young People Set the Agenda for Their State

As attendees of the conference, the Campus Network's Midwestern Regional Team found themselves in a policy space where the goals and agenda were shaped entirely by their peers.

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Daily Digest - October 1: State Law Puts Profits Ahead of Primary Education

Oct 1, 2014Rachel Goldfarb

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Arkansas Internet Law Gouges Schoolkids (Bloomberg View)

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Arkansas Internet Law Gouges Schoolkids (Bloomberg View)

Roosevelt Institute Fellow Susan Crawford says support for the current law, which prohibits Arkansas from connecting K-12 schools to its high-speed fiber network, puts telecoms' profits ahead of kids.

Long-Term Jobless Perfectly Employable, New Report Finds (WSJ)

Pedro da Costa looks at a new study from the Economic Policy Institute, which says that while any unemployment creates serious setbacks, long-term unemployment doesn't create special skill loss.

The Hole in Holder’s Legacy (NYT)

Eric Holder had some real successes as Attorney General, but his efforts to prosecute the crimes of the financial crisis were "notoriously laggard," writes Joe Nocera.

The A.I.G. Trial Is a Comedy (New Yorker)

John Cassidy asks why this case, in which former American International Group CEO Hank Greenberg claims the company's bailout violated the Constitution, was even allowed to get to trial.

Prison Bankers Cash in on Captive Customers (Center for Public Integrity)

Daniel Wagner reports on how financial services companies profit off the families of prison inmates, who use these high-fee services so their relatives can buy basics like warm winter clothing.

Trust Is Waning, and Inequality May Be to Blame (Pacific Standard)

A new study examining what circumstances impact people's trust in institutions and one another finds that trust in other people drops as inequality rises, writes Nathan Collins.

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Daily Digest - September 30: Incarceration Keeps Growing, No Matter the Cost

Sep 30, 2014Rachel Goldfarb

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The Score: Why Prisons Thrive Even When Budgets Shrink (The Nation)

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The Score: Why Prisons Thrive Even When Budgets Shrink (The Nation)

Roosevelt Institute Fellow Mike Konczal and Bryce Covert look at the growth of incarceration even in times when presidents preach against "big government," which the prison system certainly is.

Europe’s Austerity Zombies (Project Syndicate)

Roosevelt Institute Chief Economist Joseph Stiglitz says that European countries' continued push for austerity, which isn't fixing their economies, is tragic in light of the people who suffer without work.

Revisiting the Lehman Brothers Bailout That Never Was (NYT)

James B. Stewart and Peter Eavis report on previously unknown analysis from the New York Federal Reserve suggesting that the Fed could bail out Lehman Brothers. The analysis never reached top officials.

It’s the Inequality, Stupid (In These Times)

Emphasizing inequality is the best chance that Democrats have of engaging working-class voters who swing elections, writes David Moberg.

New York Mayor de Blasio Plans Expansion of Living Wage (Reuters)

De Blasio plans to sign an executive order that will expand the law to cover an additional 18,000 jobs and increase the living wage to $13.13 for workers without benefits, writes Alex Dobuzinskis.

California Pension Fund Gives the Boot to Hedge Funds (AJAM)

Dean Baker praises California's public pension fund for ending investments in hedge funds, which charge high fees. He says that funds should make the contracts that lay out these fees public.

Killing the "Nuclear Option" Will Not Save the Senate. It Will Ruin Obama's Final Two Years. (TNR)

When Senate Republicans say that they want to revoke the Democrats' "nuclear option," which eliminated filibusters on presidential appointments, they're planning a blockade, writes Brian Beutler.

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Democracy, Economic Crisis, and “Rethinking Communities”

Sep 29, 2014Sabeel Rahman

The Roosevelt Institute | Campus Network's Rethinking Communities initiative is emblematic of the model for democratic and economic reform needed in this New Gilded Age.

The Roosevelt Institute | Campus Network's Rethinking Communities initiative is emblematic of the model for democratic and economic reform needed in this New Gilded Age.

As the latest Census report highlights, economic inequality continues to worsen. With a sluggish economic recovery, continued economic insecurity for many Americans, and ongoing political gridlock, it is increasingly clear that we live in a New Gilded Age. To successfully challenge this status quo, we must look to the lessons of past democratic reform movements as well as the innovative work that is being done on the ground even now in our communities.

Over a hundred years ago, the first Gilded Age witnessed a similar confluence of economic and political crises. It was the era of the rise of mega-corporations and trusts like Standard Oil. Not coincidentally, it was also an era of economic upheaval, recurring financial crises, and a growing anxiety about the ways in which economic inequality and concentrated private power would contaminate and corrupt politics, making it serve special and elite interests rather than the public good.

These crises provoked what became some of the most transformative reform movements in American history: the labor movement, the anti-trust movement, the Populist movement, and the Progressive movement. The common thread throughout these reform efforts was the desire to reclaim some form of popular sovereignty, whether through the creation of local-level policymaking powers for municipalities, the direct election of senators, the creation of national regulatory bodies to check corporate power, or the spread of direct democratic referenda procedures.

The ferment of these decades created the intellectual inheritance of the New Deal. When FDR came into office in the midst of the Great Depression, the members of his administration turned to policies initially pioneered by their Populist and Progressive precursors, especially when it came to banking, financial, and social safety net reforms.

But where the New Deal had decades of Populist and Progressive experimentation to build on, our current context is quite different. The present moment is similar to the early twentieth century in that our fundamental problem is one of dysfunctional democracy. To address economic inequality, we must first reform our democracy to make it more accountable and responsive. But this is not so easily done now that decades of political attacks have dismantled both the public’s faith in and the actual efficacy of democratic governance and the social safety net. The challenge of our generation is three-fold: address our ongoing economic crisis, rebuild the viability of and faith in democratic governance, and do so in a way that develops innovative models of democratic economic policymaking that we can spread and build on.

Cities represent a key frontline in this effort. There is a growing interest in the city as a unit of governance, and cities are unique economic engines whose population density and diversity make them critical drivers of innovation and economic growth. They are at the forefront of economic and policy innovation. They also represent one of the best hopes for reviving a genuine, grassroots democracy. Already participatory budgeting is starting to gain traction in U.S. cities as a way to create more robust grassroots participation while also improving the allocation of resources to underserved groups.

The Roosevelt Institute | Campus Network’s Rethinking Communities initiative represents an exciting effort to drive this movement forward. By focusing on their own universities, Campus Network chapters can help reinvest in their local communities by pressing administrations to direct their investment or procurement policies to local businesses, or by broadening access to universities and community colleges by accepting public assistance, such as food stamps, on campus.

There are two particularly innovative dimensions to the Rethinking Communities initiative:

First, it represents a grassroots, democratic effort. The initiative itself was devised through a participatory strategy process within the Campus Network, through a series of bottom-up meetings and discussions in campus chapters and through a nation-wide convening at the FDR Library in Hyde Park. Campus Network chapters working with local stakeholders in their advocacy efforts further accentuate this democratic ethos.

Second, the initiative also reflects a growing push in economic development circles to reorient local economic development in a more community-oriented direction.

One conventional view of local economic development is that it is a competitive process in which the city is a product to be sold on the international marketplace. Residents and businesses alike, in this view, will choose to settle in the city that offers their preferred “bundle” of goods, services, opportunities, and tax policies. But this view tends to overstate both the degree of policy flexibility that cities have to tailor their “pitch” to outsiders, as well as the degree to which a city’s lifeblood depends purely on attracting an influx of outside dollars, talent, and investment. An opposing view is that local economic development is fundamentally parochial and redistributive, and its purpose is to meet the needs of the residents and businesses that are already part of the fabric of the city. This view has its own limits, underemphasizing the ways in which a locality’s prosperity and well-being are interrelated with regional and even global trends and flows.

More recently, however, a third view of economic development has emerged, which combines aspects of these two accounts. As Richard Schragger argues, we should view cities not as products to be sold on a competitive marketplace, nor as purely closed systems in which to pursue redistributive policies, but rather as path-dependent processes. In other words, cities evolve dynamically, through an interplay between already-existing local conditions and inheritances, and regional or global forces. The task of economic development policy, then, is to find a way to tap into the rooted, existing features of a city, and leverage those local resources.

Anchor institutions like universities are the quintessential lever for economic development in this process-oriented view. These institutions are fundamentally rooted in their communities; they cannot simply leave town the way other kinds of businesses can. They also have large ripple effects on their local communities based on who they hire, who they contract with, and how they employ their own resources. Anchor institutions thus represent valuable engines for local economic development—engines that, if redirected strategically, can help lift up the larger communities in which they are based.

These two features of Rethinking Communities – its democratic and participatory origins, and its focus on leveraging anchor institutions to accelerate local economic development – make it one of many contemporary heirs to the kind of innovation that came out of the first Gilded Age. Now, as then, there is an effort to take a more purposeful and directed approach to economic policy to help create the conditions for collective well-being. Now, as then, there is a desire to approach this task in a self-consciously democratic and participatory manner. And now, as then, it is likely that the lessons learned from (and the activists inspired by) this effort can contribute to a longer-term and larger movement for democratic and economic reform – which is precisely what we need to navigate our way out of the challenges of this New Gilded Age.

Sabeel Rahman is a Fellow at the Roosevelt Institute.

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Wall Street Swindled Local Governments, Too. Here’s How They Can Get Their Money Back.

Sep 17, 2014Saqib Bhatti

Predatory lenders drove municipal governments and taxpayers into debt with risky interest rate swap deals that may have violated federal regulations.

The story of how Wall Street banks steered unsuspecting homebuyers towards complex mortgages with hidden risks and hidden costs has been well-documented. In fact, the typical sales pitch for adjustable-rate mortgages was premised on the false notion that home values never fall and that borrowers could refinance their loans before interest rates jumped.

Predatory lenders drove municipal governments and taxpayers into debt with risky interest rate swap deals that may have violated federal regulations.

The story of how Wall Street banks steered unsuspecting homebuyers towards complex mortgages with hidden risks and hidden costs has been well-documented. In fact, the typical sales pitch for adjustable-rate mortgages was premised on the false notion that home values never fall and that borrowers could refinance their loans before interest rates jumped.

Less widely understood is the fact that a very similar story played out with cities, states, and other municipal borrowers that were also steered into predatory interest rate swap deals riddled with hidden risks and hidden costs. Banks pitched these deals as a way for municipalities to save money on bond issuances: instead of issuing a traditional bond that had a fixed interest rate, they could take out a cheaper variable-rate bond that had an adjustable interest rate, but use a swap to protect against the risk of interest rate spikes.

Under this structure, municipalities made fixed-rate payments to banks on their swap deals, while the banks gave them back a variable-rate payment that was intended to offset the interest rate that the municipality had to pay its bondholders. The idea was that this would allow borrowers to get a “synthetic fixed rate” on their debt that was cheaper than what they would have to pay on a comparable conventional fixed-rate bond.

However, there were numerous risks embedded in these deals. For example:

  • The variable interest rate that the banks paid to the municipality could fall short of the rate that the municipality owed bondholders, creating a shortfall.
  • These deals contained many termination clauses that would allow the banks to cancel the deals and charge municipalities tens or even hundreds of millions in termination penalties.
  • Rather than rising, interest rates could crater, causing the net payments on the swap deals to skyrocket and leaving the municipalities unable to take advantage of the low-interest environment unless they terminated their swaps and paid hefty termination penalties.

Even though banks tried to downplay or dismiss these risks in order to push interest rate swaps, all of them materialized in the aftermath of the 2008 financial crisis:

  • When interest rates on a type of variable-rate bond known as an auction rate security shot up, the bank payments on the corresponding swaps could not cover those payments, and cities and states across the country were stuck paying double-digit interest rates to bondholders.
  • When Lehman Brothers filed for bankruptcy and defaulted on its swap payments with municipalities, it triggered termination clauses on the bank’s swaps. In an ironic twist, cities and states actually had to pay penalties to Lehman because of the way the termination clauses were written.
  • When the Federal Reserve slashed interest rates in response to the financial crash, it also drove down variable rates on swaps, causing the net payments on the swaps for cities and states to soar and preventing taxpayers from enjoying any of the benefits from the low rate environment.

As a result, municipalities across the country have been hit with large bills to Wall Street at the same time that they are trying to close record budget shortfalls amid the biggest economic downturn in 80 years. The Detroit Water and Sewage Department is shutting off water to families who have missed just a couple of payments on their water bill so that it can pay off more than $500 million in termination penalties on its swaps. The City of Chicago is now paying $72 million a year on its swaps as a result of the low interest rates, even as entire neighborhoods on the south and west sides of the city fall into disrepair. The school district in Chicago is paying another $36 million a year on swaps, while the Board of Education is invoking budget problems to justify the largest mass school closing in national history. In Wisconsin, the state is now paying $25 million a year on its swaps and making catastrophic cuts to state healthcare programs. These are just a few examples of a trend cropping up everywhere in the U.S.

It is no accident that the same communities that were disproportionately targeted for predatory mortgages are also bearing the brunt of these predatory municipal finance deals. Across the country, working class communities of color are disproportionately impacted by cuts to public services, and austerity measures serve to exacerbate the crisis in those communities in particular.

Luckily, there is something that public officials can do to stop the bleeding. Under Rule G-17 of the Municipal Securities Rulemaking Board (MSRB), a federal regulator charged with protecting the interests of municipal borrowers, banks that pitch deals to public officials must “deal fairly” with them. According to the MSRB, this means that they “must not misrepresent or omit the facts, risks, potential benefits, or other material information about municipal securities activities undertaken with the municipal issuer.” In other words, they must not downplay the risks associated with deals like interest rate swaps, and they must not mislead public officials about the likelihood of such risks materializing. The banks must ensure that public officials truly understand the risks of the deals they enter into.

This is a burden that was not met in the typical swap transaction. As a rule, bankers highlighted the upside and minimized the potential downside in pitching these deals. This was in violation of MSRB Rule G-17 and municipalities like Chicago and Detroit have legal recourse to potentially win back hundreds of millions from Wall Street. Cities, states, and other municipal borrowers can pursue these legal claims by filing for arbitration with the Financial Industry Regulatory Authority (FINRA).

The Baldwin County Sewer Service, a privatized utility in Alabama, successfully used a similar legal argument earlier this year to win back its swap payments and get out of its deals without any termination penalties. The total value of the award was approximately $10 million. The potential claims could be many magnitudes higher for cities and states that had significantly greater swap exposure.

However, officials in municipalities with swaps need to act fast, because time may be running out. FINRA has a six-year eligibility period on these claims. Because many of the risks associated with swaps materialized in October 2008, when interest rates plummeted as a result of the federal response to the financial crisis, it is possible that the clock could run out on these claims as early as October 2014. Public officials like Mayor Rahm Emanuel in Chicago and Governor Scott Walker in Wisconsin should act now to potentially recover millions for their constituents before it is too late.

Saqib Bhatti is a Fellow at the Roosevelt Institute and Director of the ReFund America Project.

Image via Thinkstock

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