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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Daily Digest - September 29: Local Investing for Local Community Growth

Sep 29, 2014Rachel Goldfarb

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GWU Students Tackling Income Inequality in Their Own Backyard (USA Today)

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GWU Students Tackling Income Inequality in Their Own Backyard (USA Today)

Campus Network Northeast Regional Coordinator Areeba Kamal profiles the George Washington University chapter's Bank on DC initiative, which asks the university to invest at least $250,000 in a community development bank.

Failing the Midterms (In These Times)

Chris Lehmann considers why the Democrats lack a solid midterm agenda. Roosevelt Institute Senior Fellow Tom Ferguson places the blame on the power of wealthy donors in finance and Silicon Valley.

Inside the New York Fed: Secret Recordings and a Culture Clash (ProPublica/This American Life)

Jake Bernstein reports on recording made by a New York Federal Reserve bank examiner embedded at Goldman Sachs, which show the Fed's reluctance to take risks and push back on the banks.

Goldman Bans Employee Stock Trading Following “This American Life” Broadcast (Buzzfeed)

Matthew Zeitlin reports on Goldman's new policies, which appear to respond to concerns about conflict of interest policies raised in the ProPublica/This American Life report.

Bad Tech Helped Banks Screw Homeowners (Medium)

By choosing not to update their technology, mortgage servicers have an easier time covering up the illegal foreclosures that boost their profits, writes Alexis Goldstein.

Obamacare’s Good News Week (MSNBC)

Suzy Khimm highlights new evidence of the Affordable Care Act's success, including hospitals in states that expanded Medicaid seeing fewer uninsured patients, which reduces costs.

New on Next New Deal

Democracy, Economic Crisis, and “Rethinking Communities”

Roosevelt Institute Fellow Sabeel Rahman looks at the Campus Network's Rethinking Communities initiative as a successor to post-Gilded Age reforms, focusing on local power and participatory democracy.

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Daily Digest - September 24: Students on Food Stamps Need Somewhere to Spend Them

Sep 24, 2014Rachel Goldfarb

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On Campus (HuffPost Live)

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On Campus (HuffPost Live)

Caitlyn Becker speaks to Yvonne Montoya, President of the Santa Monica College chapter of the Campus Network, about her chapter's work to get food stamps accepted on campus. Her segment begins at 19:20.

New Deal Liberalism Lives On (WaPo)

Katrina vanden Heuvel, a member of the Roosevelt Institute's Board of Directors, says FDR-style liberalism is alive and well, pointing to leaders like Senator Elizabeth Warren and NYC's Mayor Bill de Blasio.

CEOs Get Paid Too Much, According to Pretty Much Everyone in the World (HBR)

Gretchen Gavett looks at new research on what people think the CEO pay gap should ideally be. Whether respondents felt strongly about CEO pay or not, their ideal ratios were very similar.

Fed Said to Warn Banks on Capital Charges on Leveraged Loans (Bloomberg News)

Craig Torres and Christine Idzelis report on increased Federal Reserve scrutiny of loans that lack stricter requirements that protect lenders. Earlier guidance hasn't slowed lending.

America Out of Whack (NYT)

Thomas Edsall asks a number of economists why, when the U.S. economy is growing so well, we haven't managed to ensure that some of the wealth is distributed to the lower and middle classes.

The Recovery That Left Out Almost Everybody (WSJ)

William Galston says the U.S. economy hasn't actually worked to improve the lives of average families since the end of the Clinton administration.

Now It’s Explicit: Fighting Inflation Is a War to Ensure That Real Wages for the Vast Majority Never Grow (Working Economics)

Josh Bivens looks at the discussion of a yet-unpublished paper from the Dallas Federal Reserve and points out that it essentially advises stopping progress on unemployment to limit inflation.

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Daily Digest - September 23: Even Wall Street Sees Inequality Holds Back the Economy

Sep 23, 2014Rachel Goldfarb

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Why Wall Street Cares About Inequality (WSJ)

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Why Wall Street Cares About Inequality (WSJ)

Major Wall Street institutions like Standard & Poor's and Morgan Stanley have put out reports on income inequality. Pedro Da Costa says it's because these companies see what's holding back the economy.

Treasury Announces Rules to Help Curb Benefits of Inversions (Buzzfeed)

The new rules will change how money transferred from foreign subsidiaries and U.S.-based parent companies is taxed, in order to reduce the advantages of inversion, writes Matthew Zeitlin.

The Politics of Pre-K: How A Program Known to Help Poor Mothers Could Doom Your Candidacy (TAP)

Rachel M. Cohen explains why the gubernatorial candidates in Pennsylvania will only talk about pre-K in terms of education, skipping any mention of working mothers or income inequality.

The GOP's Jobs Bill Will Create Few Jobs, But Plenty of Debt (TNR)

The $590 billion deficit increase from the bill's tax breaks proves to Danny Vinik that the GOP doesn't actually care about the deficit as much as it opposes increased government spending.

What Happens to Families on Housing Assistance When the Assistance Goes Away? (WaPo)

The cost of market-rate housing often erases the benefits of positive life changes that take people off housing assistance, writes Emily Badger, and more gradual assistance reductions are costly.

Those Lazy Jobless (NYT)

Paul Krugman says that John Boehner's repetition of the accusation that the unemployed just don't want to work proves that the "closed information loop of the modern right" is particularly effective.

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Daily Digest - September 22: Minimum Wage Boost Would Trickle Up for All

Sep 22, 2014Rachel Goldfarb

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Pay Pressure (Financial Times)

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Pay Pressure (Financial Times)

In a survey of economists about how to jump-start wage growth, Roosevelt Institute Chief Economist Joseph Stiglitz calls for fiscal stimulus, a minimum wage increase, and tax incentives for labor-intensive investment.

Holder Launches Historic Study on Police Bias (Melissa Harris-Perry)

As Saturday's guest host, Roosevelt Institute Fellow Dorian Warren speaks with the Director of the Center for Policing Equity about the significance of the Attorney General's new plan to reduce bias.

Paul Ryan May Have Found a Trick to Make His Tax Plan Add Up (TNR)

Danny Vinik explains how dynamic scoring will allow Rep. Ryan to claim that his tax reform plan is mathematically possible while remaining revenue-neutral.

Climate Change is War – and Wall Street is Winning (AJAM)

Nathan Schneider writes that corporate influence has been too strong in international discussions of how to fight climate change, and argues that our economic system must shift to save the planet.

Is Obama Going Easy On Banks That Break the Law? (In These Times)

David Sirota looks at the reduction of sanctions on Credit Suisse, and says that this action by the administion suggests that some financial institutions are being treated as above the law.

Why Poor Students Struggle (NYT)

For lower-income college students at elite universities, the academics aren't a problem, writes Vicki Madden, but the social differences between classes make life on campus difficult.

New on Next New Deal

Ken Burns’s New Documentary Reveals the Human Side of the Roosevelts – And Our Deep Connection To Their Legacy

Roosevelt Institute President and CEO Felicia Wong praises The Roosevelts for depicting these giants of progressive policy with a humanity that helps us understand why they pushed for change.

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Daily Digest - September 19: This Bus Doesn't Stop for Big Money

Sep 19, 2014Rachel Goldfarb

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Catholic Nuns Take On Dark Money In Politics With Nationwide Bus Tour (ThinkProgress)

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Catholic Nuns Take On Dark Money In Politics With Nationwide Bus Tour (ThinkProgress)

Sister Simone Campbell, the 2013 FDR Four Freedoms Awards laureate for Freedom of Worship, is leading a new Nuns on the Bus tour, this time focused on disenfranchised voters, writes Jack Jenkins.

Tenants Facing Eviction in Era of Skyrocketing Rents Need Legal Assistance (TAP)

Martha Bergmark emphasizes the need to support legal aid programs, noting that legal representation doubles tenants' chances of staying in their homes when fighting eviction.

Workers Deserve to Benefit from Their Productivity, Too (WaPo)

Harold Meyerson says newly proposed legislation from Rep. Chris Van Hollen that ties the performance pay tax deduction to workers' wage increases is necessary to ensure a fair deal for workers.

  • Roosevelt Take: Roosevelt Institute Fellow Susan Holmberg and Campus Network alumna Lydia Austin look at the broader problems with the performance pay provision in the tax code.

Does Silicon Valley Have a Contract-Worker Problem? (NY Mag)

Kevin Roose dives deep into the so-called "1099 Economy," in which start-ups have independent contractors galore, many of whom may legally qualify as employees.

Demonizing the Minimum Wage (New Yorker)

William Finnegan looks at the range of statements against raising the minimum wage, which consistently misrepresent minimum wage workers. They aren't just teenagers with after-school jobs.

New Republican Bill Would Paralyze National Labor Relations Board (In These Times)

Bruce Vail explains why and how the Republicans are aiming to gridlock the National Labor Relations Board, a goal that he says is primarily based in anti-union, anti-worker bias.

Tax Cuts Can Do More Harm Than Good (AJAM)

David Cay Johnston looks at a new report on tax cuts, which shows that short-term economic growth aside, badly structured tax cuts just push costs to the future and can incentivize bad investments.

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Daily Digest - September 18: The Hashtag of Democracy

Sep 18, 2014Rachel Goldfarb

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From #Ferguson to #OfficerFriendly (Bloomberg View)

Roosevelt Institute Fellow Susan Crawford explains what the New York Police Department will need to do in order to make its new social media initiatives successful.

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From #Ferguson to #OfficerFriendly (Bloomberg View)

Roosevelt Institute Fellow Susan Crawford explains what the New York Police Department will need to do in order to make its new social media initiatives successful.

Census Report Shows Rise in Full-Time Work, Undercutting Claims by Health Reform Opponents (Off the Charts)

Paul N. Van de Water says the Census Bureau report proves that the Affordable Care Act isn't leading to a large increase in part-time work. In fact, part-time work has decreased.

Fed Signals No Hurry to Raise Interest Rates (NYT)

Binyamin Appelbaum reports on the Federal Reserve's latest policy statement, which affirms the necessity of continued stimulus in the form of near-zero short-term interest rates.

What Cutting Jobless Benefits Wrought (U.S. News & World Report)

Pat Garofalo points to the cutting of federal extended unemployment benefits as one of the sources of our continually too-high poverty rate.

The Occupy Movement Takes on Student Debt (New Yorker)

Rolling Jubilee, which buys up debt and cancels it, may be among the Occupy movement's biggest successes, writes Vauhini Vara, but its real hope is for debtors to organize.

Meet the Domestic Worker Organizer Who Won the 'Genius' Grant (Bloomberg Businessweek)

Josh Eidelson profiles Ai-jen Poo, director of the National Domestic Workers Alliance, who plans to use her MacArthur "Genius Grant" to endow an organizing fellowship for domestic workers.

Want to Live in a State with No Income Tax? Make Sure You're Super Rich First (The Guardian)

Siri Srinivas looks at a new report on state-level taxes, which shows that most Americans think fair taxes should be progressive by nature, emphasizing income and property taxes over sales tax.

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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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