The Oakland City Council voted unanimously to end a contract with Goldman Sachs that locked it into a financial deal called a high interest rate swap.
Oakland signed the deal with Goldman Sachs in 1998 on the premise it would reduce the costs of its bonds as interest rates were expected to rise. But after the 2008 financial meltdown, the Federal Reserve cut interest rates to near zero. As a result, Goldman’s rate dropped to 0.15 percent, even as it continued to require Oakland to pay a rate of almost 6 percent. Since then, the city has paid more than $4 million annually in bonds, $26 million more than it originally owed.
The resolution passed Tuesday calls on Oakland to refuse to do business with Goldman Sachs unless it ends the deal without requiring a $15 million payout. The vote comes after a long campaign by city workers, unions, the Occupy movement and local clergy.
Reverend Daniel Buford talking :
My name is Reverend Daniel Buford, and I’m a minister from the Allen Temple Baptist Church located in East Oakland. And I’m from a community that is of the opinion and the belief that cities should be too big to fail, and not banks. I think the city should be bailed out, and not banks. I think with respect to the agenda item that has been moved and your concern about legalities, you should be concerned about the legality of doing business with a corporation that is being investigated by the FBI, that is being investigated by the Securities and Exchange Commission, and is the subject of at least four different class action suits filed in United States against banks, including Barclays, over the issue of Libor fixing. Libor, the London Interbank Offered Rate, which Joe Keffer and Reverend Kuhwald referred to before, right now, as we’re having this meeting here in the United States, the banks that have conspired to create the Libor rate are in turmoil. Check the international headlines right now about what’s going on in Britain with Barclays and 15 other banks, including Goldman Sachs, that they’re including in their investigations for criminal activities. The problem is, is that the flaw in the system is that banks can estimate their own Libor rates. You, as the city of Oakland, we, as the city of Oakland, have bought into a synthetic rate that was concocted by Libor people who were betting on your failure. So then, how can you honor a contract with people that were betting on your failure and made money off of your failure on the international market?
Alysabeth Alexander talking:
we’ve been looking at budget cuts in the city of Oakland, just like we have throughout the entire country, where it’s, you know, workers being asked to give up more or the public being asked to accept fewer services. And this is the first time that a city is actually standing up and demanding that Wall Street actually do the right thing and get them out of this really toxic contract. And, you know, the libraries and schools and roads and all kinds of important services have been cut in the city of Oakland, and yet Goldman Sachs has continued to profit off of the city of Oakland.
Oakland’s assistant city administrator, Scott Johnson, wrote a memo to the mayor that, “staff had previously inquired of Goldman, most recently in June 2010, on the market value to terminate the SWAP investment instrument. Given the City’s budget/fiscal situation, terminating the SWAP was cost prohibitive since the market value of the SWAP investment was approximately $17 million at that time,”.
we believe that Goldman understands that these are bad deals. And we know that because they’re actually approaching governments all over California and saying, “You want to get out of these deals? They’re costing you too much money? This is how much you can pay in order to get out of those deals.” So they’re actually proactively going out, and many banks who have similar deals with cities and counties and school districts are actually approaching the governments and saying, you know, “We know these are bad deals, and they’re costing you a lot of money. And this is how you can get out of them.” So, and Goldman is saying they want $15 million out of this—for the city of—or, Goldman is saying they want $15 million to get out of the—out of the swap. And these swaps are being renegotiated all over the country, and cities and counties and school districts are choosing to get out of them, because they know that they’re bad deals. And if we had the original term of the agreement, the original agreement would have been a variable swap, we would be—we wouldn’t be in this situation. And Goldman came to the city of Oakland and said, “Let’s do this swap—it’s a side deal—because you’re going to save money.” And they came to us with the promise of saving money, and it hasn’t saved us money. So the terms of which we were offered it were fraudulent, or at least now no longer hold up.
JPMorgan bribed city officials in Jefferson County, Alabama, to get exclusive rights to finance its new sewer system. The project was supposed to cost $250 million, but the county ended up owing $5 billion in debt after it turned to Wall Street to refinance. An interest rate swap was one of the tools JPMorgan used.
we’ve been working with a large coalition of union members, of teachers, of community members, of clergy, and we have done action after action. We’ve gone to the Goldman Sachs shareholders’ meeting and called out the CEO to renegotiate this swap. And it’s really been through direct action and public pressure that we’ve been able to build—to build for this.
And the next step, we’re going to continue. We have actions planned coming up at Goldman Sachs headquarters in San Francisco. And we’re not going to stop there. This is actually the second swap that SEIU 1021 has taken on, and we’re going to continue to do this with our community partners and take on Wall Street. It’s not right that, you know, in this fiscal crisis, that they’re profiting off of our local governments.
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Alysabeth Alexander, political action chair for SEIU Local 1021. She helped organize the Oakland community and present testimony to the city council, which eventually led to a unanimous vote to end a toxic deal with Goldman Sachs.
— source democracynow.org