From hilltop towns of Italy to Oakland California USA the people and their elected representatives are fighting back against the bloodsucking banks. Not content with crippling our economies and being bailed out with our money they are now reaping billions from local councils. Last Sunday's New York Times ran an article blowing the lid off a Wall Street scheme called "interest rate swaps" (dodgy insurance to you and I) that are sucking money from cities and states across the country. The swap deals were originally sold to communities as a way to shield against unpredictable interest rates. But, when the banks crashed the economy, the rules of the game changed. Now, all these swap deals are doing is generating pure profit for the big banks - and it's being paid for yet again with people's tax dollars.
These swaps deals amount to the biggest Wall Street bailout you've never heard of - around $28 billion nationwide. The city of Oakland, CA alone is paying $5.2 million annually for a swap deal with Goldman Sachs. That's enough to completely resolve the city's outstanding budget gap - and avoid cuts to critical services. Instead, it's being used to fill Goldman's profit pool, while city services go on the chopping block. Sound familiar? US Taxpayers have already given enough to bailout Wall Street. But that hasn't stopped them from taking more. With communities feeling the squeeze in a tough economy, the last thing they can afford to do is send billions of their local tax dollars to Wall Street.
The New York Times explains that the rocket scientists crafting the products got backup from swap advisers, a group of conflicted promoters who consulted municipalities and other issuers. Both of these camps peddled swaps as a way for tax-exempt debt issuers to reduce their financing costs. Now, however, the promised benefits of these swaps have mutated into enormous, and sometimes smothering, expenses.
Making matters worse, issuers who want out of the arrangements — swap contracts typically run for 30 years — must pay up in order to escape. That’s right. Issuers are essentially paying twice for flawed deals that bestowed great riches on the bankers and advisers who sold them. Taxpayers should be outraged, but to be angry you have to be informed — and few taxpayers may even know that the complicated arrangements exist.
In Italy the same tactics had landed a bill from the same bank that has hit an even higher amount than the USA: http://www.ft.com/cms/s/0/0f1fe74a-2b1b-11df-93d8-00144feabdc0.html
Baschi, an Italian hilltop village, is a long way from the City of London. Getting there is difficult: take a flight to Rome, then the mainline train to Orvieto followed by a slow train through Umbria. Yet in her office near the central square, Antonietta Dominici, the local treasurer, is wrestling with the kind of decision more commonly taken by the risk officer of a London investment bank. She can either keep open a £2.5m derivative deal that casts a shadow over the financial health of Baschi's 2,800 inhabitants - or she can close it, with the risk that the resulting losses will leave the schools, the offices without electricity for a year.
Ms Dominici, who never learnt about derivatives at university, is opting for a third route. She has filed a lawsuit against the bank that sold the derivative. "We just want the contract closed, the losses forgotten. Derivatives should be banned," she says.
In recent weeks, there has been outrage among European politicians about Goldman Sachs' sale of derivatives contracts to Greece, which helped to flatter its debt profile. Now it is becoming clear that this was not an entirely isolated case. During the past decade, investment banks have sold complex derivatives to anyone who was conned into buying them from pension funds to state and local authorities across the Continent, in countries such as Austria, Belgium and Portugal either with the aim of flattering their balance sheets or on the promise of high returns.
The FT article goes on to say - "The example of the UK is instructive. Here, the market for selling derivatives products to local authorities closed in the early 1990s, when the House of Lords held that interest rate swap contracts entered into by the London council of Hammersmith and Fulham were null and void, and legally unenforceable." But did that include the pension funds? We need to find out and we need to fight back.
SEIU is running a campaign 'Help stop the swaps. Demand a public investigation into these shady deals': http://action.seiu.org/stoptheswaps
To find out more about derivatives go here:
http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_default_swaps/index.html?inline=nyt-classifier
