When Wall Street Funnels Our Tax Dollars Into its Insatiable Coffers
This is my hair-on-fire headline of the day:
Los Angeles Now Spending More on Wall Street Fees Than on Maintaining Roads
Los Angeles councilman Paul Koretz has called for banks NY Mellon and Dexia to return $65 million in “unfair profits and termination payments” they received between 2008 and 2014. This follows a report (embedded below) revealing that the city spent more than $200 million in fees to Wall Street in 2013 alone. Koretz says he may push the city to take punitive action against the financial institutions involved if they do not renegotiate the deal.
The report, published by the union-backed Fix LA Coalition, notes that “the City of Los Angeles last year spent more on Wall Street fees than it did on our streets.” Indeed, the report notes the city “paid Wall Street $204 million in fees, spending only $163 million on the Bureau of Street Services.”
The fees are connected to the controversial interest-rate-swap deal cemented by Los Angeles in 2006. It is a deal similar to those engineered by Wall Street in cities across the country. Those deals have made headlines in recent years in some of the country’s most high-profile municipal budget crises.
For instance, a recent study by former Goldman Sachs investment banker Wallace Turbeville found that an interest-rate swap deal was a primary driver of Detroit’s fiscal crisis. Noting that the banks used the city’s bankruptcy to demand “upwards of $250-350 million in swap termination payments,” Turbeville concluded that “a strong case can be made that the banks that sold these swaps may have breached their ethical, and possibly legal, obligations to the city in executing these deals.”
This is what happens when city employees are charged with signing 200-page contracts with Wall Street firms that are written in legalese in tiny fonts. The Wall Street firms are the only ones who know exactly what they say.