Unions ask Emanuel to win back money lost on “toxic swaps”
AFSCME and two other unions are calling on Chicago Mayor Rahm Emanuel to take immediate action to win back from Wall Street money the city lost on fraudulent interest rate swaps – toxic deals that are costing the city more than $100 million a year.
In a letter to the mayor, AFSCME Council 31, the Chicago Teachers Union and SEIU Healthcare IL charged that Chicagoans are losing out as banks profit from risky interest rate swap deals. More than $800 million has already gone into the coffers of a handful of big banks, such as Bank of America, and private investment firms such as Loop Capital.
These toxic swaps were entered into by government bodies in hopes of stabilizing their financial planning and protecting against major losses of public resources. But the banks’ failure to fully disclose the risks of these agreements has cost the public billions in cities and towns across the country.
“Ending these deals would generate additional revenue that would help the city meet a wide range of vital needs—mental health services, early childhood education, public safety and the growing pension obligation,” wrote AFSCME Council 31 Executive Director Roberta Lynch, CTU President Karen Lewis and SEIU Healthcare IL President Keith Kelleher in the letter. “…Recouping the city’s losses on interest rate swaps is one viable option and we urge you to pursue it aggressively….”
Record low interest rates caused by Wall Street’s crashing of the economy in 2008, and a bailout by taxpayers have worked to put the banks on the winning side of these toxic swaps. Banks have profited from these deals while the city has justified closing schools, shutting down clinics and slashing retirement savings due to a lack of cash.
Public officials around the country are beginning to challenge these deals and the banks that benefit from them. Chicago labor and community organizations are now urging Emanuel to do the same by filing for arbitration under the federal Financial Industry Regulatory Authority (FINRA).
An arbitration panel recently found that swaps with the Baldwin County Sewer Service in Alabama were obtained through misrepresentation of the risks associated with these deals. The county Sewer Service was awarded all money lost ($7.4 million) on the bad swaps from the bank and was allowed to terminate the agreement with no penalties. The Los Angeles City Council and Harris County (Houston), Texas have both taken first steps to end these deals and recoup money lost to these fraudulent agreements as well.
Filing for arbitration for the City of Chicago and the Chicago Public Schools is a simple but essential step to force renegotiation of the deals and recover the hundreds of millions of dollars already lost to the banks which have left Chicago taxpayers on the hook.
The unions’ letter to the mayor made clear that action is needed immediately, pointing out that the “option of filing for arbitration under the Financial Industry Regulatory Authority could end as early as October.” Unions, along with concerned community groups, are planning a series of actions focused on exposing the biggest abusers of these agreements.