Sending Goldman Sachs a Message: If You Continue To Rip Off Oakland, We Will Stop Doing Business With You
By Beth Kean, ACCE, and Felipe Cuevas, SEIU 1021 Public Works Employee, City of Oakland
Wall Street banks caused an economic crisis that has wreaked havoc on our communities and brought our city and state budgets to the brink. Now even as Oakland communities are reeling from devastating cuts to neighborhood services, banks continue to rip off Oakland taxpayers for millions through a toxic financial deal. This week, we stood up for Oakland communities and stood up to Goldman Sachs.
Here’s how Oakland is getting ripped off: In 1998, Goldman Sachs sold a financial deal called an “interest rate swap” to the City of Oakland on the premise that they would reduce the costs of bonds. But the opposite has happened. Goldman Sachs is profiting $4 million annually on the deal. Even worse, the bond no longer exists-- in effect, Goldman Sachs is collecting millions in profits for a service they no longer provide. But Goldman continues to force the city to pay on the deal through 2021 or pay $15 million in termination fees.
In a swap agreement, the City pays the banks a steady fixed rate, and in exchange the banks pay back the fluctuating variable rate to cover the interest payments on the debt. At that time, this swap deal made sense because interest rates were expected to rise. But after banks crashed the economy, as part of the rescue of the financial system, the Federal Reserve cut interest rates to near zero to give banks access to cheap money—an unanticipated event that radically changed the basic assumptions of these deals. As a result, Goldman’s variable rate has dropped down to 0.15%, but the bank has the City locked into the above-market rate of 5.68% and pocketing the $4.2 million annually difference as profit. Goldman will not let Oakland taxpayers out of the deal unless they pay nearly $15.5 million in penalties.
That’s why members of Oakland community groups, religious leaders, and city workers packed the Finance Committee meeting Tuesday to demand Goldman Sachs cancel the harmful “interest rate swap” deal without a $15 million payout to the bank. Our City Council leaders joined us in standing up to Goldman Sachs and voted to negotiate with the bank to terminate the toxic deal without the $15 million payout to the bank— and added that if the bank refuses, to stop doing business with Goldman Sachs. Because why would we ever do business again with someone who ripped us off?
Councilmember Jane Brunner introduced the motion that called for (1) City staff to negotiate with Goldman Sachs to terminate the swap deal without the termination fees currently estimated at $15.5 million, (2) To report back in 60 days on the progress of negotiations, and (3) If Goldman is unwilling to negotiate, to stop doing business with Goldman Sachs. The motion will go to the full City Council next week.
City Finance Committee Chair Ignacio de la Fuente supported the Brunner motion saying, “The difference here is that we bailed out this bank. We need to use the economic power we have to send a message.” Councilmember Desley Brooks also supported the motion and asked all her colleagues to do the same.
Ending the toxic deal without fees would ensure that taxpayer money is invested in for a host of community needs, not to further fatten Wall Street bankers who pay themselves millions in bonuses every year. Goldman Sachs CEO Lloyd Blankfein was paid $16.2 million last year, including a $3 million in bonus.
When our Coalition to Stop Goldman Sachs sent a delegation to their annual shareholders meeting in New Jersey last month, CEO, Lloyd Blankfein’s response was Wall Street profits trump community values and even morality saying, “It’s not in the interest of shareholders to tear up a valid contract.” "It is an issue of morality," we said. "No, I think it's an issue of shareholder assets," Blankfein replied.
This was not a surprise to us. What has been a surprise is Goldman Sachs’ inability to see that their commitment to these risky financial deals, which are decimating communities across the country, is harming their already tarred reputation. That’s why Oakland’s effort to stand up to greedy corporate banks is likely only the first of many such responses. In fact Tuesday’s Oakland vote comes as national calls for banks to renegotiate better deals for taxpayers intensify, including the New York Times’ “FAIR GAME; How Banks Could Return The Favor” and the Boston Globes’ “MBTA needs better terms on interest swaps
States and cities across the country continue to slash critical public services to cope with massive budget holes left in the wake of the financial meltdown. In Oakland, this has meant the closure of elementary schools and fire stations, as well as reductions in library and senior citizen services. Our community’s infrastructure is being torn apart. And why? So that the same banks that taxpayers bailed out can now turn around and leach our lifeblood? Oakland is standing up this corporate profiteering. By allowing states and cities to renegotiate or cancel so-called “interest rate swap” deals at no cost, Wall Street could provide needed relief to taxpayers and local governments.
So far, however, Goldman Sachs has been holding swap-holders like Oakland to the letter of their contracts, forcing millions in termination fees to exit these toxic deals. This week we sent a message: Goldman Sachs may have a contractual right to rip off Oakland, but we have the right to stop doing business with Goldman Sachs, and to encourage others to do the same.
The City of Oakland understands this fundamental reality - now it’s Goldman's move.
Beth Kean is a community leader with the Alliance of Californians for Community Empowerment (ACCE) and the Coalition to Stop Goldman Sachs. ACCE is a statewide community organization working with thousands of members in eleven counties creating transformative change by helping ordinary citizens to organize and take action. Felipe Cuevas works for the City of Oakland.