Lessons of 1975 bank takeover
Another crisis looms for NYC
By Milt Neidenberg
New York
The headline on an Oct. 30 New York Times article recalled
turbulent years of class warfare in this city. The headline
read, "Green says city faces fiscal crisis as bad as in
70s."
The article was based on a 45-minute interview with Mark
Green one week before the Democratic mayoral candidate was
defeated in the local election--partly because he was outspent
six to one, but also because he had resorted to racist
innuendoes in his primary campaign against Bronx Borough
President Fernando Ferrer. Green, speaking to Times reporters
and editors, warned that the city could face an economic crisis
comparable to 1975. That was when this financial center of the
world was close to bankruptcy.
He expressed fears that the city could face an alarming $4
billion to $6 billion budget deficit for the 2002 fiscal year.
That, he warned, could create a rerun of the 1975 nightmare
that rattled Wall Street bankers, insurance tycoons and
corporate heads. He added that the city is again threatened by
the specter of defaulting on its loans, as it was in 1975.
New York's accumulated debt is now close to a whopping $35
billion. The financial health of this capital of world finance
is a major concern nationally and internationally.
The devastating attack on the World Trade Center, which
wiped out a section of Wall Street, coupled with a
deepening
recession and war, has the Wall Street bankers and corporate
heads moving. A temporary economic advisory committee has been
set up, led by Robert E. Rubin.
Rubin chairs the executive committee of the board of
directors of Citigroup. The global banking and insurance
dynasty includes Travelers Insurance and Salomon Smith Barney,
and has interlocking ties to other major corporations.
This mega-banking institution also has strong financial ties
to both Democratic and Republican administrations, particularly
in this city. Rubin is a former partner in Goldman-Sachs, an
investment powerhouse that covers the globe. He was treasury
secretary in the Clinton administration. He wields wide
influence in Wall Street circles, the government and the
Federal Reserve Board.
1975 financial architect surfaces
Another powerful individual has surfaced: Felix Rohatyn,
banker and former U.S. ambassador to France. Rohatyn has
maintained his connections to Lazard Freres, a global banking
and consulting giant. Its clients have included Lockheed
Martin, a company that recently won a $200 billion contract
from the Pentagon.
Rohatyn, a wily financier who mouths a liberal line, was the
architect of the 1975
financial crisis that bailed out the banks when New York was
about to default on its loans.
Just one month before the Nov. 6 election, Rohatyn met with
a group of municipal union leaders, City Comptroller Alan G.
Hevesi and State Comptroller H. Carl McCall. This group
oversees a combined $280 billion of state and city union
pension funds.
At the Oct. 4 meeting, Rohatyn reportedly encouraged the 30
participants to develop a plan to help finance the rebuilding
of office towers, the transit system and other projects
destroyed by the attack on the World Trade Center.
Though the group did not make specific commitments, McCall,
who plans to run against Gov. George Pataki in 2002, said the
"pension funds could purchase bonds issued by the state or the
city and guaranteed by the federal government, could provide
mortgage financing for office development or could invest
directly in a project." (New York Times, Oct. 5)
The Times briefly spelled out Rohatyn's role during those
turbulent years in the 1970s. "Rohatyn was appointed by Gov.
Hugh Carey and the State Legislature in 1975 to head the
Municipal Assistance Corporation (MAC), and to participate in
the Emergency Financial Control Board (EFCB) which had been
created to salvage the dire financial structure."
These two powerful institutions, like trustees over a labor
union or a bankrupt company, ran the city in every respect.
They wielded more power than any elected city official,
including the mayor. They were legislated by New York state
statutes during the 1975-1980 financial crisis to remain in
power for 30 years.
To this day, they stand as a shadow government.
Protesting workers a common sight
In those days, MAC and the EFCB controlled all revenues
taken in by the city: the Transit Authority, Board of
Education, Health and Hospitals Corp. and all other
agencies.
The board was given power to approve or reject all city
contracts, including labor contracts. It laid off tens of
thousands of city employees: social workers, teachers,
sanitation workers, hospital workers, university instructors
and nurses.
It was a disaster for the African American and Latino
communities and all the poor and unemployed, who suffered the
most.
When Wall Street refused to bankroll the city debt, MAC head
Rohatyn enacted a wage freeze and more layoffs, increased the
subway fare, and imposed tuition on the low-income city
university students who previously had been exempt.
The unions fought back. Sanitation workers went on a wildcat
strike. Firefighters began a slowdown and, in the fall of 1975,
the teachers went on strike. Mass demonstrations on Wall
Street, led by the municipal unions, were a common sight.
MAC and the EFCB--backed by Democratic Gov. Hugh Carey and a
powerful array of bankers and insurance tycoons, led by the
Rockefeller and Morgan interests--overpowered the labor
movement. The unions were forced to accept a package of
cutbacks that decimated their members.
There were across-the-board cuts in all city services. With
a gun to their heads, the unions agreed to commit $500 million
of their pension funds to bail out the city. Wall Street still
refused to invest in the city debt. Its hold on the city and
its work force tightened.
Even an appeal to President Gerald Ford for federal funds
was met with an unequiv ocal no. Or, as the Daily News headline
at the time put it: "Ford to City: Drop Dead."
It was only when union trustees agreed to invest a huge
chunk of their pension funds to purchase $2.7 billion in city
debt that the bankers decided the risk to their bondholders had
faded. They relinquished their hold on the city and opened up
their deep pockets to buy MAC bonds.
The threat of bankruptcy eased. Over many years the union
pension funds were again made whole and some jobs and services
were restored. But the labor movement and the oppressed
communities never completely recovered from the 1975 financial
crisis.
Which class will bear brunt of crisis?
Recently Rohatyn, who served as MAC chairperson from
1975-1993, has activated his role in the current financial
crisis. He is writing extensively on how to deal with another
"1975."
In an Oct. 9 New York Times piece headlined "Fiscal Disaster
the City Can't Face Alone," Rohatyn described in detail his
strategy then and now to solve the city's fiscal crisis. He
said, "It took five years between 1975 to 1980 with the strong
support of the city's labor unions and the banks" to end the
threat of bankruptcy.
In an article in the Nov. 11 New York Times Magazine, he
called for MAC and the EFCB "to be reactivated."
Rohatyn completely distorts the history of those turbulent
years of class warfare. He has deleted the ruthless role of his
Wall Street cronies who held the city's work force, their
communities and the poor hostage to a few billionaire
bankers.
What is crystal clear is that the municipal unions are once
again in Wall Street's sights to bear the brunt of this current
financial crisis.
More than 25 years have passed since those days when the
municipal unions and their members took such heavy hits.
Mayor-elect Michael Bloomberg is preparing to take over the
reins of power from Mayor Rudolph Giuliani.
Giuliani leaves office with tens of thousands of people
homeless, jobless and hungry. Food pantries and soup kitchens
are inundated as requests for emergency food rise dramatically.
Unemployment has assault ed the labor movement and the
unorganized, both in the public and private sectors.
Billionaire Bloomberg, who spent $60 million of his own
money to get elected, owns a major financial and global
information company--Bloomberg LP--that has strong ties to Wall
Street. The dominant financial institution Merrill Lynch owns
20 percent of the company. The chairperson of Bloomberg is a
managing director at Credit Suisse First Boston. The company's
clients include all the major financial firms, as well as
newspapers such as the New York Times.
Bloomberg is in a honeymoon stage with the city unions. His
initial strategy is to cross party lines to reach the Black and
Latino communities and their leaders. It is all for show; it's
cosmetic. His true loyalty rests with Wall Street and big
business, which were behind his obscene $60 million run for
office.
As the city's fiscal crisis worsens, deepened by recession
and war, Bloomberg's velvet gloves will come off.
Wall Street has not changed its nature. It is as hungry as
ever to increase profits and production by way of massive
layoffs and cutbacks.
The municipal unions and their allies need to review these
bitter lessons of 25 years ago and break away from the
Bloomberg-Rohatyn-Rubin strategy that is about to snare them
into another debacle for their members.
The labor movement needs to pursue an independent political
relationship with its natural allies in the oppressed/immigrant
communities, the primarily youthful anti-war and anti-racist
movement, and the anti-globalization and anti-sweatshop forces
in the city and beyond.
Developing this base could be a giant step in avoiding the
disastrous outcome that workers and the most oppressed suffered
here a quarter of a century ago.
Reprinted from the Nov. 22, 2001, issue of
Workers World newspaper
This article is copyright under a Creative
Commons License.
Workers World, 55 W. 17 St., NY, NY 10011
Email: ww@workers.org
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