How banks have sucked mass transit dry
Published Dec 4, 2008 8:23 PM
Fare hikes, layoffs and massive service cuts planned by New York’s bus
and subway system–its “doomsday budget”—have been
reported as a done deal by the city’s big business media.
But some New York riders and transit workers have met this doomsday attitude
with a fighting spirit of protest and resistance.
Holding signs reading, “The banks should bail out the MTA,” members
of the Bail Out the People Movement and transit workers held a press conference
on Nov. 20 outside a public hearing where the Metropolitan Transportation
Authority announced the cuts. The Straphangers Campaign carried giant petitions
signed by subway riders. One protester disrupted the hearing.
The media are attempting to address this public outrage by claiming that the
hikes and cuts are necessary–that the financial crisis has drastically
reduced the revenues state and city governments get from corporate taxes. But
the MTA’s officially stated deficit has nothing to do with state and city
budgets. The MTA really owes all that money to the banks—most of it for
It's not that the financial crisis isn't compelling the MTA to make
drastic cuts and fare hikes. The failure of insurance giant AIG and of firms like
Ireland’s DEPFA Bank has investors demanding that the MTA pay hundreds of
millions of dollars extra–based on risky, complex borrowing schemes the
MTA made in cahoots with these bankers.
Now the MTA’s non-elected board wants its mistakes to be paid for by
riders and transit workers.
In 2007 the MTA was already projecting a 2009 budget deficit of $1.4 billion.
At the time, the Straphangers Campaign stated that “this is the deficit
after state and city subsidies. The reason that the deficit is so big is
because the interest is coming due on the $32 billion the MTA has borrowed over
the last 25 years. By 2010 about 20 percent of the MTA budget will be debt
“Debt service” means “interest owed to investors.” Some
of this is interest paid on loans whose principal was paid off years ago. But
the banks keep raking in the money.
The MTA now says it is short $1.2 billion. The New York Times reported Nov. 21
that the MTA’s debt service is $1.5 billion. This means that all the
cuts, layoffs and hikes will go to pay interest to banks that invested in the
MTA–banks that are now being given trillions of dollars in bailout
“If the budget is approved as is,” reported the Times,
“subway riders next year would pay 83 percent of the cost of operating
the system, up from 69 percent this year.” (Nov. 21) That means the MTA
and other cities’ transit authorities are playing the role of collection
agencies for the banks.
This is why transit agency heads now find their systems being raided by
investors for hundreds of millions of dollars, adding up to amounts that dwarf
their officially stated deficits.
‘Kickback scheme’ exposed
Starting in the early nineties, these transit agency heads collaborated with
AIG to arrange a “leaseback scheme.” It involved selling
transportation equipment to investors, often banks, and then leasing it
Call it a “kickback scheme.” The investment was a tax shelter for
banks, which used the equipment’s depreciation to reduce the profits they
had to report to the IRS. Transit agencies got big upfront payments–which
won juicy bonuses for transit agency big shots. And AIG got big fees for acting
as the deals’ guarantor.
Each deal had a contract item stating that if the guarantor lost its Triple-A
status, the transit agencies would be in “technical default” and
owe back all the money immediately. AIG did lose its Triple-A status–a
failure that won it $150 billion in bailout money from the government–and
now each transit agency owes hundreds of millions on multiple AIG-arranged
How much is owed? The New York MTA won’t say. But the Washington, D.C.,
transit agency was in federal court on Oct. 29 on this very issue, asking for
protection from Belgium-based KBC Bank, which was demanding $43 million.
(Washington Post, Oct. 30)
At a Nov. 18 press conference called by the American Public Transportation
Association, the D.C. transit manager said that deal was only one of 14 his
agency had made. With him were transit execs from New York, Houston, Los
Angeles, St. Louis, Chicago and five other cities. They were begging the
government to take over the role of AIG and other previous guarantors.
“This would prevent any predatory actions by banks against transit
systems and the public,” said Atlanta transit CEO Beverly Scott. (APTA
What is evident to all is that the government has no interest in hampering the
banks and their profits in any way. It’s busy transferring as much of the
public treasury as possible to the banks—$7.8 trillion worth at last
If the looting of public transportation is going to be stopped, it’s
going to be by the people, not the government. The media want us to think the
MTA plan is inevitable. But just two years ago, French youth and unions engaged
in massive demonstrations and resistance that scrapped an anti-labor,
anti-youth law that then-President Jacques Chirac had already signed into
It’s possible to push back fare hikes and layoffs. Key to doing so is
rejecting any notion of having to “share the burden” with the banks
and their lackeys in the MTA. It’s their crisis. Let them solve it.
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