Detroit fiscal crisis made by banks
Published Jun 22, 2012 9:28 PM
Recent events have exposed the brazenness of the banks in asserting their control over the city of Detroit’s finances, even if this means the destruction of all city services in one of the poorest cities in the U.S.
The city of Detroit’s lead attorney, Krystal Crittenton, challenged the legality of the “consent agreement” entered into between Michigan Gov. Rick Snyder and Mayor Dave Bing and the Detroit City Council. This agreement was entered into in lieu of the imposition of an emergency manager over the city pursuant to Public Act 4, the bankers’ bill, which provides for state takeovers of cities facing fiscal crises.
Public Act 4 guarantees the banks “payment in full of the scheduled debt service requirements on all bonds, notes and municipal securities.” It provides for the busting of union contracts and wholesale privatization of services to insure that debt service to the banks gets paid. The consent agreement between the city and state implements Public Act 4 through the creation of a financial advisory board to oversee the city, while formally leaving the mayor and City Council in place.
When Detroit’s corporation counsel challenged the consent agreement, Gov. Snyder’s response was to announce that if the lawsuit was not dropped, $80 million in state revenue sharing owed to Detroit would instead be paid directly to U.S. Bank to be used for payment of debt service.
U.S. Bank is one of the banks, along with Chase and Bank of America (also making millions on city debt service), that criminally targeted Detroit by selling racist, fraudulent, predatory loans to more than 80 percent of homeowners taking out mortgages or refinancing. This directly led to the foreclosure crisis that destroyed the tax base of Detroit and drove approximately 250,000 residents from the city.
U.S. Bank is now being sued by the National Fair Housing Alliance and others for racist practices across the country. One of the central issues in the lawsuit is that U.S. Bank allowed homes it seized through foreclosure to sit and rot in inner cities, where people of color predominate, while maintaining foreclosed properties in white suburban areas. No city has been harder hit by this practice than Detroit, where block after block is filled with rotting, vacant structures post-foreclosure.
On June 15, the Moratorium NOW! Coalition to Stop Foreclosures, Evictions & Utility Shutoffs held a demonstration at U.S. Bank and demanded: Stop the bank’s robbery of Detroit! Money for jobs and human services, not the banks! and Suspend the city’s debt service payments to the banks! Demonstrators expressed solidarity with the Greek working class in their fight against austerity being imposed by the banks in an almost identical fashion to Detroit.
Stop debt service, pay workers instead
Rather than challenge Snyder’s outrageous threat to turn over the city’s state revenue funds to a bank that participated in the destruction of the city, Detroit Mayor Bing ran to the City Council to announce that if the lawsuit was not dropped, in light of Snyder’s announcement, the city would be broke and unable to pay its workers. He hired an attorney from the corporate firm of Miller Canfield to represent him in challenging the city’s own corporation counsel’s lawsuit. This corporate attorney was a drafter of Public Act 4 as well as the city’s predatory bond deals with the banks.
In the face of this pressure, a judge quickly dismissed the lawsuit brought by Crittendon, citing an old version of the city charter in doing so. Crittendon brought her case under the revised city charter, which was adopted last year.
When the lawsuit was dropped, suddenly it was revealed what Bing’s harping about Detroit going broke was really all about. The city had a $32.4 million payment for debt service on the city’s pension obligation certificates due. The city needed the state funds, not to pay the workers or maintain services, but to make sure that the banks were paid in a timely fashion.
Pension obligation certificates are predatory loans imposed on cities all across the U.S. by the banks. The banks lured cities into swapping adjustable rate for fixed rate bonds at the precise moment the banks knew they were about to be bailed out by the government, meaning interest rates would be drastically declining. By betting wrong on the POCs at the ratings agencies’ urging, cities like Detroit were left on the hook, owing millions of dollars in added debt, as well as additional millions for penalties and hedge fund payments.
The city of Detroit owes $12 billion to the banks and an additional $4.9 billion in interest payments on that debt. Without that debt service hanging over the city, Detroit would have plenty of funds to maintain city workers’ jobs and needed services for its people. Snyder’s Financial Review Team report of March 26 stated: “While the general fund had an operating surplus (i.e. revenues in excess of expenditures) of $150,077,184, net transfers out of the general fund of $206,947,605 resulted in a negative net change … of $56,870,421.” (p.7) “Most of the outgoing transfers … were made for debt service.” (pp. 5-6)
Unfortunately, the spineless Mayor Bing and City Council majority, led by Council President Charles Pugh, are calling for the layoff of 2,500 city workers, and elimination of virtually all city services except the police and fire department. They are even giving up the city administration of Head Start and Community Service Block Grants, even though these are federally funded programs that do not cost the city one dime.
While the Michigan Court of Appeals announced on June 14 that Public Act 4 must be put to a vote of the people of Michigan in light of a petition initiative that gathered more than 200,000 signatures for a referendum on the Act, it remains unclear whether the decision sanctioning the signatures will be appealed to the reactionary Michigan Supreme Court.
However, even if Public Act 4 is put to a vote, the outcome will rest on exposing that it is the banks (which are destroying the livelihoods of people throughout the state) that are behind the financial crises facing oppressed cities across Michigan, and not “corrupt” city officials.
Articles copyright 1995-2012 Workers World.
Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.
Workers World, 55 W. 17 St., NY, NY 10011
Email: [email protected]
Subscribe [email protected]
Support independent news DONATE