Detroiters are mobilizing to defend city workers’ pensions and city services in the wake of the municipal bankruptcy filed by Emergency Manager Kevyn Orr. This Wall Street bankruptcy attorney was appointed by Michigan’s reactionary Gov. Rick Snyder to essentially act as a receiver over the city, supplanting the elected mayor and City Council.
On Sept. 7, about 500 people attended a rally sponsored by U.S. Rep. John Conyers and chaired by Professor Michael Eric Dyson, with panelists including the Rev. Wendell Anthony, president of the Detroit NAACP; City Councilwoman Joann Watson; Al Garrett, president of American Federation of State, County and Municipal Employees Council 25; and columnist Julianne Malveaux. The speakers stressed the need for mass mobilization in the streets to challenge the racist Wall Street attack on Detroit, a majority African-American city.
On Sept. 18 and 19, the first hearings in bankruptcy court will be held to determine whether or not Detroit is eligible for Chapter 9 bankruptcy. That is critical in light of Orr and Snyder’s expressed intent of using the bankruptcy process to attack municipal pensions, which are guaranteed under the state constitution.
In a Chapter 9 municipal bankruptcy, the first step in the process is the eligibility determination. The major unions and retiree organizations have all filed eligibility objections to the bankruptcy through their attorneys, with the first hearing scheduled on Sept. 18.
Efforts have been made to slow the process and bring the masses into the bankruptcy proceeding itself. Former Detroit Corporation Counsel Krystal Crittendon, who was removed from her position after she challenged the legality of the imposition of the emergency manager over the city, assisted more than 100 community residents in filing pro se objections and intervening in the case. Judge Steven Rhodes, who has been trying to steamroll the process, has been forced to schedule a public hearing on Sept. 19 to give each of these community objectors an opportunity to be heard.
A deposition of EM Orr was held Aug. 30 regarding whether the bankruptcy court should approve a “forbearance agreement” he cut with Bank of America and United Bank of Switzerland. It would remove some of the most onerous of all the bank debts imposed on Detroit — the interest rate swaps — from the bankruptcy proceeding, which is where the debts could be wiped out if fraud or misconduct by the banks were proven in connection with the swaps.
From the horse’s mouth, under oath
Under the interest rate swaps, which were sold to the city in 2005-2006, the city must pay the banks 6.3 percent interest on bonds whose actual interest rate is only 0.6 percent. The banks pocket the difference, amounting to $50 million a year. They have already netted a profit of $247.5 million between 2008 and 2012. The forbearance agreement that Orr arranged lets the city terminate the swaps — by paying a slightly reduced termination fee of another $264 million!
Orr was questioned at his deposition by people’s attorney Jerome Goldberg, who appeared on behalf of city retiree David Sole. Orr acknowledged that terminating the swaps would necessitate the city issuing more debt, so that actual termination costs to the city would be closer to $450 million.
Orr acknowledged that three top executives of UBS have been jailed and a Bank of America executive indicted in connection with the imposition of rigged and illegal bond deals, from their respective municipal bond divisions, on cities across the U.S. Despite the fact that Orr is mandated by law to initiate a criminal investigation of wrongdoing that led to Detroit’s financial crisis, he admitted he has not conducted any such investigation of the banks, even in light of those indictments.
Orr testified he was aware of a Securities and Exchange Commission judgment against UBS regarding fraudulent activity in municipal bond deals, one of which encompassed the Detroit Water and Sewerage Department, and similar investigations of Bank of America by the SEC. He admitted he was aware of the Libor scandal, which implicated both UBS and Bank of America in manipulating the interest rate associated with municipal bonds, as well as the International Swaps and Derivatives Association price-fixing scandal, which has implicated both banks in fraudulently calculating termination fees for the swaps.
When asked by Goldberg whether his office has looked into potential fraud in connection with the Detroit bonds, Orr testified that he deferred that decision to his legal counsel, the Jones Day law firm. Incredibly, Orr admitted that Jones Day lists Bank of America as a client and has also represented UBS in connection with bond offerings, but saw no conflict in relying on their opinion that a fraud investigation was not merited.
Regarding the role of UBS and Bank of America in the subprime mortgage crisis, which led to more than 100,000 foreclosures in Detroit, with 73 percent of Detroiters placed in racist, predatory mortgage loans, Orr testified that he did not think the banks’ mortgage lending practices had anything to do with causing the financial crisis in Detroit.
Oct. 5-6 assembly vs. banks, austerity
Goldberg told Workers World: “Orr’s testimony under oath confirms that the imposition of the Emergency Manager over Detroit, and the bankruptcy filing itself, are fundamentally geared to protect the interests of the same banks and financial institutions that caused the financial crisis in Detroit, at the expense of the jobs, wages and pensions of workers and retirees, and the maintenance of city services and even basic city assets.” Orr’s deposition testimony can be viewed on the city of Detroit website at detroitmi.gov/EmergencyManager.aspx.
Against the backdrop of this struggle, activists are hitting the ground organizing for the International People’s Assembly Against the Banks and Against Austerity, taking place on Oct. 5 and 6 at Grand Circus Park in downtown Detroit.
Organizers say the struggle in Detroit has implications for cities across the U.S., like Philadelphia, Chicago, Los Angeles and Stockton, Calif., among many others, where schools are being closed and services eliminated to pay off debt service to the banks. It also mirrors the situation in Portugal, Spain, Greece and across the globe where workers are facing austerity measures imposed by the banks and finance capital.
For more information about the International People’s Assembly, call 313-744-7912; email [email protected]; or visit moratorium-mi.org, DetroitDebtMoratorium.org or InternationalPeoplesAssembly.org.