The Philadelphia Testimony -- A Model Speech For Any Citizen to Give to Any Government Official
PBI News Alert
THE PUBLIC BANKING INSTITUTE
THE PENNSYLVANIA PROJECT
TO PHILADELPHIA CITY COUNCIL
23 OCTOBER, 2012
Mr. Councilman Kenney, Members of City Council:
The Public Banking Institute and the Pennsylvania Project are not-for-profit and non-partisan public policy organizations, both engaged in campaigns of public education to achieve creation of public banks in the United States at the state, county and municipal level.
We are here today to challenge you to fight for the people of this city, and to JUST SAY NO to the “too-big-to-fail” banks that failed and are now gouging this city and its people of hundreds of millions of dollars in the interest rate swap swindle that is the subject of this hearing.
This at a time when the long recession caused by the same banks that sold the swaps has resulted in unemployment, home foreclosures, lost revenue and budget cuts that are having catastrophic effects on the city’s people and neighborhoods.
Everybody in this room knows what is going on.
But what everybody needs to know is that these losses could have and should have been avoided altogether. Swaps were never necessary to hedge against interest rate fluctuations. For almost 100 years, that “insurance” was provided by responsible municipal finance managers who employed the technique referred to as “laddering.”
As the Wall Street veteran and widely-read columnist Pam Martens explains:
“To hedge risk, an issuer simply has bonds maturing along a short, intermediate and long-term yield curve. If rates rise, they are hedged with the intermediate and long term bonds. If rates fall, the short [term] munis will mature and can be rolled over into the lower interest rate environment.”
“Municipal issuers are further protected by being able to establish call dates of typically 5 years, 7 years, or 10 years when they issue long terms bonds. They pay moms and pops and seniors across America, who buy these muni bonds a small premium of usually $10 to $20 per thousand face amount and call in the bonds if the interest rate environment becomes more attractive for issuance of new bonds.”
Philadelphia paid a lot of money to advisors and bankers who made long presentations about how good swaps would be. But they were a disaster. We just explained in two minutes why they are not necessary, and we did it for free.
And the Auditor General agrees, and has called for a repeal of the act of the state legislature which allowed municipalities to be lured into the swaps market. But that only prevents future disasters.
What of the damage done? What is the relief and where will it come from?
A handful of banks crashed the economy, virtually the same banks that sold the swaps. They were rescued by taxpayers and the American people – including those of this city – when they crashed their own casino. But the long recession they caused also collapsed municipal tax revenues, putting enormous pressure on municipal and school district budgets. The state cut spending and the cuts grew more severe.
This isn’t adding insult to injury. It is adding yet more injury to the already injured people of this city.
In a March 15th article in Counterpunch titled “An Inside Glimpse Into the Nefarious Operations of Goldman Sachs: A Toxic System,” Darwin Bond-Graham wrote:
“…virtually all interest rate swaps between local and state governments and the largest banks have turned into perverse contracts whereby cities, counties, school districts, water agencies, airports, transit authorities, and hospitals pay millions yearly to the few elite banks that run the global financial system, for nothing meaningful in return.”
And now we know that the Libor rate (London Interbank Overnight Rate) applied to municipalities to calculate swap payments was manipulated by some of the same banks that sold the swaps, to create ever greater losses for Philadelphia and other municipalities, school districts and public agencies and authorities from coast to coast.
This is an outrage. And it must be ended.
When we testified earlier this month in support of the Responsible Banking Review ordinance we suggested that, important as it is to review how the banks conduct their business, it is vital at this time for the city to review how it conducts its banking, and look for new models to replace those that have failed.
For the long term, we urge creation of a public Bank of Philadelphia.
A public bank will keep the taxes and other financial assets of the people of this city circulating in the city, by leveraging them to provide the sustainable and affordable credit required in a modern economy to power locally directed economic development and jobs creation.
And a public bank can dramatically reduce public debt when it purchases municipal bonds, because whatever interest is paid on the bonds is paid to the public treasury through the public bank.
Today, there is just one public bank in the United States, the Bank of North Dakota, but it has proved so enormously successful that now twenty states and a growing number of municipalities are taking steps to embrace this model of public finance.
The very first public bank in the nation was right here, in the Quaker colony of Philadelphia, where the interest paid to the bank on loans took the place of taxes as a source of municipal revenue.
But today, right now, this city needs a champion, to stand up for its people against the abuses of a handful of Wall Street banks.
We hope the City Council will be that champion, and do what is now being done in Baltimore, New Haven, Oakland and a growing list of cities nation-wide: take the looted money back.
We urge Council to do what is required to form a task force of the District Attorney, Treasurer and Auditor, acquire whatever additional forensic accounting expertise is required, identify the costs to the people of the city in the manipulation of the Libor rate, the rigging of the municipal bond market, and then the interest rate swap swindle, and seek to recover that money from the banks involved.
Further, while the Auditor General has called for a negotiation to reach an equitable resolution between the banks and the municipalities, school districts and other public agencies from which these banks are extracting huge payments and fees, we urge Council to give serious consideration to a “strategic default” on these swaps – JUST SAY NO – and suspend any and all payments until there is a settlement to the city’s satisfaction.
Remember, the banks have no money at risk. They invested not one nickel in the swaps and have nothing to lose – just billions to be made by gouging the people whose lives they have already burdened with lost jobs, lost homes, lost futures, deteriorating education, slashed vital services and deteriorating neighborhoods;
We think the time for talking needs to be over. We all know the damage done and who was responsible. They need to be made to pay up. This Council needs to make them.
And we need new models for municipal banking and finance, nothing short of a revolution in the way public funds are managed.
What better place for that revolution to begin than right here, in Philly, where the First American Revolution was declared?
Come on Philly – fight !
Mike Krauss was an officer of Bucks County and Pennsylvania government, former Executive Director of the PA Republican State Committee in the Thornburgh administration, and spent 25 years as an executive in international logistics and commerce. As VP of a major U.S. manufacturer of transportation equipment, AVP of a Class 1 North American Railroad and CEO of a transportation equipment leasing company, Krauss worked with major Wall Street firms to finance manufacturing and the acquisition of tens of millions of dollars to establish the first integrated North American railroad intermodal product. For the past two years he has researched and written extensively about public banking, municipal finance and the Federal Reserve.