By Karen Lewis
Over the last few years, parents and teachers in Chicago have been calling on Mayor Rahm Emanuel and his appointed school board to try to renegotiate the city and school district’s toxic swaps with banks like Bank of America. Wall Street bankers pitched these deals to city and school officials as a way to save money, but the financial crisis revealed their dangers, and they backfired. Chicago and Chicago Public Schools have now paid banks more than $1.2 billion for these toxic swaps.
Even though bankers represented these deals as safe investments, they were riddled with risks for the public that became all too apparent after the banks crashed the economy in 2008. Now the banks who sold the deals are making a profit at taxpayers’ expense as direct a result of the crisis that they caused. In the meantime, the taxpayers who bailed them out are being forced to cope with school closings, teacher layoffs, and cuts to mental health services.
Mayor Emanuel has stubbornly refused to sue the banks for misrepresenting the risks in these deals and for illegally colluding to manipulate interest rates to extract greater profits from Chicago taxpayers. His administration has gone so far as to sign waivers, releasing some of the banks from all legal liabilities arising from these toxic deals. Even though the mayor refuses to take on the banks, however, the federal government can act to protect taxpayers’ interests since banks broke federal laws when they sold these predatory deals to Chicago and CPS.
The Securities and Exchange Commission (SEC) could bring disgorgement actions against Bank of America and other banks to claw back their ill-gotten gains from Chicago and CPS. However, in recent years the SEC typically has been very soft on Wall Street crime. In the rare instances that the SEC does prosecute banks, it settles low, often lets them get away without admitting guilt, and continues to grant ‘waivers’ that treat banks that are recidivist law breakers as trusted actors.
Even though there is ample evidence that banks systematically defrauded municipal clients like Chicago, the SEC has taken a “water under the bridge” approach to this set of legal claims arising from the 2008 financial crash, and let big banks continue collecting windfall profits while taxpayers and schoolchildren bear the costs through reductions in city services and draconian cuts to education.
Even though the crash was eight years ago, working class communities in cities across the country are still suffering its impacts. The money that banks like Goldman Sachs and JPMorgan Chase wrongfully took from them could help ease the pain. The good news is that the SEC has the authority to act. The bad news is that right now it’s refusing to do its job.
Chicagoans desperately need the current SEC commissioners to intervene and do what Mayor Emanuel won’t: hold the banks accountable and get back taxpayer dollars. But if they refuse to do that, we need our next President to appoint tough commissioners to the SEC who will actually be committed to prosecuting bank fraud and protecting investor and taxpayer interests.
CPS is facing an immediate financial crisis. The $502 million it has spent on swap payments would have been enough to fill its entire $480 million budget deficit and avoid devastating classroom cuts that include up to 5,000 teacher layoffs and cuts to special education.
Chicago schoolchildren cannot wait until 2019 for a new mayor who is willing to challenge Wall Street. If Mayor Emanuel and the current SEC commissioners are too beholden to the banks, we need a President who will appoint new SEC commissioners that will hold the banks accountable and get back the money that Wall Street bankers wrongfully took from Chicago, CPS, and other municipal borrowers around the country.
As the Presidential primaries move to Illinois next week, Chicagoans will be eager to learn which candidates from either party will protect us from the banks that are robbing our children of their futures and which ones will stand behind Mayor 1% and his friends on Wall Street.
Chicago Teachers Union
The Chicago Teachers Union represents nearly 27,000 teachers and educational support personnel working in the Chicago Public Schools, and by extension, the more than 400,000 students and families they serve. The CTU is an affiliate of the American Federation of Teachers and the Illinois Federation of Teachers and is the third largest teachers local in the United States and the largest local union in Illinois. For more information visit CTU’s website at www.ctunet.com.