Last Friday, State Representative Jaime Andrade, Chicago Alderman Ramirez-Rosa, and community leaders met with the Federal Securities and Exchange Commission (SEC) Regional Director David A.Glockner, and asked that the SEC investigate the predatory interest rate swap deals that have caused taxpayers to pay out billions of dollars to Wall Street banks.
The sit-down with Mr. Glockner was the latest in a national effort to have the SEC bring charges against the small clique of Wall Street banks involved in interest rate swap deals for violating fair dealing rules. Earlier this year Rep. Robert Martwick, Rep. Chris Welch, Alderman Ramirez-Rosa, and community residents delivered more than 88,000 petition signatures and requested the meeting.
Wall Street banks pitched cities and local governments on these complicated financial deals called interest rate swaps, promising big savings over simple, more traditional loans. When their promises proved false cities, states and school districts cut public services and vital programs in order to pay back Wall Street banks. These toxic swap deals contributed to budget shortfalls that led to schools closing in Chicago, water shutoffs in Baltimore, and devastating environmental and health issues in Los Angeles. These same bad deals also helped lead to the bankruptcy of Jefferson County, Alabama and Detroit, Michigan.
“Right now we have Chicago students who are not getting the investment they deserve as a direct result of these interest rate swap deals,” stated Alderman Rosa. “Chicago and CPS together lost $1.4 billion after being sold these potentially fraudulent Wall Street gimmicks. I sincerely hope that the SEC will listen to us and do what Mayor Emanuel refused to do by taking the necessary legal action to protect our students and our city’s taxpayers.”
“Predatory swap deals have a devastating cost in our communities. Every dollar that cities and states are forced to send to Wall Street banks is money not going towards essential community services. We must intervene to make sure that the people of our state are protected, not the ill-gotten gains of large financial institutions,” said Amisha Patel, Executive Director of Grassroots Collaborative, following the meeting.
There is a recent history of investigations by the SEC and other legal cases, resulting in significant financial settlements. Large Wall Street banks have paid out more than $200 billion in 175 separate settlements since 2009. Two of these banks who also happen to hold interest rate swap deals with Illinois, JPMorgan Chase and Bank of America have paid out more than $117 billion in settlements alone.
Action by the SEC could provide much needed relief to the city of Chicago, Chicago Public Schools, and the state of Illinois. Interest rate swap deals have already cost the state over $700 million. Swaps and other predatory deals could cost Illinois taxpayers an additional $870 million, almost $1 billion if Governor Rauner allows 5 letters of credit to expire on November 27th, triggering an unnecessary, forced payment to the Wall Street. banks that sold these predatory deals to Illinois. With an estimated bill backlog likely to reach $14 billion this year, why wouldn’t the Governor choose to renew the letters of credit, and give the SEC time to look into this matter fully?