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Tell the Securities and Exchange Commission: Stop letting Wall Street prey on cities

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Petition to the Securities and Exchange Commission:

"Crack down on Wall Street banks that defrauded American cities with complicated financial products, and force banks to return the ill-gotten profits to municipalities."

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    Tell the Securities and Exchange Commission: Stop letting Wall Street prey on cities

    The Chicago teachers who recently went on strike to protest Mayor Rahm Emanuel’s budget cuts and school closures also shined a spotlight on a hidden cause of the city’s financial woes: predatory Wall Street deals that are costing the city of Chicago billions of dollars.1

    For years, Wall Street banks pitched cities and local governments on complicated financial deals, promising big savings over simple loans. When their promises proved false, cities were forced to cut public services and sacrifice communities in order to pay back the biggest banks.2

    Wall Street is preying on cities across America, not just Chicago – so we need to do something about it. There is some evidence that banks may have broken the law and misled local governments about the terms of these deals.3 We need to tell the Securities and Exchange Commission (SEC) to stop sitting on the sideline and start protecting our communities from big banks.

    Tell the SEC: Stop letting Wall Street prey on our cities.

    In Chicago, toxic “swap” deals with Wall Street breaks – some entered into by the Emanuel administration – have ended up costing the city, adding to budget shortfalls. While the city closed more than 50 schools in 2013 to save $25 million, it is estimated that the city has paid big banks nearly $1.2 billion in total.4 Similar deals in Los Angeles have forced cutbacks to police services and trash collection.5 In Baltimore, the need to pay back Wall Street contributed to water shutoffs.6

    Bankers have made a practice of targeting shady financial instruments to municipalities and utilities that were either desperate for a loan, or simply unable to understand the deliberately complicated terms.7 After the promised savings disappeared in the wake of the Great Recession, governments were left paying penalty fees. Incredibly, cities are not allowed to refinance or back out of these deals without paying the full expected profits of sometimes decades-long arrangements.8

    Worse, there is evidence that banks deliberately downplayed the risks – a potential crime – and even colluded to give the appearance of multiple competitive bids.9 This is predatory lending, on a city-wide scale.

    The Securities and Exchange Commission is supposed to regulate deals like this, but has too often been Wall Street’s ally instead of watchdog under Chair Mary Jo White. Still, the SEC’s own investigations have found wrongdoing in similar situations10so concerted public pressure now could shame the SEC into acting on predatory loans to cities.

    Tell the SEC: Stop letting Wall Street prey on our cities.

    There is nothing wrong with cities taking out loans to finance big projects. But as conservatives slashed taxes and the worst of the 1% vacuumed up profits, cities started using municipal bonds to cover basic shortfalls. And then Wall Street swooped in, pitching toxic swap deals that cost more than plain vanilla loans, but with grand promises that the complicated, obscure structure would actually save money. Now, our public health, education, safety, and more are suffering.

    Chicago teachers have had enough. So have cities across the country, who are suing to free themselves from these deals and recoup the ill-gotten gains. If the SEC refuses to act, it sends a signal that our cities are fair game for the worst Wall Street predators. It’s up to us to demand that Chair Mary Jo White and the Securities and Exchange Commission get moving, and fast.

    Tell the SEC: Stop letting Wall Street prey on our cities.

    Thank you for speaking out.

    1. Chicago Teachers Union, “Chicago Teachers Union calls on the City Council to take legal action against predatory bank deals negotiated by Mayor Rahm Emanuel in order to stop massive layoffs and cuts to public education,” CTUnet.com, January 12, 2016.
    2. Susie Cagle, “Is Wall Street Making a Killing off Cities’ Debt?," Next Cities, October 4, 2014.
    3. David Dayen, “‘Not true and they knew it’: What Rahm Emanuel’s Wall Street craze cost Chicago,” Salon.com, March 17, 2015.
    4. Ibid.
    5. Soumya Karlamangla, “L.A. Council Votes To Pressure Two Banks To Redo Interest Rate Swaps,” Los Angeles Times, February 12, 2016.
    6. Stephen Janis, “Analysts Say Wall Street Fees Costing Baltimore Water Bureau Millions,” The Real News Network, February 12, 2016.
    7. Cagle, “Is Wall Street Making a Killing off Cities’ Debt?.”
    8. Dayen, “‘Not true and they knew it’: What Rahm Emanuel’s Wall Street craze cost Chicago.”
    9. Ibid.
    10. Ibid.