Tuesday, 30 July 2013
Detroit – predominantly black – has become the largest city in the US to file for bankruptcy. It’s heading for an apartheid style makeover to help pay its creditors, mainly Wall Street banks. People will be gentrified out of their homes and ethnically flushed from the heart of a privatised city to scratch for survival in the shadows. This is not science-fiction. It is the neo-feudal future that financialisation guarantees.
Detroit is also a crime scene with fingerprints similar to those found in Jefferson County, Alabama – which filed for bankruptcy in November 2011. Bribes paved the way for banks to make killer loans to the county. A $250 million sewage plant soaked-up $1.28 billion in interest and fees. Investment bank JP Morgan charged Jefferson a one-time termination fee of $647 million when it was unable to meet its swap payment to the bank.
The Securities and Exchange Commission called fraud and cancelled the fee – a gentle slap on the wrist. More often the authorities look the other way. Jefferson was looted to pay-back its creditors. People went to jail. But Wall Street which worked both ends of the con simply moved on to its next victim.
Detroit was easy picking. Borrowing rose sharply as the auto industry crashed. In 2005 it needed $366 million just to pay interest on debt of almost a billion. That’s lethal. Since then bonds totalling $3.7 billion have spawned a $15 billion debt albatross. In recent years the water department has paid Wall Street banks hundreds of millions in termination fees alone to get out of bad municipal bond deals.
The only winners in the financial crisis say Bloomberg “are Wall Street bankers who reaped more than $474 million from a city too poor to keep street lights working”. The big names include UBS, Bank of America and JP Morgan Chase.
Detroit is charged with living beyond its means. There’s little choice. Cuts in federal aid, decades of corporate tax breaks and the financial crash of 2008 have left many US cities choking on debt. That’s forced them – and other public entities – into the municipal bond market to cover expenses, pension obligations and of course interest payments. In less then a decade the muni-bond market in the US has doubled from $1.9 trillion to $3.7 trillion.
Milking the client is a regular and continuing practice. Last year the Libor scandal revealed too-big-to-fail banks were involved in rigging this key interest rate that impacts on the prices of $500 trillion of financial instruments. By comparison the total output of the world last year was just over $71 trillion. Now it emerges rates were also being fixed in the $379 trillion market for interest rate swaps. The extent to which the scams have inflated the debt to which cities like Detroit are exposed may never be known.
In the US the banks were cynically cleared of anti-trust collusion over the manipulation of Libor. UK regulators extracted £1.7bn in fines from Barclays, Swiss bank UBS and the Royal Bank of Scotland – a pittance on their balance sheets. Five other banks under investigation have little to fear. Over at Rolling Stone magazine Matt Taibbi has concluded there is no price the big banks can’t fix.
Nobody has gone to prison for the sub-prime mortgages fraud which – apart from crashing the world economy – devastated black communities in America. The banks reached a cosy settlement with the regulators and avoided paying any fines.The American Civil Liberties Union filed a landmark “racism” lawsuit against investment bank Morgan Stanley on behalf of African American residents of Detroit.
It claimed “Morgan Stanley’s policies and practices led directly to predatory lending that, in the Detroit region, disparately impacted African American borrowers”. Foreclosure has swelled the exodus of black residents – compounding white flight since the 1950s – reducing the population to around 700 000 and further depressing municipal revenues.
Corporate governance demands the suspension of democracy. All the major centres of African American residence in Michigan are now under emergency management. In Detroit voters rejected the emergency management law passed in 2011. Rick Snyder, the black governor of Michigan simply wheedled Congress into granting even greater dictatorial powers to bankruptcy lawyer Kevyn Orr (also black), the financial tsar chosen for Detroit. Orr resigned to take-up the job and promptly hired his former employers, international law firm Jones Day, as Detroit’s restructuring counsel. The six month contract is worth over $3 million.
Detroit’s poor will be squeezed to pay the banks and bondholders. City jobs will be cut, union contracts shredded, pension and health benefits slashed, fire fighting, health care and education services gutted and utilities like transport, electricity and sanitation privatised. Zoo animals and the city’s art collection are up for grabs. Orr has authority to do all this – and more- to balance Detroit’s $347 million deficit and pay off some of its $15 billion in long-term liabilities.
Motown’s plight deserves context. Ten percent surtax on the wealthiest nine individuals in Michigan would be sufficient to cover the city’s deficit 7 times over. Pension obligations of $3.5 billion slated for being overgenerous only give retirees – who have already taken a 10 percent wage cut – about $18,000 a year. Lloyd Blankfein, CEO at Goldman Sachs earns that in about 3 hours.
Leaked emails show the decision to file for bankruptcy, and to appoint Orr, had been discussed even before negotiations with creditors. Detroit is a test case for dispossession, a portal into a new age of slavery dominated by bankers and a rentier class. The structural adjustment programmes used to rape third world economies are now being unleashed in the West. “Debt is how the rich extract wealth from the rest of us,” says anthropologist David Graeber. Millions who borrow simply to pay the bills will agree.
The gloves are off says journalist Chris Floyd. “No need to worry about workers’ rights: if they get out of line, sack them, or even better, send the whole operation overseas, where sweatshop fodder is thick on the ground and comes dirt cheap. No need to worry about communities, the personal, social, economic and physical structures that gave a richer embodiment to ordinary life: just strip them, gut them and leave them to die — and when the rot gets bad enough, as in Detroit, send in an unelected “manager” to pick the carcass clean.”
In a few months the Federal Reserve Bank will have the distinction of having controlled the finances of the US for a century for the benefit of its private owners, effectively Wall Street. It’s been quietly replacing – under the guise of quantitative easing – the toxic trash of these banks with taxpayer money. Banks may not even have to depend on bailouts in future. They’re establishing the power to confiscate deposits after the precedent set in Cyprus. Welcome to the biggest protection racket in history.
Austerity is imposed with an iron fist in the US ostensibly to reduce government deficits. But figures from the Centre for Global Justice show military spending consumes almost half the budget – the wars in Iraq and Afghanistan alone cost $1.4 trillion. Bank bailouts wasted a further $9.2 trillion. Corporations contribute just 13 percent of government expenditure. The Bush tax-cuts have frittered $2.4 trillion since 2001. But social security runs a surplus and future deficits in health care costs could be eliminated with a single-payer system.
A privately owned international banking system collects interest on every dollar (created out of thin air) and loaned to government, business and individuals. It’s enabled the top one percent of the world’s population to acquire 40 percent of all wealth. This is not enough. The purpose of the austerity hoax is to accumulate more, to slash wages and privatise all economic activity for profit.
There is increasing recognition that this is insane and that the financial system – overloaded with over a quadrillion dollars of derivatives – might implode. Fear and insecurity are on the rise – along with fascism – as austerity bites.
Blackhawk helicopters swung low over Chicago recently in yet another “urban warfare training” exercise to which Americans are being conditioned. The purpose is to accustom troops to operate in US cities. There’s a raft of repressive legislation already in place; a bar on the use of the military in civilian law enforcement has been effectively abandoned.
Despite the tight economic conditions SWAT (Special Weapons and Tactics) units have proliferated and virtually every town has one. That would include a string of cities across America trashed by free trade and, like Detroit, in despair.